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Introduction to Health Economics

Introduction to Health Economics

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Introduction to Health Economics

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  1. Health Economics Hakimah Dharwisyah Ramli Ahmad Zhafir Zulkifli Nur Izyan Muhammad Ramdan NursakinahBohari

  2. Outline

  3. Overview

  4. Introduction to Economics of Health and Medical Care (Part 1) Health Economics Overview Scarcity Opportunity Cost

  5. History of Health Economics

  6. History of Health Economics in Malaysia Post-Independence Universal Health Coverage (1957–1970s) • After independence, Malaysia prioritized universal primary healthcare, set foundation for equitable access - extending services to rural areas, caused significant reductions in child and maternal mortality at low cost . Shift Toward Financing Reforms (1980s–1990s) • Under Prime Minister Mahathir Mohamad’s economic reforms, Malaysia began exploring private sector engagement and insurance-based financing • Hospitals, drug distribution, and support services gradually corporatized or outsourced Formalization of HTA with MaHTAS (1995) • The Malaysian Health Technology Assessment (MaHTAS) was established within the Ministry of Health, structuring systematic assessments of health technologies  Progress Toward Evidence-Based Health Policy (2000s–Present) • HTA has become a core tool for decision-making

  7. It is established in 1995 under MOH’s Medical Development Division. • Purpose: to ensure that the use of health technologies in Malaysia aligns with principles of safety, effectiveness, and cost-efficiency. • (Health Technology Assessment (HTA): a systematic process used to evaluate health technologies. It looks at – clinical effectiveness, cost effectiveness, safety, ethical legal and social implications) • What does MaHTAS do? • evaluate and guide the adoption of health technologies, including pharmaceuticals, medical devices, diagnostics, and digital technologies using Health Technology Assessment (HTA), Mini-HTA (Technology Review), Information Brief (Rapid Assessment), and Horizon Scanning • Development and implementation of National Evidence-Based Clinical Practice Guidelines (CPG)

  8. What is Health Economics? • Definition • Application of economic theories, tools, and methods to health sector issues – WHO, 2020 • Health economics is the study of the production and consumption of health services, using economic theories and methods to analyze institutions, actors, and activities affecting health, with the aim of allocating limited resources to maximize health benefits. -Trenholm & Bilbiie, 2023

  9. Importance of Health Economics

  10. Scarcity Definition: The gap between limited health resources and unlimited health needs, requiring choices about how to allocate resources.

  11. Implications of Scarcity in Public Health Prioritization of Health Services • Scarcity forces public health systems to make choices about which programs to fund and which populations to serve first. Trade-offs in Resource Allocation • With limited budgets, choosing to invest in one health area often means sacrificing another.  Risk of Inequity • Scarcity can lead to inequitable access to health care, especially if allocation favors urban, insured, or wealthy populations. Need for Economic Evaluation and Evidence-Based Decision-Making • To manage scarcity responsibly, public health must rely on tools like cost-effectiveness analysis (CEA) and health technology assessment (HTA).

  12. Examples of Scarcity

  13. Managing Scarcity in Health Systems

  14. Opportunity Cost Definition: Opportunity cost is the value of the best alternative forgone when a choice is made to use resources for one purpose instead of another.

  15. Implications of Opportunity Cost in Public Health • Every Health Decision Has a Trade-Off • Funding one program means another is delayed or excluded. • Forces Strategic Choices • Public health must choose based on value for money, benefit, and population reach. • Highlights the Importance of Cost-Effectiveness • Helps identify what interventions bring the greatest health gain per RM spent. • Supports Accountability in Budget Use • Encourages transparent decisions that maximize impact.

  16. Examples of Opportunity Cost

  17. Managing Opportunity Cost in Health Systems • Use of Economic Evaluation Tools • Cost-Effectiveness Analysis (CEA), Cost-Utility Analysis (CUA), and HTA help quantify trade-offs. • MaHTAS in Malaysia • Assesses if a new treatment gives better outcomes compared to existing options. • Setting Priorities • Focus on interventions that benefit more people at lower cost (e.g., vaccination vs expensive drugs). • UHC Service Packages • Ensure essential, high-value care is delivered before expanding to specialized services.

  18. Introduction to Economics of Health and Medical Care (Part 2) Efficiency Equity Economic Evaluation of Healthcare National Health Account Ahmad Zhafir Zulkifli “Power resides where men believe it resides. It’s a trick. A shadow on the wall. And a very small man can cast a very large shadow.” ~ GoT

  19. What and Why? • Dichotomous system contributed to high out of pocket (OOP) cost?1 • Possibility of a National Social Health Insurance • Should we raise RM1/5 token fee? • Revision of private consultation fee structure • Fair remuneration for public HCW • Does our current healthcare system sustainable? • Wealthy economy vs. well-being economy Source: Ministry of Health Malaysia. (2023). Health White Paper for Malaysia. Rahim, F. (2025, May 8). Warga KKM perlu faham polisiekonomimikrountukatasi “penyakitekonomi” - PM. Astro Awani. Ahmad Zhafir Zulkifli

  20. Issues in health economics Ahmad Zhafir Zulkifli

  21. ① Economic efficiency in healthcare • Efficiency measures whether healthcare resources are being used to get the best value for money • Inefficiency exists when resources could be reallocated in a way which would increase the health outcomes produced Ahmad Zhafir Zulkifli Source: Palmer, S., & Torgerson, D. J. (1999). Economics notes: Definitions of efficiency. BMJ, 318(7191), 1136–1136.

