Good critical thinking on health economics

Reg No

The critical thinking paper begins with the discussion of health financing concept. The paper explains the process and techniques that will be used in designing the healthcare services package as well as health financing mechanism/s for Province A in country Y. Priority setting and Programme Budgeting and Marginal analysis techniques are discussed in a critical manner and recommended to be the techniques established for the health care package at Province A. Economic evaluation methods are discussed with Cost benefit analysis recommended for the case. The Strategies for implementation of health care system at Province A are discussed in the critical paper. A critical discussion of public and private insurance is done and the paper is concluded with health care recommendations for the given scenario.

Health financing

According to WHO, health financing is the health system concerning the money allocation, accumulation and mobilization of the health needs of the people. The main purpose of the health financing is to make funds available and offer financial incentives to ensure health care access to all individuals. According to Mossialos and Dixon, (2002), there are three functions of health financing including purchasing of services, pooling of resources and revenue collection. Revenue collection mainly concerns with revenue sources, payment type and collecting agents. Revenue collection is done through private insurance, social insurance, tax, payments out of pocket and agents. Pooling of resources is a health financing function that deals with fund management and accumulation of capital in the means of tax collection and insurance. The final function of health service purchasing is carried out by private or public agencies purchasing the health care services for their beneficiaries.
The health financing process general model starts from the fund source to the service provider of the health care service. The health care services purchasers include the individuals, households, revenue managers and intermediaries. The commonly adopted methods for payment mechanisms include the line item budgets that involve the allocation of functional budgets like medicines, salaries, administration and equipment, capitation involving the contribution from individuals on an annual basis to a health care provider like the hospital, global budgets comprising of the allocation of the health facilities like bed count, facility types available in the hospital, case based payment combining the cost estimation and the total costs involved in the health care facility. Per diem payment and user fee are other forms of payment mechanism.

Health Financing Modules

The design of health financing package at Province A in country Y comprises of the following modules. The explanation of each of the module is discussed above.

A. Revenue Collection

B. Pooling and Allocation of Financial Resources
C. Purchasing and Provider Payments
D. Cross-Cutting Issues

Health Finance systems Monitoring

O. A. Arah. N. S. Klazinga. D. M. J. Delnoij. A. H. A. Ten Asbroek and T. Custers, (2003) discuss the various performance indicators used in monitoring the health finance systems including the industry standard NHS PAF (Performance Assessment Framework). This framework adopts a balanced scorecard approach for measurement including tax payer (financial), user, internal management and continuous improvement perspective. .
O. A. Arah. N. S. Klazinga. D. M. J. Delnoij. A. H. A. Ten Asbroek and T. Custers, (2003) list some of the performance indicators used in the health care delivery including emergency admission rates, mental health cases, antibacterial drugs prescription rate, ulcer drugs prescription rate, percentage of patients discharged to home within 28 days, organ donor rates etc. The performance indicators vary according to the situation and the type of health care delivery. Mostly the patient’s health condition and the performance of the health care system are the basis for developing the performance indicators. The main domains of health system performance include competence, acceptability, appropriateness, accessibility, continuity, effectiveness, safety and efficiency. These performance indicators are developed to improve the quality of the health system.
A balanced score card will be used to monitor all the actions above. Balanced scorecard is one of the effective ways of monitoring and measuring results of strategies. Becky Roberts, (2010) discusses that the business score card tool consists of four main imperatives including financial, customer, internal business, and learning and growth perspectives. Balanced scorecard is industry renowned as a measurement and monitoring technique. The measurement can be quantified in terms of the four main perspectives of the balanced scorecard.
Becky Roberts, (2010) discusses some of the measures for performance and monitoring in each perspective includes return on assets, market share, sales revenue, EPS, ROI etc. in the financial perspective. The financial perspective is applicable to the financial aspects and will include a cost benefit analysis of the various activities in the hospital or clinical system. Customer perspective includes measures like performance, cost, quality, service, timeliness etc. Internal business process measures include the various internal activities in meeting expectations of the customer. Learning and growth measures include innovation, time to market, product development, process improvement, work force training and development etc. Balanced Scorecard is to be adopted for monitoring health finance systems at Province A in country Y.

