ASPECTS OF HEALTH ECONOMICS ANALYSIS
Nieszporska S. (WZ PCz, c. Czestochowa, Poland)
The main purpose of this paper is to show that the health sector can be described and analyzed from economic point of view. Its production process can be assessed using classical methods of economic evaluation, like the production function and utility function.
General Remarks Similar to many sectors related to production as well as goods and services exchange, the health sector can be characterized from the point of view of economy. So there can be distinguished phases of production, distribution, exchange and consumption in the area.
The health sector production capacity fills population health needs and medical care consumption determines range and scale of provided services.
Though it is possible to make an economic analysis of the health area, nevertheless it is a very special field of human activity. It is due to the fact that although effects of medical care providers’ activities can be treated as a special production type, yet they cannot be presented in a simple way in monetary units. What can be done it is to show numbers of provided services, to count effective treatments or finally to measure population health state through life expectancy and fertility analysis. Conducting economic research to the health area is still limited by difficulties to exhibit inputs and health effects in the same units. Thus generally that account is reduced to costs analysis.
However many more problems are related to the health economics analysis. A vital role, when discussing such matters, is played by patient – physician relationship which determines many factors characterizing structure, financing and health management. It is to be pointed out that a patient himself or herself is not fully aware what service is needed in his or her health state and has limited possibilities to evaluate the received care quality. That is why it is so important to provide patients with suitable treatment and to monitor its quality as well as to control medical institutions and organizations activities within the health care system. Such approach to the health matters enabled to treat institutions and processes within the health care system as an economic system, hence they can be formalized.
Higher interest in the health care in many countries is based undoubtedly on the fact that total country expenses on that sector are growing, i.e. increasing share of GDP. So there are bounds between national economy functioning and the health care sector. Those relationships are being described by health macro economy. Health macro economy deals with following questions: expenses, employment, medical services prices as well as health state of population measured by life expectancy, fertility and productivity, which indirectly or directly have an impact on GDP.
The health area is also bound to national economy from the “price” point of view. Every medical service has its price depending on service utility and its costs. The latest are to great extend determined by prices of goods and services designated for the medical sector.
Health economics developed in response to a significant growth of medical care costs. Its major objective was to reduce costs increase, to explain its sources, or finally to suggest cost control instruments. Thus health economics deals with all decision making processes within institutions concerning inputs distribution, i.e. how to minimize costs and maximize gains.
Health production function Every company having a particular profile, offering goods or services tends to maximize its gains. So it transforms its inputs into specific results using a suitable technology to this aim. A process of such a transformation is represented by a production function.
Production function reflects then technical relationships between inputs needed to produce goods or services and production results. To make it simple, it shows interdependence between product volume and quantity of labor input and capital used for production.
Medical functions of production can concern costs, number of provided services or show a number of medical staff per capita as well as professional competence structure of that staff. Thus thanks to the health production function substitutability and complementarity of different job categories may be discussed.
Among theories on the health production function there are solutions where a vital role, when defining human capital, is played by time criterion. It is noteworthy that in the case of human capital achieving expected results, i.e. higher number of services should be considered both in long term and short term perspective. In long term perspective number of provided services is strongly related to higher employment rate, but it is also bound to employment structure. Change of services number in a short period can be related to prolonged time of work of medical care providers.
When discussing the health production function a vital question is also new medical technologies or therapies. That approach is justified, however, only if new technologies in medical services lead to produce better effects with the same costs.
Because everybody strongly influences his or her health and to great extend is responsible for it, it seems interesting to look at health production function from a patient perspective.
A consumer makes himself or herself “investments” in his health, where investments net equals gross investments reduced by depreciation:
,
(1)
where: Ht – health capital at age t, It - gross
investment, 
- depreciation
factor for period t (0<<1).
Thus understood the health production, i.e. health investment, the production
function can be written:
It = I (Mt; THt ;E). (2)
In equation (2) Mt stands for vector of inputs for health or goods purchased in order to invest in health, THt stands for time spent on gaining those inputs, and E stands for capital of individual knowledge about health. In this regard it is assumed that together with increase of variable E, also effectiveness of production process is growing.
Medical services utility Utility, according to the theory of economy, is a sum of satisfaction taken by an individual consumer from consumption or possession of given goods. Meeting needs is related not only to goods getting and consumption, but also with subjective satisfaction resulting from purchase and consumption of services. Goods and services are bought for a given price using to this aim financial resources obtained mainly through work.
Medical service utility evaluation is determined by its quality. It is not easy however for a potential patient to adequately evaluate provided services. It is difficult to evaluate physician’s or nurse’s professionalism without knowledge of methods and ways of treatment.
To determine utility of medical service, in first place there should be estimated patient’s satisfaction from the administered treatment, therapy, care service, operation which can be named shortly as health effect. A notion of health effect is understood as the final result of a health focused activity, expressed in changes both in physical and mental health as well as in ability to assume different social functions. It is not easy to survey these effects. Health focused activity result depends to a great extend on individual characteristics of a patient and his or her own activity during the treatment process. Often results of applied method or therapy can be seen after a longer period and change of health state is not a noticed reaction for undertaken medical activity.
The utility notion is related to the utility function term. That function is a relationship between quantity of received utility and quantity of consumption and work:
,
(3)
where ut is utility quantity which is reached by an individual in period t, ct is consumption quantity, and lt stands for work quantity. Assume that form of utility function does not change in time. Plus and minus under the utility equation means that utility increases together with consumption, and decreases with work quantity growth. Utility function estimation is not easy particularly if it is related to the health.
Let Z stand for a set of health
states and T be time lived in given health states and 
. Utility function u(z, t) is defined on the set
X=ZxT and presents a situation, where t unities of time is lived in a
health state z (
.
Individual preferences related to the health state should be reflected by measure QALY, to construct which three assumptions are needed. The first assumes utility independence, which means that utility for a particular health profile consists of given health state z and given number of years t and can be counted as a product of utility z and time t:
, (4)
where u(z) depends only on health state regardless to quantity of years and u(t) depends only on the quantity of years and not of the health state. The second assumption is that there is a constant proportional trade-off. It means that an individual is eager to devote a constant proportion of the years of life left to reach better health state with no regard to the years left. The third assumption is risk neutrality during lifetime which means that an individual risks “neutrally” regarding all of his or her states of health during lifetime.
With regard to all three assumptions above, all years of life have the same utility what can be put as follows:
(5)
Hence, the value of health states is a linear function of time spent in that state
.
(6)
Suppose also that when one’s health state changes in time, utility describing all reached health states equals a sum of utility of each health state separately. That property is called an additive separability:
. (7)
Health state of an individual is not the only argument in his or her utility function. It can also be his or her life style, spare time activities, other goods and services consumption as well as environmental living conditions of an individual. Many of above mentioned factors do not directly influence utility, still vitally determine one’s health and health to a great extend depends on broadly understood medical care.
Final remarks Health economics development is a scientific answer to constantly growing need of public sector to control huge costs of the health area. It is also a researcher’s tool to estimate in quantities basic economic properties and characteristics on the medical services market.
Population needs depending on health, socio-economic and psychological conditions of individuals play a vital role in health economics analysis. To recognize those needs is a necessary condition to meet them, yet many of them are extremely difficult to be observed. Hence, there is a need to make specific observations and to construct appropriate research tools.
Making previsions and planning population health needs types structure as well as kind of conducted health policy are crucial matters in health economics analysis. An important role is played then by after launched effects quantification of new pharmaceuticals but also survey of population medical knowledge level as well as ways and quality of life.
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