Healthcare Economics & Financial Management

POSTGRADUATE PROGRAMS School of PUBLIC HEALTH AND COMMUNITY MEDICINE PHCM9441 Healthcare Economics & Financial Management Semester 1, 2014

Contributors Course Convenor: Kevin Forde Senior Lecturer School of Public Health and Community Medicine Faculty of Medicine University of New South Wales UNSW Sydney NSW 2052 Tel: +61 (2) 9385 2372 Fax: +61 (2) 9385 1526 Email: k.forde@unsw.edu.au 2014. The School of Public Health and Community Medicine and, University of New South Wales. CRICOS Provider No: 00098G. Previously published material in this book is copied on behalf of the University of New South Wales pursuant to Part VB of the Copyright Act as amended.

Contents Course Outline Welcome 1 Course staff 1 Course information 2 Course aim 3 Learning and teaching rationale 4 Details of assessment requirements 8 Readings and resources 23 Continual course improvement 24 Additional support to students 25 Course schedule 2014 - internal 27 Glossary of economic terms 28 Module 1: Financial Management 1-1 Section 1: The nature and purpose of accounting 1-3 Section 2: Basic accounting statements 1-27 Section 3: Recording financial transactions 1-51 Section 4: Cash accounting versus accrual accounting 1-59 Section 5: Accounting and economic costs 1-75 Section 6: Budgets and budgeting 1-103 An example of health care financial statements 1-137 Example assignments and answers 1-139 Worked examples 1-141 Answers to worked examples 1-151 Module 2: Introduction to Health Economics 2-1 Section 1: Health care financing in Australia 2-3 Section 2: Important economic concepts 2-29 Section 3: The Market System 2-49 Section 4: Distinctive economic characteristics of health 2-65 Section 5: Demand and supply of health services 2-85 Section 6: Activity based funding 2-97 UNSW School of Public Health and Community Medicine i

Course Outline Welcome Welcome to the course Healthcare Economics and Financial Management. In this course you will be introduced to many accounting principles, processes and procedures and their general application to the health care system. In addition, we will examine some key concepts in health economics such as what is meant by an efficient allocation of resources and why the Australian government, and most other governments in the world, plays such a dominant role in healthcare provision and funding. The course is presented in two modules. Module 1 Financial Management is covered in the first half of the semester and Module 2 Health Economics is taught in the second half of the semester. Together these modules will provide you with core capabilities for making health management decisions related to budgets and resources. They will also assist you to understand economic principles and techniques that influence decision making and government policy in the healthcare industry. The primary objective in the financial management module is to help you develop a sound working knowledge of basic financial statements as well as an understanding of budgeting for decision-making and managerial control in health management. The second module, Health Economics, aims to introduce you to the economic way of thinking. You will be introduced to many economic concepts and how they are applied to actual situations in the health care industry. In both modules the emphasis is on understanding how finance and economics can be used in day-to-day decision making so a practical hands-on approach will be taken. Similarly, the assessments will be practical rather than theoretical. Course staff Course convenor Kevin Forde Ph: (02) 9385 2372 Email: k.forde@unsw.edu.au Something about me I have lectured in health economics and healthcare financial management at the University of New South Wales for more than 15 years. In addition to my academic career, I have been an analyst with a stockbroker, a fund manager with an insurance company, managing editor of Australian Practice Management a monthly magazine for doctors about the business side of running a medical practice, and editor of the Company Director, the official magazine of the Australian Institute of Company Directors. UNSW School of Public Health and Community Medicine 1