Priority setting in health care system

Igor Rudan, Lydia Kapiriri, Mark Tomlinson, Manuela Balliet, Barney Cohen and Mickey Chopra, (2010) state that Evidence-Based Priority Setting for Health Care and Research: Tools to Support Policy in Maternal, Neonatal, and Child Health in Africa
Priority setting is one of the crucial approaches in health care system. Priority setting forms an effective guide to health financing. Priority setting is to be adopted for allocating resources in developing health financing package at Province A in country Y. In the low income and middle income nations, priority setting in health care is rarely done and is considered the main reason for the failure of the health care system. Priority setting depends on several factors like participants, topic being addressed, setting, process, criteria for prioritization and outcome nature. The CHNRI methodology is the most popular prioritization method in the heath care research field. The methodology was developed in the year 2005 and got popular in the year 2008. The methodology develops transparency in the priority setting method and the criteria used in setting the priorities.
Rationing or Priority setting remains a big challenge in the health care sector. Explicit priority setting is adopted in the conditions of low or weak economies. Health care financing varies across the nations. Lindsay M Sabik and Reidar K Lie, (2008) examine the health care financing systems in eight countries adopting explicit priority approach. The outlining principles or explicit priority setting approach was developed to increase the transparency level in setting the health care priorities. The main benefits of prioritizing activities include that allocation of funds to health care services becomes easier based on the priority areas and this has to be adopted for developing health care services package at Province A in country Y.

Programme Budgeting and Marginal analysis

Health care is facing the challenge of quality and efficiency in managing costs and improving access in treating patients due to improper allocation of resources. PBMA (Programme Budgeting and Marginal analysis) is one of the rational mechanisms used in health care resource allocation. Duncan Mortimer discusses that this tool or mechanism is developed to procure new pharmaceuticals and medical devices. PBMA is effective to be used in decommissioning, redeployment of resources, disinvesting and effective allocation of resources. The main features of PBMA include that of budget constraint specification, programme budget scope, advisory group role and composition, disinvestment incentives, budgetary pressure, advisory or working group’s involvement, investment proposals etc. Allocation of health resources are enhanced or streamlined using the PBMA approach.
Rosalie Viney, Marion Haas and Gavin Mooney, (2009) discuss that PBMA is an effective resource allocation mechanism and assists decision making to a great level improving the health condition of the people. PBMA process involves the splitting of the health services in a particular geographic area, clinical place or a hospital in to a set of simple program with clearly stated objectives for each program. The resource costs are estimated and the output of each program is also estimated in a quantifiable manner like the number of patients successfully discharged etc. Each program identified must be having unique objectives and cost estimates with their related outcomes. In this PBMA approach, the various costs and outputs are determined in an accurate manner. PBMA can also be used as an evaluation framework. Initially, PBMA was used as a priority setting approach in health care sector. PBMA is now widely used as a cost benefit analysis approach in most of the health care service sector. PBMA uses the estimate on the split up programs of a hospital and based on the cost estimates for each program, allocation of resources is made in such a manner to each program that the entire hospital is benefited as a whole. PBMA focuses on maximizing the benefits based on the available resources and considered to be an efficient technique. PMBA is to be adopted as a resource allocation mechanism in developing health care services package at Province A in country Y.

Economic evaluation methods

According to Ramos, (2011) Cost benefit analysis, cost effectiveness analysis and cost utility analysis are the three basic economic evaluation methods used in health care sector. Cost effectiveness analysis (CEA) is a technique used to measure the technical efficiency relating costs to a single outcome or treatment like Asthma treatment. CEA is difficult to be implemented with results having multiple outcomes or compare multiple treatments. Allocative efficiency can be accomplished using this CEA technique in the form of incremental cost efficiency analysis. Cost utility analysis (CUA) relates costs on a multi dimensional effectiveness measure. CUA is restricted to health care sector to measure the allocative efficiency and technical efficiency. Cost benefits analysis (CBA) can be used to measure allocative and technical efficiency and is widely used across the health care sector. PBMA is an important mechanism or tool of CBA.
Drummond, 2007 discusses that Cost minimization analysis (CMA) is used to compare alternative programs with similar outcomes. CBA is the most popular technique that compares the alternatives in monetary terms. CBA is a multi dimensional approach that is very popular in the health care sector. CBA is to be adopted for developing health care services package at Province A in country Y.

