Demand and supply

DR.SUNIL BHOYE, MPH(NUTRITION).

1. DEMAND AND SUPPLY IN HEALTH CARE DR.SUNIL BHOYE MPH(NUTRITION )

2. Content Health economics Introduction What is health economics Importance of health economics Role of health economists 2 . Demand and supply in Health care Demands Law of demands Health care demand Supply Law of supply Supply of Health Care

3. Introduction In 1958, Selma Muskin published the papers “Towards the definition of health economics”, and in 1962 Selma Muskin published " Health as an Investment ". Probably, the single most famous and cited contribution laying grounds for this discipline was Kenneth Arrow’s paper “Uncertainty and the welfare economics of medical care” published in 1963.

4. Introduction In 1968, the World Health Organization held its first international health economics seminar in Moscow.

5. Introduction Health economics is the application of economic theory, models and empirical techniques to the analysis of decision-making by individuals, health care providers and governments with respect to health and health care.

6. What is health economics Health economics is the discipline of economics applied to the topic of health care. What goods and services shall we produce? How shall we produce them? Who Shall receive them?

7. Importance of health economics The importance of the economic model is that it provides useful insights into how health care can be organized and financed and provides a framework to address a broad range of issues in an explicit and consistent manner.

8. Cont … Diagrammatic background to health economics— increasing demands on limited resources (area of each circle reflects size of each variable

9. Role of health economists Health economists are interested in the production of health at a number of levels. For example: • What is health and how do we put a value on it? • What influences health other than health care? • What influences the demand for health care and health care seeking behaviour ?

10. Cont … • What influences the supply of health care? (The behaviour of doctors and health care providers.) Alternative ways of production and delivery of health care . • Planning, budgeting, and monitoring of health care. • Economic evaluation—relating the costs and benefits of alternative ways of delivering health care.

11. Demands Demand means desire to buy or consume something. In Economics Demand refers not only to desire but also ability and willingness to buy goods or services. It means a consumer should have desire, ability to pay for a product or service and willingness to pay for it.

12. Law of demands The law can be explained in following manner . “ The other things being equal, a fall in price leads to expansion in demand and a rise in price leads to contraction in demand”. The law of demand can be expressed in mathematical terms i.e. D=f(p)where D represents demand ,P represents price and F represents the functional relationship

13. HEALTH CARE DEMAND According to Michael Grossman’s 1972, consumers have a demand for health for two reasons: Health is a consumption commodity-it makes the consumer feel better. Health is an investment commodity-a state of health will determine the amount of time available to the consumer for productivity

14. Cont …

15. Grossman’s model of demand for health care

16. Cont … According to this model every one inherits a stock of health when born. Health depreciated overtime, however an investment is required to sustain health. As peoples age advances there is an increase in rate of illness and in the utilization of health services.

17. Cont … The stock of health can be sustained by investment to maintain health, such as use of health services and health promoting activities. A view of medical care demand being derived from the demand for health implies the following: Increase in age result in an increase in the rate at which the persons stock of health depreciates.

18. Cont … Over the life cycle people will attempt to offset part of the increased rate of depreciation in their stock of health by increasing their expenditure on health. The demand for medical care will increase with increases in persons income. Education may have a negative effect on the demand for health care, because more highly educated people are presumed to be more efficient in producing health.

19. SUPPLY In economics Supply of a product during a given period of time means the quantities of goods which are offered for sale at particular prices. Hence, supply of a commodity may be defined as the amount of that commodity which a sellers are able and willing to offer for sale at a particular price during a given period .

20. Cont … The ability of seller to supply a commodity depends on the stock available with him. Similarly seller should have willingness to supply a product. This depends upon the difference between reservation price and the prevailing market price or the price which is offered by the buyer for that commodity.

21. Law of Supply The law of supply can be stated as “by keeping other factor constant supply expands with rise in price and contracts with fall in price”. The law of supply reflects the general tendency of the producers in offering their stock of a product for sale in relation to the changing prices. It has been observed that usually sellers are willing to supply more with rise in prices. The supply varies directly with the changes in price.

22. Supply of healthcare Economic evaluation is a comparison of two or more alternative courses of action in terms of both their costs and consequences. Economists usually distinguish several types of economic evaluation differing in how consequences are measured: Cost minimization analysis Cost benefit analysis Cost-effectiveness analysis Cost utility analysis

23. Cont … In cost minimization analysis the effectiveness of the comparators in question must be proven to be equivalent . The cost-effective comparator is simply the one which costs less(as it achieves the same outcome ) In cost-benefits analysis(CBA) cost and benefits are both valued in cash terms . Cost effectiveness analysis(CEA)measures outcomes in a composite metric of both length and quality of life the quality adjusted life year(QALY)

24. Public health importance Against a background of increasing demands on limited resources, health economics is exerting an influence on decision making at all levels of health care. Health economics seeks to facilitate decision making by offering an explicit decision making framework based on the principle of efficiency. It is not the only consideration but it is an important one and practitioners will need to have an understanding of its basic principles.

25. References Introduction to health economics for the medical practitioner by D P Kernick ,Postgrad Med J 2003;79:147–150 DEMAND AND SUPPLY IN HEALTH CARE by DR.NEHA GHILDIYAL, ASST. PROFESSOR (DEPARTMENT OF HOSPITAL ADMINISTRATION