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Economic Issues in Health Planning and Policy
Economic Issues in Health Planning and Policy
Health planning is basically about choice: choice between one future or another; choice between various ways of
achieving that future. Health economics is also interested in choice, so there is an obvious affinity between health
economics and health planning.
Economic considerations play a key role in all aspects of life: in agriculture, housing, industry, trade and in health. In
addition, the nature and level of a country's economic development is a major determinant of the health status of its
inhabitants and is associated with the level of health service and health-related activities a country can support.
Health policy and its implementation is thus strongly influenced by macro-economic considerations.
At the same time, the health of a population can itself influence economic progress. Health programmes have
therefore come to be seen as part of a comprehensive strategy aimed at improving the social and economic welfare
of populations. Such a strategy demands the selection of those programmes which improve health most efficiently:
health services, the provision of other infrastructure such as water and sanitation, or actions aimed at improving
nutrition, for example. Health economics can help to evaluate such choices.
The recent reappraisal of health policies in a number of countries has involved questioning the merits of many
existing forms of care and of past strategies and priorities. Choices on how best to improve health exist everywhere,
but such choices in poor countries are both crucial and difficult. Efforts to widen the choices to be considered for
delivering health services and for encouraging health-promoting activities are therefore highly relevant.
They are particularly relevant in the economic context of lower income countries. Health services absorb a significant
proportion of both government expenditure and family budgets. They also demand scarce foreign exchange for
drugs, equipment and transport. Governments are actively seeking ways of containing costs, increasing efficiency
and tapping additional resources. Health economics is attractive to them since it promises to help improve the
allocation of health resources, increase their efficiency, identify more cost-effective technologies and evaluate
alternative sources of health finance.
Table 1 attempts to elaborate the connection between economics and health planning in the following manner. The
first column identifies a number of issues that are of direct relevance to planners (items A-G inclusive). Not
infrequently the economist, in looking at such issues, needs to generate further questions which require answering
before the issue can be tackled. These further questions appear in the second column under the heading 'Prior
Questions'. The final column is intended to show what economists can contribute in that area and offers pointers to
those parts of economic theory that can best help to elucidate the planning issues.
It is important to emphasize, however, that health economics does not have all the answers. There are particular
difficulties in applying some of the traditional conceptual and technical tools of economics to health. These difficulties
may make health economics of great intellectual fascination to economists, but they hamper the application of health
economics to health planning. While health economics certainly does have quantitative techniques to offer health
planning, an equally important contribution is its distinctive mode of thought. The kind of approach characteristically
adopted by the economist has been described by Culyer (1981) as:
“the desire to specify an unambiguous objective or set of objectives against which to judge and monitor policy; the
desire to identify the production function; the recognition of the importance of human behaviour, as well as technology
and the natural environment, in the causes, prevention, cure and care of disease”.
The economist's views, of course, will represent only one input to planning and planners will weigh up views from a
variety of sources in making their decisions.
Table 1. The relevance of economics to planning.
I Health and economic 1. What constitutes health and Identification and measurement issues of
e.g. development health improvement? health and illness/disease; basic needs
How much should be measures.
spent on health? Macroeconomic models of economic
How much should be development; determinants of growth.
spent on health services? Human capital theory: investment and
consumption elements of health
expenditure; household production functions
for health; ill-health and the productivity of
labour.
II Organization and 1. What are the economic Welfare theory and market failure:
e.g. delivery systems characteristics of health care rationality, consumer sovereignty, income
How should health and health related activities? and wealth issues, indivisibilities,
services be organized? externalities, public goods and merit goods.
III Finance of the health 1. What are the sources of Social accounting systems and public
e.g. sector health care financing? finance: revenue generation and tax
How can more resources incidence; self-financing, insurance and pre-
be obtained for health? payment mechanisms; ability and
willingness-to-pay concepts.
IV Demand analysis 1. What determines the demand Theories of household, individual and
e.g. Why do consumers prefer (or absence of demand) for supplier-induced behaviour: generation and
one health agency rather specific health services, and interpretation of demand schedules;
than another? for traditional healers, determinants of demand, price, income and
How can the utilization herbalists and practitioners? cross-elasticities; time costs.
pattern of health services
be influenced?
V Supply analysis 1. What determines the cost Production functions and substitutability
e.g. Are some health facilities behaviour of organizations between inputs. Estimation of short- and
being run more efficiently and health agencies? long-run cost curves, average and marginal
than others? costs, private and social costs. Determinants
Can economies be made of hospital and health centre cost variations
in existing services? (case-mix, quality factors); economies of
What size facilities should scale.
be built?
VI Health manpower 1. What determines the supply Labour markets and the demand for and
e.g. What types of health and distribution of each type supply of health workers. Marginal
manpower should be of human resource? productivity theory. Factors influencing
trained and employed? supply elasticities: impact of income levels
How should they be and financial incentives, leisure preferences;
trained? private practice the brain drain.
VII Financial management 1. How is the budget divided, Budgeting systems and accountability (cost
e.g. How can financial who controls the budget, and centres, cost units); inventory management.
management procedures how is that control exercised? Determinants of supplier behaviour (local,
be improved? national, multi-national).
Shadow pricing and social opportunity costs.
VIII Organizational behaviour 1. Who makes the resource Managerial and behaviour theories of
e.g. How can managers and allocation decisions to and government, not-for-profit, profit and
health workers be within the health sector, and voluntary organizations. Notions of efficiency
encouraged to increase what are their objectives? and the role of inducements (rewards and
their efficiency? penalties).
IX Project Evaluation 1. Does the service do any good Micro-economic evaluation: cost benefit and
e.g. Which health programmes or have any discernable effect cost-effective analyses.
or services should receive on health? For whom? Notions of 'effectiveness' and the 'margin';
highest priority when size and incidence of costs and benefits.
allocating new funds?
X Health policy, equity and 1. How best can resources be Optimum welfare criteria and the concept of
e.g. social justice matched to the population's the social welfare function.
Does the operation of the needs, mortality and morbidity Inequalities and inequities in health care:
health sector reflect of the patterns, demands and definition and measurement issues.
government's objectives utilization? Effect of socioeconomic variables and
e.g. for equity? physical access on utilization patterns.