Strategies for implementation of health care system

Country Y is a middle income country and a primary health package must be made available to all the citizens. This health care package must be comprehensive and financed by government revenue with a minimal user involvement. The user involvement is necessary in the health care package to avoid over utilization of resources. A mandatory social health insurance scheme is essential to cover the health care costs of all government employees and other employees working in the formal sector and their family members in a middle income country. The role of government will be high in health financing in the middle income countries. The support and partnership of insurance organizations can be obtained to offer insurance coverage and provide supplementary financing to ensure that people not covered by social health insurance are covered with this partnership insurance scheme. The following strategies are to be adopted for developing health care services package at Province A in country Y.
Abdur Razzaq, (2010) states that about $ 10 trillion was spent on health care field in the year 2011. The spending is expected to increase in future. Nearly 80 percent of the spending is made out of the pocket making nearly 150 million households worldwide face financial crisis as a result of health care spending from their pocket. Most of the families are driven to poverty as a result of this spending due to illness. Out of pocket payment remains the problem in health care spending resulting in poverty and financial problems for households. Universal health care offers a solution to this problem.
The first strategy in developing an effective health finance system is to raise resources or funds for investing in health care. Government must be partnering in resource allocation by allocating a certain proportion of funds in the annual budget specifically to health care services. It is recommended on an average that government must allocate a minimum of 15% of their total annual budget to health care.
The second strategy is to develop prepayment schemes to protect the poor people. These schemes offer free health care service to the poor people through government schemes. The social health insurance schemes, Government funded schemes and private health insurance schemes are one such prepayment scheme benefiting the poor by pooling the resources from the society. The government health schemes for poor are mostly free and has received a great response from nations worldwide.
The third strategy is to promote the purchase of insurance products from the market. People must be encouraged to buy health care services. Health gains must be maximized through appropriate resource allocation. Clinical guidelines must be developed for directing the practices of the providers. Overall a cost containment strategy in usage of medicines and every field of health care is advised. Focus must be given to develop the health technology and improving the infrastructure of the medical devices.
The fourth strategy is to develop an evidence based health financing system by framing policies with the support of the national health accounts. The use of equity studies, principles of health financing, health economics etc. must be promoted, analyzed and developed by appropriate health policies. The Ministry of health staff must play an active role in the implementation of health financing policy development
The fifth strategy is to develop international partnerships for universal coverage of health care. National health insurance companies must work in close relation with the international partners to reduce and cut down the costs considerably.
The final strategy is to develop an evaluation and monitoring system for health care services and health financing. New policies must be developed to monitor the progress with performance indicators.


Howard Bolnick, (2002) discusses the various goals of the health care system with the advantages and disadvantages of public and private health financing. The main goal of a health care system is to offer a high quality cost effective comprehensive health care scheme that is universally accessible. Some of the shortcomings in the private insurance include Private insurance markets have strange economical behavior with information asymmetry on risk structure. Market failure is closely attributed to private insurance. Another disadvantage with private insurance is about service delivery certainty in insurance. The debate with public and private insurance is made with service, financing health care etc. Howard Bolnick, (2002) also comments that competition in insurance can destroy the market. The role of actuaries in insurance is crucial. On comparing the service aspect, private insurance is better than public insurance. Considering reliability, public insurance is better as health financing is reliable with government support. The private insurance with government support is to be adopted for developing health care services package at Province A in country Y.
Overall, the paper is a critical analysis of health financing techniques, priority setting, Programme Budgeting and Marginal analysis, Economic evaluation methods and finally strategies for implementation of health care system at Province A is recommended.


– Abdur Razzaq. 2011. Strategic directions to improve health care financing in the Eastern Mediterranean Region: moving towards universal coverage 2011–2015. Eastern Mediterranean conference. Dubai: EM
– Becky Roberts. 2010. The Balanced Scorecard: Translating Strategy into Results, London: Catoctin Consulting
– Drummond. 2007. Evaluation of Programs for the Treatment of Schizophrenia: A Health Economic Perspective. Germany: Bundes
– Duncan Mortimer. 2010. Reorienting programme budgeting and marginal analysis (PBMA) towards disinvestment. BMC Health Services Research. Centre for Health Economics, Melbourne: BMC
– Howard Bolnick. 2002. Designing a World-Class Health Care Financing System. USA: ICA
– Igor Rudan, Lydia Kapiriri, Mark Tomlinson, Manuela Balliet, Barney cohen and Mickey Chopra. 2010. Explicit Priority setting in health care. Israel: PLoS Med
– Mossialo and Dixon. 2002. Chapter 7. Health Financing Module. Health Systems Assessment Approach: A How-To Manual. New York: McGraw Hill
– O. A. Arah. N. S. Klazinga. D. M. J. Delnoij. A. H. A. Ten Asbroek and T. Custers. 2003. Conceptual frameworks for health systems performance: a quest for effectiveness, quality, and improvement. Netherlands Institute for Health Sciences, Rotterdam: MC
– Ramos. 2011. An Introduction to the Principles of Critical Appraisal of Health Economic Evaluation Studies. Health Economics Information Resources Journal. Pitt: Barnes
– Rosalie Viney, Marion Haas and Gavin Mooney. 2009. Program budgeting and marginal analysis: a guide to resource allocation. Centre for Health Economics Research & Evaluation. Westmead: C&R