Brief Points on Health Economics and Pharmacoeconomics

Topics: Supply and demand, Health economics, Health care Pages: 18 (2835 words) Published: June 9, 2013
Health Economics and Pharmacoeconomics
Prof. Albert I. Wertheimer Temple University, U.S.A.
Ankara, Turkey 24 May 2005

What is Pharmacoeconomics?
– Theories to study behavior in allocating scarce resources.

Health Economics
– Application of same theories to health and healthcare issues

– Determination of efficiency in therapeutic purchase and utilization.

Pharmacoeconomics Cont’d
Economics- allocation of scarce resources “ guns or butter” Health economics - Techniques same - Focus on healthcare delivery systems Pharmacoeconomics - Focus drug therapy [management]

Balancing the cost and consequence (outcomes) of therapies & interventions Assessment of the most efficient use of available resources , defined in terms of patient outcomes and cost

Origins of Pharmacoeconomics
Since the mid-1980s:
– Supply of drugs exceeds demand. – It is assumed that a product approved by F.D.A. is satisfactory and equivalent. – Development of sophisticated large buyers. – Emergence of large databases enables observational studies comparing drugs head:head.

Origins Cont’d
– Widely available computer power at low cost. – Worldwide profit pressures requiring efficient purchasing and operations – New methodologies and emphasis on evaluation and outcomes.

Why Know Pharmacoeconomics?
Understand and critically appraise economic arguments proposed to support healthcare interventions, e.g. new drugs, or professional services. Participate in economic evaluation treatments and services to be a key player in national and local debates on resource allocation. Initiate economic evaluations of services and products. Participate in the debate on and address wider policy issues, such as: – Staff remuneration structures – Need for, demand for and utilization of services – Reimbursement levels for healthcare.

Supply and Demand Curves
Demand Curve
A graph showing how the quantity demanded for some product during a specific time changes as the price of that product changes, holding all other things constant A change in quantity demanded solely due to a change in price is reflected in movement along the curve Factors that shift the demand curve: consumer income, preferences, prices of similar products

Equilibrium Re-established
D2 D1 S1 S2 E1 E2



Elasticity of Demand
Price elasticity of demand is the ratio of the percent change in quantity demanded to the percent change in prices. Highly elastic products have large changes in quantities demanded for a relatively small price change. Highly inelastic products have small changes in quantities demanded for a relatively large price change.

Elasticity of Demand Shown Graphically


Inelastic Quantity

Equilibrium Point
The balance-point between quantity demanded and supplied at a certain point Where demand and supply lines cross The point where there are no inherent forces to change production or consumption Increases in demand will shift the demand curve outward…supply will respond by moving outward

Production Possibilities

Surgery Medicine

Major Concepts in Economics
Opportunity Costs Supply and Demand Price Elasticity

Economics studies the tradeoffs (opportunity costs) of selecting among alternative products & services An opportunity cost is what we give up in order to obtain a product or service Opportunity costs increase as more of a particular product/service is demanded Economics can’t place humanistic values on product/service. It just identifies options

Health Economics & Pharmacoeconomics Safe

Rx Drugs




Definitions Cont’d

Types of Costs
Direct Indirect - Food, lodging, transport, loss of family wages Intangible - Pain and suffering

Payer (MCO, insurer, employer) Patient Provider Society

4 Types
1. Cost-minimization Analysis - Same results, similar products -$.20/tablet vs....
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