Health Care Financing: Economic Policy for Cost and Price

1. Faculty of Medicine Health Economics and Policies (31505391)Financing health care. Economic in Health Policy -Cost and price. By HatimJaber MD MPH JBCM PhD 4+6 -03- 2019

2. Course Content 31505391 • Week 1 Introduction to Course introduction to Health: health value, health determinants. • Week 2 Introduction to: Health care management Health Policy and Healthcare Delivery. • Week 3 The scope of Economics and Health Economics . • Week 4 Demand and Supply Demand for Medical Care. Supply of public health . • Week 5 The Market for Health Insurance. • Week 6 Financing health care. Economic in Health Policy-Cost and price. • Week 7 Health systems performance analysis. Measurement and evaluation in health care. • Week 8 Midterm assessment (Exams.) 21-3-2019 • Week 9Public Goods, Market Failures, and Cost-Benefit Analysis. • Week 10 Economic evaluation . Economics and efficiency cost analysis and cost effectiveness. • Week 11 Economic effects of Bad habits including smoking and alcohol consumption • Week 12 Quality Improvements in healthcare delivery Methods to improve health care delivery. • Week 13 Human resources in Healthcare delivery. • Week 14 Health Markets and Regulation and Economic regulation of health markets. • Week 15-16 Final assessment (Exams.)

3. Week 6 • Essential models for health care financing: Health status , Fairness in financing and Responsiveness • The Budget: Forms and Process.. • Discuss how economists versus health professionals think about trade-offs in health. • Resource mobilization • Pooling of financial resources for health • Purchasing services • Language of Finance: Cost, Price, Revenue, • Definition of Cost, Types of costs . Expenditures, and running costs • Expenditures, and Reimbursement • What are the different approaches to costing? • What local, provincial and national databases containing costing data are available? • When does price affect utilization of medical care?

4. Presentation outline4-3-2019

6. Health policy and financing policy Health policy and financing policy are inseparable because financing policy determines: • who has access to basic health care • how much is available, • who controls the fundsand • how they are used; - the technical, - allocative and distributive efficiency of resource in use, - social protection, - what financial incentives are given to patients and providers and whether health care cost inflation can be controlled

7. Why should doctors be concerned with health care financing?Rising health care costs in all nations leading to:Government cost control measures e.g. regulation of pricesInsurance company scrutiny of actions of doctorsLoss of clinical autonomy for doctors e.g. doctors cannot prescribe expensive drugs or order expensive procedures without getting permission from other parties first.

8. Financial administration • Financial administration consists of a series activitieswere funds are made available for certain people in the organization under procedures that will ensure their efficient use. • The main activities are: • Budgeting • Accounting • Auditing • Purchasing

9. Budgeting: It is the allocation of financial resources in support for programs or projects for a special period of time. A budget is defined as “a balanced estimate of expenditures and receipts for a given period of time”. • Accounting: “It is recording assembly and summarization of financial effects of executive action, harmonious relationship between budget and account is important to current comparisons, between goals set in and accomplishment.

10. Auditing: “It is the investigation and report on the fidelity and legality of all financial transactions”. • Purchasing: “It is the acquisition of the property and materials needed in administration”.

11. Definition of health care financing Definition of health care financing mobilization of funds for health care allocation of funds to the regions and population groups and for specific types of health care mechanisms for paying health care (Hsaio, W and Liu, Y, 2001)

12. The financing of health care systemsconsists of a range of instruments to achieve certain goals: - improve the health of the majority - allowhealth care production adapted to needs - furtherequity in funding and access to health care - improvequality - control costs - contribute to the allocative and technicalefficiency of the system

13. Financing – the national health objectives: • National health policies focus on : • improving the population’s health and • Preventing diseases and health hazards • So that their entire population : • can aspire to a healthy and happy life and • thus productively, contributing to the development of the country and its economy.

14. Health financing policies should have the ability to: • improve health outcomes, • provide financial protection, and • ensure consumer satisfaction – in a equitable, efficient, and financially sustainable manner. • provide policy-makers at global and country levels with the tools by providing an overview of health financing policy in developing countries.

