HPI4001: Economic of Healthcare
Summary of the module
Faculty of Health, Medicine and Life Sciences (FHML)
MSc Healthcare Policy, Innovation and Management
,Table of Contents
1 The economic approach in healthcare ................................................................................................. 3
1.1 Health economics .......................................................................................................................... 3
1.2 Key concepts in health economics ................................................................................................ 5
1.3 Origin of health economics ......................................................................................................... 11
1.4 Developments in current and future of health economics ......................................................... 12
1.5 Theories and paradigms in health economics ............................................................................ 15
1.6 Economics in the healthcare and insurance industry ................................................................. 16
1.7 Difference between economics and health economics .............................................................. 19
2 The economics of innovation ............................................................................................................. 21
2.1 Innovations.................................................................................................................................. 21
2.2 Innovations and health economics ............................................................................................. 23
2.3 Economic theories on innovation ............................................................................................... 26
2.3.1 Economic growth theories................................................................................................... 27
2.3.2 Economic theories on innovation ........................................................................................ 29
3 Economic evaluations of health interventions ................................................................................... 35
3.1 Economic evaluations ................................................................................................................. 35
3.2 Presentation and interpretation of economic evaluations ......................................................... 41
3.3 Two main methods of economic evaluations ............................................................................. 44
3.4 Importance of economic evaluations ......................................................................................... 50
4 Innovations from an organizational (economic) perspective............................................................. 53
4.1 Innovations and firms ................................................................................................................. 53
4.2 Integration................................................................................................................................... 56
4.3 Horizontal integration ................................................................................................................. 58
4.4 Vertical integration ..................................................................................................................... 61
4.5 Healthcare strategies .................................................................................................................. 65
4.6 Transaction costs ........................................................................................................................ 68
5 Pharmaceuticals as typical product innovations ................................................................................ 71
5.1 Types of drugs ............................................................................................................................. 71
5.2 Bringing a drug to the market ..................................................................................................... 75
5.3 The role of R&D in drug development ........................................................................................ 81
1
, 5.4 The fourth hurdle ........................................................................................................................ 86
5.5 Priority setting of pharmaceuticals ............................................................................................. 90
5.6 Coverage with Evidence Development (CED) ............................................................................. 92
6 Patient involvement in healthcare decisions/ HTA ............................................................................ 95
6.1 Rationale to include a patient perspective ................................................................................. 95
6.2 Including patients in healthcare decisions .................................................................................. 97
6.3 Patient roles in patient involvement ........................................................................................ 103
6.4 Initiatives about patient involvement ....................................................................................... 105
6.5 Facilitating optimal patient engagements ................................................................................ 106
6.6 Benefits of patient preference research ................................................................................... 108
6.7 Methods to elicit preferences ................................................................................................... 110
2
, 1 The economic approach in healthcare
Keywords in this chapter
Scarcity, preferences, utility, choice, allocation, allocative efficiency, competition, demand
and supply, economics, efficiency, health care economics, health economics, market, market
failure, pareto-optimality, resources, behavioural economics and experimental economics.
1.1 Health economics
Definition of economics
- Study of choices under conditions of scarcity
- Unlimited needs, limited resources
Economics is the study of how our society as a whole, uses its resources
All societies face three fundamental questions:
1. What to produce?
2. How to produce what to be produced?
3. How to distribute what is to be produced between individual citizens?
What do economists do?
They study the choices people make and what are the most efficient choices:
- Explain how our economic system works
- Forecast the future of our economy
- Suggest to make the future even better
Health economics
- Health economics in an applied field of economics;
- Health economics studies the choices/ behaviour of individuals, health care
providers, public and private organization, and governments in health decision-
making;
- Study of how (scarce) resources are allocated to and within the healthcare system.
3
Summary of the module
Faculty of Health, Medicine and Life Sciences (FHML)
MSc Healthcare Policy, Innovation and Management
,Table of Contents
1 The economic approach in healthcare ................................................................................................. 3
1.1 Health economics .......................................................................................................................... 3
1.2 Key concepts in health economics ................................................................................................ 5
1.3 Origin of health economics ......................................................................................................... 11
1.4 Developments in current and future of health economics ......................................................... 12
1.5 Theories and paradigms in health economics ............................................................................ 15
1.6 Economics in the healthcare and insurance industry ................................................................. 16
1.7 Difference between economics and health economics .............................................................. 19
2 The economics of innovation ............................................................................................................. 21
2.1 Innovations.................................................................................................................................. 21
2.2 Innovations and health economics ............................................................................................. 23
2.3 Economic theories on innovation ............................................................................................... 26
2.3.1 Economic growth theories................................................................................................... 27
2.3.2 Economic theories on innovation ........................................................................................ 29
3 Economic evaluations of health interventions ................................................................................... 35
3.1 Economic evaluations ................................................................................................................. 35
3.2 Presentation and interpretation of economic evaluations ......................................................... 41
3.3 Two main methods of economic evaluations ............................................................................. 44
3.4 Importance of economic evaluations ......................................................................................... 50
4 Innovations from an organizational (economic) perspective............................................................. 53
4.1 Innovations and firms ................................................................................................................. 53
4.2 Integration................................................................................................................................... 56
4.3 Horizontal integration ................................................................................................................. 58
4.4 Vertical integration ..................................................................................................................... 61
4.5 Healthcare strategies .................................................................................................................. 65
4.6 Transaction costs ........................................................................................................................ 68
5 Pharmaceuticals as typical product innovations ................................................................................ 71
5.1 Types of drugs ............................................................................................................................. 71
5.2 Bringing a drug to the market ..................................................................................................... 75
5.3 The role of R&D in drug development ........................................................................................ 81
1
, 5.4 The fourth hurdle ........................................................................................................................ 86
5.5 Priority setting of pharmaceuticals ............................................................................................. 90
5.6 Coverage with Evidence Development (CED) ............................................................................. 92
6 Patient involvement in healthcare decisions/ HTA ............................................................................ 95
6.1 Rationale to include a patient perspective ................................................................................. 95
6.2 Including patients in healthcare decisions .................................................................................. 97
6.3 Patient roles in patient involvement ........................................................................................ 103
6.4 Initiatives about patient involvement ....................................................................................... 105
6.5 Facilitating optimal patient engagements ................................................................................ 106
6.6 Benefits of patient preference research ................................................................................... 108
6.7 Methods to elicit preferences ................................................................................................... 110
2
, 1 The economic approach in healthcare
Keywords in this chapter
Scarcity, preferences, utility, choice, allocation, allocative efficiency, competition, demand
and supply, economics, efficiency, health care economics, health economics, market, market
failure, pareto-optimality, resources, behavioural economics and experimental economics.
1.1 Health economics
Definition of economics
- Study of choices under conditions of scarcity
- Unlimited needs, limited resources
Economics is the study of how our society as a whole, uses its resources
All societies face three fundamental questions:
1. What to produce?
2. How to produce what to be produced?
3. How to distribute what is to be produced between individual citizens?
What do economists do?
They study the choices people make and what are the most efficient choices:
- Explain how our economic system works
- Forecast the future of our economy
- Suggest to make the future even better
Health economics
- Health economics in an applied field of economics;
- Health economics studies the choices/ behaviour of individuals, health care
providers, public and private organization, and governments in health decision-
making;
- Study of how (scarce) resources are allocated to and within the healthcare system.
3
