MEDICARE

Medicare- Markets and Pricing



Executive Summary

Health economics is about making choices between options, when there is scarcity of resources. It is fundamentally comparative, weighing the costs and benefits of option 1 with those of option 2 (for instance, a new drug and the previous best therapy - traditional medical evaluation focused only on the benefits), to determine which is the most efficient way to use our limited resources. Economic evaluation is an accepted method for the appraisal of health care programmes. Starting from reduced definition of health in terms of absence of disease and invalidity, the paper explains the applicability of the relationship between markets and pricing (which is a basic principle of economics), which is on extremely sensitive area of economic evaluation of health care.

Table of Contents

Executive Summary1

Introduction3

Discussion4

Micro-economic evaluation of health care:6

Cost of disease studies:6

Analysis of relationship between costs and benefits (cost-benefit analysis):7

Analysis of the relationship between costs and effects:9

Macro-economic evaluation of health care:14

Conclusion17

References18

Medicare- Markets and Pricing

Introduction

We never will have all we need. Expectation will always exceed capacity … This service must always be changing, growing and improving; it must always appear inadequate. Evaluation of health care programmes may be subdivided into evaluation of efficacy, effectiveness, efficiency and availability. The evaluation of efficiency is more commonly known as economic evaluation. Economic evaluation may be defined as 'the comparative analysis of alternative courses of action in terms of both their costs and consequences' (Drummond, et.al, 1987). It is now a widely accepted tool for the appraisal of health care and this is reflected by the increasing number of research papers in this area in the medical literature. However, there remains misunderstanding, particularly amongst clinicians, as to the purpose and ethics of this technique. Economic evaluation basically sets out to answer two main questions: first, is this health procedure worth doing compared with other things we could do with the same resources and, secondly, are we satisfied that the health care resources should be spent in this way, rather than in any other way?

Economic evaluation in health care is most useful when certain other questions have already been answered and these include (Drummond, et.al, 1987):

Can the health procedure/intervention work (the efficacy of the procedure)?

Does the procedure/intervention work (evaluation of effectiveness)?

Is it reaching those who need it (availability of the service)?

Health care funders (governments, social security funds, insurance companies) are struggling to meet their rising costs. They make many efforts to contain drug costs, by price negotiation, patient co-payments or dedicated drug budgets. Expenditure on drug therapy is a particular target for their attention for several reasons: the size of the drug bill (10-15% of most national health care budgets, and usually the second largest item after salaries); the ease of measurement of pharmaceutical costs in isolation, in contrast to most other health care costs; evidence of wasteful prescribing; and a perception that many drugs are overpriced and that the profits of the pharmaceutical industry are excessive.

But this focuses on drug costs in isolation, when what should be of greater concern to decision ...