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The importance of economic health models in the healthcare industry

With the enormous strain the pandemic had on healthcare in the United States, a push to create a more economically viable healthcare system is of top priority. When economists look at how to reduce costs in healthcare, they look to working health models to make decisions. The significance of these models is that they provide the decision-makers with a framework for comparing and measuring costs and what benefits there are in changing the status quo. Economic health models are designed to analyse all health and cost consequences of intervention beyond the clinical trial. They do this without leaning towards one opinion so the analysis is objective and impartial.

What is economic modelling in the healthcare service?

The economic model in healthcare provides decision-makers with insight into how the business of health can be financed and organized. In some cases, the modelling is done with examples from real organizations using real people and patients. An example of a working approach to economic modelling is the Cleveland Clinic which started a program to reduce health costs by monitoring the employees on the 6 major health concerns that face Americans today; high blood pressure, high cholesterol, diabetes, obesity, smoking and asthma. The incentive for the employees was a reduction in healthcare premiums if they participated in the program. They were then checked routinely for these six ailments and those who were falling within dangerous levels were treated before their health was affected too much. What ended up happening was that the workforce changed their lifestyles and became healthier, and healthcare costs to the company actually declined by 2%. Now imagine applying this model to national healthcare and think about the billions of dollars it would save the country. Looking at healthcare in terms of economics is done by health economists who are trained to analyse the healthcare industry from different perspectives.

One example of an economic health model that has been put into action is a value-based healthcare delivery model in which health providers such as physicians, hospitals and clinics providers are paid based on the health outcomes of patients. This model rewards providers for improving the health of patients and reducing the effects and incidence of chronic disease.

As opposed to a fee-for-service approach, the providers are paid according to the services they provide. The value is the measure of health outcomes against the cost of delivering those outcomes

What are the benefits of value-based healthcare delivery model?

  • Patients spend less for better healthcare –This model provides patients with better healthcare and spends less money. When an individual has a chronic disease like cancer, diabetes, high blood pressure, or obesity, they can spend a lot of money and time on treatments and in some cases, they can’t afford those options. This type of model helps patients recover from illnesses faster and provides care to prevent chronic illnesses before they crop up. Patients spend less time attending doctor’s appointments, medical tests and procedures and spend less money on medication. This improves long-term and short-term health implications and saves the patient time and money.
  • Providers achieve a level of efficiency and patient satisfaction that they would not otherwise. They may spend money on new services that are meant to prevent chronic illnesses, but they will save money on measures to treat chronic illnesses. When the focus is on the value of treatment versus the volume of treatments, everyone stands to gain.
  • Payers control their costs and reduce their risks.The risk is reduced because the costs are being spread over a larger patient number. When the population is healthier and has fewer claims that translate into a reduced drain on payers’ premiums. Bundling payments is another way payers can be more efficient and reduce costs for a patient’s full care cycle.
  • Suppliers benefit from aligning their prices with positive patient outcomes and that reduces costs. This is an attractive proposition as expenses related to healthcare nationwide have been increasing. There is a call for manufacturers of drugs to price their products according to their value to patients.
  • Society as a whole becomes healthier with fewer chronic illnesses and there is a reduction in healthcare spending across the board. Less money is spent on treating chronic illnesses and hospital stays and the money that is being spent focuses on preventative measures. When society is healthier, the premiums for health insurance comes down and so do the overall costs spent on healthcare.

The individuals who are responsible for collecting this data and translating it into useful information to present to payers is called health economist.

What do health economists do?

Health economists are trained to look at healthcare from a number of angles;

  • Putting a value on healthcare
  • Factors that influence health
  • Factors that influence the demand for healthcare
  • Ways of producing health care
  • Ways to monitor healthcare
  • Factors that influence the supply of healthcare
  • Planning, budgeting and monitoring
  • Economic evaluation

The three principles that health economists look at before breaking down their analysis include:

  • Opportunity cost – opportunity cost stresses the importance of value as opposed to money. When one service decides to increase its spending in one area to benefit one area of health, then the health economist will look at what area is going to have its spending cut and outweigh the benefits of the increase against the loss in another area. This is a different outlook than an accountant of an organization whose only concern is the bottom line.
  • Perspective – it is imperative to view each economic question in terms of the viewpoint of the analysis. This will keep it objective and doesn’t take into account the perspectives of the individual stakeholders like the patient, board, health authority and others. Different perspectives will lead to different outcomes when making decisions on cost analysis so the economist must always take the viewpoint of the analysis.
  • Marginal analysis – this analysis considers how the cost of the change will benefit incrementally as opposed to the average benefit.

Those who are interested in a position in healthcare such as nursing should know more about the application of economic and health models in the healthcare system today. Online schools such as Walsh understand the importance of having working knowledge in this important aspect of healthcare. If you are looking to getting your DNP-FNPfrom Walsh University, you will learn about various models and how they address health service issues which will aid in allowing you to explore more advanced career paths.

There are four types of formal economic evaluation:

  • Cost minimisation analysis – this analysis is very straightforward and only deals with the cost alone. The analysis compares two or more interventions for cost and then the least expensive option is chosen.
  • Cost-effectiveness analysis – this type of analysis compares products or services that have a similar health outcome such as drugs and rehabilitation programmes and presents the findings in a form of a ratio. An example would be comparing one-on-one outreach to women asking them to attend antenatal classes versus sending out a mass text message. The cost of one-on-one outreach is $3500 and it recruited 17 more women while the SMS outreach cost $700 and produced 6 extra women. The cost-effectiveness analysis would fall on the side of the SMS outreach which only cost $117 per extra woman versus the $206 per woman the personal outreach ended up costing. This type of analysis has been used on CBD and its viability as a treatment for certain ailments.
  • Cost-utility analysis – this analysis is done when the intervention can impact both quantity and quality. It is used to assess the costs and benefits when there is more than one outcome of interest and compares programs across different treatment areas. One commonly-used measure in the cost-utility analysis is quality-adjusted life year (QALY). This measures the impact on the quality and quantity of life and applies a number of QALYs to it.
  • Cost-benefit analysis – attempts to evaluate all aspects of intervention in monetary terms.

This area of economics will become even more important in the future as companies and governments look to more cost-effective ways of providing the best healthcare possible. The careers in this area are varied and provide an opportunity to make a good living as well as a stepping stone for further job advancement.

  • Health Economist – This position includes being able to research projects including modelling, using real-world data research and patient outcomes.
  • Health Data Scientist – Responsible for managing large data sets in healthcare and creating detailed reports to communicate their findings.
  • Health Equity Analyst – Recommend investments in healthcare and biotechnology by applying their expertise in medicine, science and analytics
  • Modelling and Forecasting Specialist – These individuals identify opportunities to support health strategies using complex models that support healthcare needs.

When it comes to the value of healthcare, the value of a person’s quality of life as well as the duration of that life must be taken into account. Economic health modelling is important because it analyses healthcare from all angles and then recommends the best intervention without prejudice.

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