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Economic Concepts in the Healthcare
Defining Healthcare Economic Concepts
Cost Effectiveness Analysis
Cost Benefit Analysis
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In healthcare assessment, cost benefit
analysis refers to the comparison of
healthcare interventions and their
repercussions in which in both the resulting
benefits and costs are expressed in
monetary value (Cost-Benefit Analysis,
2016).
The CBA allows two or more treatment
options to be compared utilizing the
summary metric of net monetary value
expressed as the difference between each
treatment’s benefit and the cost of every
treatment.
For example, when comparing the benefits
of two treatment for cancer, X and Y, the
following can be used to determine the best
alternative.
o The cost of drug X is $120,000M
and its benefits is 320,000M while
drug Y has a cost of 110,000 and
benefits of 240,000. Therefore,
alternative X would prefer using
CBA because it has the highest
benefit
Quality-adjusted Life Year
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Cost effectiveness analysis refers to the way
of examining the health outcomes and costs
of one or more interventions. The analysis
compares the intervention against another
by predicting the cost of gaining a unit of
health result or preventing death (Thomas,
2016).
Examines the minimum cost of attaining the
objective to view how the choice of
intervention and cost differ as the
magnitude of goals varies.
o For example, a healthcare
organization may consider to
evaluate the effectiveness of using
volunteer paramedics and
community-based ambulance in
saving lives.
o By measuring the cost of lived
saved, the facility may consider the
best alternative.
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According to Wichmann et al. (2020),
QALY is a globally acknowledged as a
standard metric of measuring health
outcomes based on cost effectiveness
analysis.
QALY measures the illness, encompassing
both the quantity of life and quality.
o For example, during a treatment, it
is possible to determine the extra
months or lifespan of an individual
because of taking a particular
treatment, mainly chronic
conditions.
Value of Life (Payments)
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This is the economic value utilized to
quantify the gain of avoiding a fatality.
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It is the value of mitigating fatality and the
cost of evading a fatality.
Importance of Economic Concepts to Healthcare
Administrators
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Healthcare administrators can select a less costly intervention for
chronic diseases, which promotes quality of life and reduces
healthcare spending.
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Healthcare administrators use concepts, such as cost benefit analysis to
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Other ways CEA, CBA, and QAYL can help healthcare
administrators to control spending is by implementing price
patient satisfaction and quality care.
control measures by determining the cost against benefits
Cost efficiency and cost saving makes economic assessment of primary
(Stadhouders, Kruse, Tanke, Koolman, & Jeurissen, 2019).
importance in healthcare (Bergmo, 2015).
CBA and CEA can be used in volume control by assessing the
Healthcare administrators use the concepts document the value for money and
interventions methods. For instance, healthcare administrators
support effective decision making.
may decide between high-deductible consumer and coinsurance to
The value for cost-effectiveness and benefits in treatment intervention and
determine which reduces the healthcare expenditure.
other programs assist healthcare administrators to budget and compute the
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determine the benefit and cost of intervention program, thereby promoting
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Healthcare administrators may use cost effectiveness analysis
incentives in terms of payment system.
(CEA) to identify when more gains can be generated at minimum
The economic concept, such as CBA helps health administrators to make
cost determine where lower costs can attain equal benefit...
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