  22. Technical efficiency • Refers to the physical relation between resources (capital and labor) and health outcome1 • Attained when maximum possible improvement in outcome is obtained from a set of resource inputs • An intervention is technically inefficient if the same (or greater) outcome could be produced with less of one type of input • Example: A recent systematic review and network meta analyses found out that rosuvastatin ranked 1st in the LDL-C- & ApoB-lowering efficacy compared to other types of statin2 Source: Palmer, S., & Torgerson, D. J. (1999). Economics notes: Definitions of efficiency. BMJ, 318(7191), 1136–1136. Zhang, X., Xing, L., Jia, X., Pang, X., Xiang, Q., Zhao, X., Ma, L., Liu, Z., Hu, K., Wang, Z., & Cui, Y. (2020). Comparative Lipid-Lowering/Increasing Efficacy of 7 Statins in Patients with Dyslipidemia, Cardiovascular Diseases, or Diabetes Mellitus: Systematic Review and Network Meta-Analyses of 50 Randomized Controlled Trials. Cardiovascular Therapeutics, 2020(1), 1–21. Ahmad Zhafir Zulkifli

  23. Productive efficiency • Refers to the maximization of health outcome for a given cost, or the minimization of cost for a given outcome1 • Used to compare different type of intervention for a given health outcome • But it cannot address the impact of reallocating resources at a broader level because the health outcomes are disproportionate • Example: Comparing efficiency of amniocenteses vs. biochemical testing for screening of Down’s syndrome2,3 Source: Palmer, S., & Torgerson, D. J. (1999). Economics notes: Definitions of efficiency. BMJ, 318(7191), 1136–1136. Mokhtar, R., Hans, P., & Sinha, A. (2022). Comparing Non-invasive Prenatal Testing With Invasive Testing for the Detection of Trisomy 21. Cureus, 14(11). Okem, Z. G., Orgul, G., Kasnakoglu, B. T., Cakar, M., & Beksac, M. S. (2019). Budget impact of incorporating non-invasive prenatal testing in prenatal screening for Down syndrome in Turkey. Health Policy and Technology, 8(4), 402–407. Ahmad Zhafir Zulkifli

  24. Allocative efficiency • Refers to efficiency with which these outcomes are distributed among the community1 • Used to inform resource allocation decisions • Allocative efficiency is achieved when resources are allocated to maximize the welfare of the community • Example: MNHA: Total expenditure on health as percentage per Gross Domestic Products (GDP) per capita 4.4% 2022 vs 4.6% in 20232 Source: Palmer, S., & Torgerson, D. J. (1999). Economics notes: Definitions of efficiency. BMJ, 318(7191), 1136–1136. Ministry of Health Malaysia. (2024). Malaysia National Health Accounts (MNHA): National Health Expenditure 2011-2023 - MesyuaratPemandu Bil. 2/2024. Ahmad Zhafir Zulkifli

  25. ② Economic equity in healthcare • Equity is the state, ideal, or quality of being just, impartial and fair1 • Equity vs. equality: equality is sameness and equity is fairness1 • Equity in healthcare means “fairness in the distribution of health and healthcare. But what is fair? • WHO: absence of avoidable or remediable differences among populations in health status and access to health services2 • Free market concept: create inequities and inefficiencies Source: Pan American Health Organization. (1999). Principles and Basic Concepts of Equity and Health. Division of Health and Human Development. World Health Organization. (n.d.). Equity. World Health Organization Western Pacific. Ahmad Zhafir Zulkifli

  26. Horizontal & vertical equity Source: Culyer, A. J. (2014). The dictionary of health economics. Edward Elgar. Silva, P. D. (2023, May 21). Promote health equity - The UpStreamBoat. The UpStreamBoat. Ahmad Zhafir Zulkifli

  27. Balancing equity and efficiency • The goal is to achieve efficiency whilst not compromising equity • In health economics, equity and efficiency are not necessarily mutually exclusive • Choosing health intervention: use cost-effectiveness as an efficiency criteria and the reduction of severe health conditions and poverty as equity criteria • Equity and efficiency are complementary for the attainment of the health objectives of any country • Example: universal cervical cancer screening program but low participation of certain vulnerable populations. Targeted incentive/payment for these groups can reduce cervical cancer cases Source: Kwiatkowska, R., & Steinbach, R. (2017, May 31). Balancing Equity and Efficiency. Health Knowledge. Asamani, J. A., Alugsi, S. A., Ismaila, H., & Nabyonga-Orem, J. (2021). Balancing Equity and Efficiency in the Allocation of Health Resources—Where Is the Middle Ground? Healthcare, 9(10), 1257. Ahmad Zhafir Zulkifli

  28. ③ Economic evaluation of healthcare Ahmad Zhafir Zulkifli Source: Kobelt, G. (2013). Health economics : an introduction to economic evaluation. Office Of Health Economics.