15. The scope of objectives of the national health system is eventually limited by the extent to which they are affordable Scarce national resources need to be optimized and rationalized. Depending on the choice of financing mechanisms and sources, the achievement of national health objectives will be more or less independent of national budget constraints.

16. Affordability • The extent to which something is affordable, as measured by its cost relative to the amount that the purchaser is able to pay. • Affordability needs to be assessed also in relation to the : • contributory capacityof individuals, employers and other public programs, such as social insurance schemes. • In the end, politicians must determine priority areas of the national health system at the expense of others.

17. The achievement of national health objectives is eventually achieved through : the selection of an adequate method of financing the choice of an effective and efficient organizational delivery structure for health services and payment approach for health providers. the regulatory framework and programs of public education.

18. Promotion of universal coverage through rational use of financing mechanisms Most national health systems state their priority to the achievement of universal health coverage through a better use of available health financing mechanisms. Universal coverage Universal coverage is the core objective of a social solidarity health care system. It means: 1. Access to health care when people need it. Need driven use of care. 2. Availability at affordable cost: equity in access. 3. Financial household's contributions are on the basis of ability to pay or equity  in financing 4. Such system will lead to equity in health

19. Health CareFinancing Health financing involves collectingrevenue poolingresources purchasing goods andservices

20. Three basic functions of a health financing system : • Revenue collection: Financial contributions to the health system have to be collected equitably and efficiently. • Pooling : Contributions are pooled so that the costs of health care are shared by all and not borne by individuals at the time they fall ill. This requires a certain level of solidarity in the society. • Purchasing : The contributions are used to buy or provide appropriate and effective health interventions.

21. Health financing functions • Revenues collection : is the way health systems raise money from households, businesses and external sources. • Pooling deals with the accumulation and management of revenues and its defined patients population and geographic location to which revenues and expenses are determined. • Purchasing refers to the mechanisms used to secure services from public and private providers and it refers to the many arrangements for buyers health care services to pay health care providers.

22. Financing Systems Methodsof privatefinancing Methodsof publicfinancing Externalfinancing “Aid” Internal financing User payments For-profit or Non-profit private insurance Medicalsavingsvoluntary or compulsory Social contributions employers employees Social insurance systems (illness) Public systems of health services Unified System Fragmented System • Differentfinancingmethodsavailable • and organization of the financingsystems

23. The method of financing consists of the way in which financial resources are mobilized and how they are utilized. It relates to different factors including: the approach to mobilize financial resources; the institutional and organization delivery structure; the allocation of resources; the remuneration (Mechanisms for paying) and incentive method for health providers;

24. The main methods of financing for health care include : The national health insurance system, General revenue, Private insurance, Community-based insurance and Out-of-pocket payments.

25. Health Financing SystemModels: National health service (compulsoryuniversalcoverage) Social insurance Privateinsurance(employer-based or individual purchase of private health insurance and private ownership of health sector inputs)

26. National HealthService • Main revenuetype: • Generaltaxes • Pooling: • Nationalpool • Purchasing: UnitedKingdom Canada NewZealand Australia Italy National or regionaldirect purchase ofservices

27. Social HealthInsurance • Main revenuetype: Payrolltax • Pooling: • Pools by job orincome • Purchasing: • France • Germany • Japan Collective and selectivecontracts

28. Private HealthInsurance • Main revenuetype: • Individual & employerpayments • Pooling: • Privately managedpools • Purchasing: • Selectivecontracts UnitedStates Greece Singapore

29. Health service financing source • Health services financed broadly through • privateexpenditure or • public expenditure or external aid • Public expenditure includes all expenditure on health services : • central and local government funds. • where services are paid for by taxes. • Voluntary paymentsby individuals or employers are private expenditure. • External sources refer to the external aid which comes through: • aid program i.e. USAID • international non governmental organizations

30. Depending on the choice of method used to finance health services, the type of organization for health services through : • public, • private or • Both

31. The choice of method will impact on : who bears the financial burden, the amount of resources available and who manages the allocation of resources. Experience has shown that, without strategic policies and focused spending mechanisms , the poor and other ordinary people are likely to left without care. The mobilization of resources through general revenue requires that the target group to which resources are allocated and health expenditure incurred be the entire population, in principle.

