F.4 Health economic concepts Flashcards
Determine the economic impact of digital health.
What does ‘Determination of the economic impact of digital health’ include?
It includes:
* Economic appraisal of a proposed digital health initiative
* Economic appraisal of a particular digital technology
* Economic appraisal of alternative proposed projects
* Economic analysis of an undertaken digital health project
* Socio-economic analysis of the above
What is economics primarily concerned with?
Economics studies how individuals, businesses, governments, nations, and other entities allocate finite resources, focusing on the actions of humans in seeking to optimize net benefits.
What is the standard assumption about human behavior in economics?
The standard assumption is that humans behave ‘rationally’ in their own best interest.
Who blended economics and psychology to develop the sub-domain of behavioral economics?
Daniel Kahneman and Amos Tversky
What did Kahneman receive in 2002 for his work?
He was awarded the Nobel Prize in Economics.
What is market failure?
Market failure occurs when markets do not function perfectly, often leading to inefficiencies.
How is economic analysis different from financial analysis?
Economic analysis concerns more than just money; it includes concepts like ‘economic cost’ and ‘economic value.’
What are two primary methods for determining economic impacts?
The methods are:
* Decision criteria (NPV, IRR, Payback Period)
* Cost-benefit and related analyses
What does Net Present Value (NPV) represent?
NPV is the present value of benefits minus the present value of costs.
What is the importance of the discount rate in NPV analysis?
The discount rate reflects the opportunity cost of invested resources and is crucial for accurate NPV calculations.
What is the formula for calculating NPV?
NPV = PVB - PVC, where PVB is the present value of benefits and PVC is the present value of costs.
In the context of NPV, what does sensitivity analysis involve?
Sensitivity analysis involves using a variety of discount rates to model impacts on NPV.
What is the Internal Rate of Return (IRR)?
IRR is the discount rate that makes the NPV equal to zero.
What does a project with an IRR exceeding the cost of capital indicate?
The project could be accepted.
What is the payback period?
The payback period is the length of time required to recover the cost of an investment.
Why is the payback period considered a gross measure?
It fails to account for the time value of money and ignores costs and benefits occurring after the payback period.
What is cost-benefit analysis?
Cost-benefit analysis is a methodology for expressing costs and benefits in monetary terms at the organizational level.
What is the ‘quadruple aim’ in healthcare?
The quadruple aim includes:
* Improved patient experiences
* Better health outcomes
* Lower costs
* Improved provider experiences
What should be compared in a cost-benefit analysis?
All options should be compared to the ‘base case’ or ‘do nothing’ option.
What factors should be included in the cost analysis of a project?
Costs may include:
* Capital costs
* Recurrent costs
* Ancillary costs
What are common benefit categories in cost-benefit analysis?
Common benefit categories include:
* Savings to stakeholders
* Benefits from better health
* Benefits from a more attractive workplace
What is the ‘quadruple aim’ in healthcare?
The ‘quadruple aim’ includes:
* Improved patient experiences
* Better health outcomes
* Lower costs
* Improved provider experiences
The quadruple aim serves as a framework for healthcare organizations to achieve multiple objectives simultaneously.
What happens to the net present value (NPV) as the discount rate increases?
The NPV reduces as the discount rate increases
Higher discount rates reflect higher borrowing costs or greater project risks, affecting the evaluation of project viability.
What is the human capital approach in cost-benefit analysis?
It equates the value of life with the productivity of the individual, measured by a discounted stream of higher future earnings
This approach assigns a monetary value to human life based on economic productivity.
What is the required compensation approach in cost-benefit analysis?
It imputes a value of life from the wage premium workers require for jobs with higher-than-normal death probabilities
This method assesses the value of life based on the additional compensation workers demand for risky jobs.
What are intangibles in the context of digital health projects?
Intangibles include cultural factors and elements that are hard to quantify, such as trust levels
These factors can significantly influence the outcomes of health initiatives but are often qualitative.
List some limitations of cost-benefit analysis.
- The analysis is only as good as the assumptions and valuations that support it
- Not all costs and benefits are easily monetised
- May ignore distributional effects
These limitations can affect the reliability and applicability of cost-benefit analysis in real-world scenarios.
How does cost-effectiveness analysis differ from cost-benefit analysis?
Cost-effectiveness analysis monetizes costs but not all benefits, which may be expressed in units like QALYs
This analysis helps prioritize options based on cost per unit of effectiveness.
What is the dual-system theory proposed by Kahneman?
It describes two systems of thinking:
* System 1: Intuitive and instinctive
* System 2: Reflective and analytical
The theory explains why decisions may not always be rational, depending on which system is in control.
What is market failure?
Market failure is when the market does not deliver an efficient outcome due to misaligned private incentives and broader societal interests
This concept highlights the limitations of markets in achieving optimal outcomes.
What are public goods?
Public goods are ‘non-rivalrous’ and ‘non-excludable’, meaning one person’s consumption does not prevent others from consuming them
Clean air is a classic example of a public good.
What are externalities?
Externalities are benefits or costs imposed on unrelated third parties due to the consumption of goods and services
They can be positive (e.g., vaccination) or negative (e.g., pollution).
Define network externalities.
Network externalities occur when the value of a good or service increases or decreases as the number of users rises
Positive network externalities increase value with more users, while negative ones decrease value.
What are positive network externalities?
Positive network externalities occur when the value of a good increases as more people use it
A telephone network is an example; its value grows as more subscribers join.
What are negative network externalities?
Negative network externalities occur when the value of a good decreases as more people use it
An example is low bandwidth Internet, where increased users can degrade service quality.