  29. Types of economic evaluation Ahmad Zhafir Zulkifli Source: Kobelt, G. (2013). Health economics : an introduction to economic evaluation. Office Of Health Economics.

  30. In our system? • Globally tools like Health Technology Assessment (HTA) are used to systematically evaluating the cost-effectiveness of drugs, devices, and programs • Malaysia has institutionalized this approach through its Malaysian Health Technology Assessment Section (MaHTAS) • Findings inform allocation of resources to the intervention that result in most health benefit per ringgit spent • To ensure budget allocated to “the right things” • But this must be balanced with equity goals Ahmad Zhafir Zulkifli Source: Ministry of Health Malaysia. (2015). Health Technology Assessment Manual. Malaysia Health Technology Assessment Section (MaHTAS).

  31. Source: Mohd Hassan, N. Z. A., Razali, A., Shahari, M. R., Mohd Nor Sham Kunusagaran, M. S. J., Halili, J., Zaimi, N. A., Bahari, M. S., & Aminuddin, F. (2021). Cost-Effectiveness Analysis of High-Risk Groups Tuberculosis Screening in Malaysia. Frontiers in Public Health, 9. Ahmad Zhafir Zulkifli

  32. ④ National Health Account • A tool to describe the expenditure flows within the health sector of a country • Allow international comparison of health expenditures between countries • Malaysia National Health Expenditure Data is macro level health expenditure estimation • MNHA adapting OECD SHA framework by modifying the code and definitions based on local context • Malaysian public healthcare is depending on general taxation and heavily subsidized • Source: • Ministry of Health Malaysia. (2006). Malaysia National Health Accounts Project. Planning & Development Division. • Ministry of Health Malaysia. (2024). Malaysia National Health Accounts (MNHA): National Health Expenditure 2011-2023 - MesyuaratPemandu Bil. 2/2024. Ahmad Zhafir Zulkifli

  33. Total Expenditure on Health (TEH) • Definition: includes all spending on health both current and capital expenditure • Includes both from public and private sectors and non-governmental organizations (NGOs) • Most common indicators of health expenditure is its ratio to gross domestic product (GDP) • TEH vs. Current Health Expenditure (CHE): refers to recurrent (operational) spending only such as services and goods consumed within the year • Source: • Ministry of Health Malaysia. (2006). Malaysia National Health Accounts Project. Planning & Development Division. • OECD, World Health Organization, & Eurostat. (2011). A System of Health Accounts 2011 Edition. OECD Publishing. Ahmad Zhafir Zulkifli

  34. TEH as percentage of GDP, 2011-2023 Ahmad Zhafir Zulkifli Source: Ministry of Health Malaysia. (2024). Malaysia National Health Accounts (MNHA): National Health Expenditure 2011-2023 - MesyuaratPemandu Bil. 2/2024.

  35. CHE as percentage of GDP, 2011-2023 Ahmad Zhafir Zulkifli Source: Ministry of Health Malaysia. (2024). Malaysia National Health Accounts (MNHA): National Health Expenditure 2011-2023 - MesyuaratPemandu Bil. 2/2024.

  36. Ahmad Zhafir Zulkifli Source: World Health Organization. (2023). Current health expenditure (CHE) as percentage of gross domestic product (GDP).

  37. Signs of failing tax policies and systems Ahmad Zhafir Zulkifli Source: Cobham, A., Katja Hujo, O’Hare, B., Nelson, L., & McCoy, D. (2025). Tax systems and policy: Crucial for good health and good governance.

  38. Contribution of Economics to Health Policy (Part 1) Nur Izyan Muhammad Ramdan

  39. Outline

  40. ① Role of Economics in Health Policy

  41. Role of Economics in Health Policy

  42. Role of Economics in Health Policy

  43. Role of Economics in Health Policy

  44. ② Health Financing'' Purpose and Function

  45. Key Health Financing Models

  46. The Beveridge Model

  47. The Bismarck Model

  48. The National Health Model

  49. The Out-of-Pocket Model

  50. Malaysia’s Mixed Health Financing Model • Financing Architecture • Public Services: Financed by General revenues (tax) & social insurance (PERKESO & ProtectHealth) • Private services: Financed by private insurance and OOP spend.

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