32. General revenue or earmarked taxes • the most traditional way of financing health carefinance a major portion of the health care (especially in low income countries) Social insurance • It is compulsory. Everyone in the eligible group must enroll and pay a specific premium contribution in exchange for a set of benefits. • Social insurance premiums and benefits are described in social compacts established through legislation. Premiums or benefits can be altered only through a formal political process

33. Community based financing Refers to schemes are based on three principles: • -community cooperation, • -local self reliance and • -pre payment Factors for success of community financing • Technical strength and institutional capacity of the local group • Financial control as part of the broader strategy in local management and control of health care services • Support received from outside organizations and individuals • Links with other local organizations • Diversity of funding • Responding to other (non health) development needs of the community • Ability to adapt to a changing environment

34. Changing government role in health care • Health is considered a public good • Government needs to actively participate to avoid market failures

35. Equity takes place at different levels: equity in financing, equity in access to health care, equal level of health status and equity in terms of risk protection offered.

36. Conclusion • Role of health economists must be recognized • Health financing cannot be dealt separately as it has got to do with good governance, economic growth, education • Social inclusion and financial protection seems to be provided through community based financing

37. Presentation outline6-3-2019

38. What is Health Economics(HE)? • Compares the costs andconsequences (outcomes) of medical interventions or health programs. • linking investments in health to economic development. • Healthy People: healthyeconomy

39. What is Health Economics(HE)? Inputs Costs Outcomes Health Care

40. Costs can be described inmany ways • Cost/unit (cost/tab,cost/vial) • Cost /treatment • Cost /person • Cost / person /year • Cost / caseprevented • Cost / lifesaved • Cost / DALY (disability-adjusted lifeyear)

41. Costs • Direct costs: costs to deliver servicesto patient; both medical andnon-medical • Indirect costs: cost of treatmentto patient orsociety • Intangible costs: quality oflife

42. Outcomes • Both positive and negativeoutcomes • should beaddressed • Positive outcomes: drug’s efficacy measure, cure of disease,disease prevention,QALY,……. • Negative outcomes: treatment failure, nosocomial infection,malpractice….

43. Healthcarecostsand Healthoutcomes • Initially, as health care resources increase, these outcomes improve, • but above a certain level, the slope of the curve diminishes, signifying that increasing investments in health care yield more marginalbenefits.

44. Healthcarecostsand Healthoutcomes • A small investment of resources to create more sanitary water supplies and to administer inexpensive hydration therapy yielded dramatic improvements in health. • On the other hand, Large investments of resources in new technologies may produce more marginal and difficult - to - measure improvements in the overall health of a population.

45. What is Price? The Importance of Price To the seller...Price is revenue and profit source To the consumer...Price is the cost of something In the broadest sense, price allocates resources in a free-market economy

46. The pricecharged to customers multiplied by the number of units sold. Revenue Profit Revenue minus expenses The Importance of Priceto Marketing Managers

47. Revenue = Unit Price  Number of units sold • Revenue pays for every activity. • What’s left over is Profit. The Importance of Price Marketers must select a price that is not too high or not too low, a price that equals the perceived value to target consumers

48. High rate of new product introduction Trends in the Market Increased availability of bargain-priced dealer and generic brands Price cutting as a strategy tomaintain or regain market share More efficient and better informed buyers Trends Influencing Price Setting

49. DecisionMaking

50. How to control costs? Reasons for rising costs1. New technology e.g. MRI, organ transplants, renal dialysis, patented drugs to treat HIV/AIDS2. Population ageing3. Epidemiological transition4. Medicalisation of social problems5. Rising expectations of the publice.g. expect better “hotel services” in hospitals6. Systems of health care financing without proper cost control mechanisms7. Unwise spending by government e.g. building more and more hospitals8. Inefficient privatisation e.g. privatisationof Government Medical Store