PHCM9441 Healthcare Economics and Financial Management I co-authored Microeconomics: An Introduction for Australian Students and have coauthored five books on investing, including: You only make a profit when you sell (I wish I had taken my own advice in 2007!) Successful share buying, and Understanding personal investment and finance. My research interests in healthcare include the impact of private health insurance on the demand for health services, and the business aspects of running medical practices. Course information This course is a core course of the Master of Health Services Management Program, comprising six units of credit towards the total number of units required for completion of the masters program. There are no pre-requisites for this course. This course is divided into two modules: 1. The first module, Financial Management, consists of six sections. In this component of the course, you will be introduced to many accounting principles, processes and procedures and their general application to the health care system. The primary objective in the financial management module is to help you develop a working knowledge of fundamental accounting practices as well as an understanding of budgeting for decision-making and managerial control in the health care industry. You will be introduced to various cost concepts and methods of budgeting so that you will be better able to grasp the financial structure of your work environment. 2. The second module, Health Economics, is an introduction to the field and consists of six sections. Section 1 outlines the current funding arrangements for health care in Australia and highlights the significance of the overall amount spent on health care. Sections 2 and 3 describe the methods and tools used by economists to represent economic relationships particularly in relation to health care. How a market system would allocate resources to healthcare is examined in Section 3. Section 4 discusses some of the distinctive characteristics of health care as a means of explaining why the government is so heavily involved in this area of the economy. Section 5 then looks at specific factors that influence the demand and supply of health services both now and in the future. Finally, section 6 examines the structure and impact of both private and public health insurance on health care provision and delivery. There are also glossaries of terms included in the course material which summarise and define many of the concepts used in the lecture notes. 2 UNSW School of Public Health and Community Medicine

Course Outline Course aim The aim of this course is to provide you with core capabilities in understanding and applying financial concepts and techniques as well as the principles and tools of healthcare economics to inform your decision making as a health care manager. In Module 1 the aim is to introduce you to fundamental accounting methods that you can apply to a health service context and equip you with practical skills that will help you become a better healthcare manager. In Module 2 the aim is to introduce you to issues and theoretical perspectives of health economics and to enable you to relate these concepts and approaches to your own personal and work experiences so that you have a better perspective on how the overall Australian health system functions. Course outcomes By the end of Module 1, you should be able to: 1. Identify the three main financial statements ie the balance sheet, profit and loss statement and cash flow statement. 2. Have a working knowledge of the doctrines and conventions of accounting - such as relevance, reliability, materiality and timeliness. 3. Explain the difference between cash and accrual accounting. 4. Calculate a break-even point for a health service. 6. Construct a budget and analyse the difference between budgeted and actual outcomes. 7. Apply these accounting concepts to better understanding the cost and revenue structures of the organisation in which you work. By the end of Module 2, you should be able to: 8. Identify and outline the key aims, concepts and principles of health economics. 9. Outline the unique features of the healthcare market and how these influence decisions relating to equity and efficiency; 10. Explain the reasons why governments intervene in the healthcare industry and the impact this has on the demand for health services. 11. Identify specific factors that influence the current and future demand and supply of health care. 12. Outline the main features of the Australian healthcare system in particular how health spending is financed and the roles and responsibilities of various levels of government. 13. Discuss the advantages and disadvantages of activity based funding as a means of financing the provision of health services. UNSW School of Public Health and Community Medicine 3

PHCM9441 Healthcare Economics and Financial Management Graduate Capabilities The Master of Health Management specifies eleven Graduate Capabilities that are fostered through this program, as set out elsewhere in our program materials. This course specifically relates to nurturing your knowledge and skills in the following capabilities: Utilising information for decision making in health service delivery o Making decisions that are informed by evidence and data o Managing and using health information to support healthcare and health service related decisions Interpreting the dynamics of the healthcare system and policy context Strategically planning and managing resources for health service delivery o Planning strategically to meet the needs of the healthcare context o Interpreting and using financial information for planning and managing organisational resources and infrastructure o Understanding and using health economic concepts and data for informing for health service planning and operational management The course also relates to nurturing your interactional abilities and personal attributes particularly in this course in relation to: Communicating across a range of health service contexts Enhancing the capacity for collaborative and multidisciplinary teamwork Applying analytical and critical thinking for creative problem solving o Evaluating evidence and assumptions o Using evidence and sound judgement to inform practice o Applying strategic thinking to problem solving and decision-making. Learning and teaching rationale This course assumes no prior knowledge of either economics or finance. It is important that health services managers make the best possible use of the resources available to them. Whatever your area of management responsibility, skills in financial management enable you to use financial information to help in your decision making and thus contribute to something bigger getting better health care to more people. This course will not turn you into a financial expert able to produce vast amounts of numbers and statistics. But it will assist you to become more comfortable with financial information, so you will be able to construct a budget or develop financial projections for a new service. You will also learn how to critically examine financial information so that you can identify key issues and discuss these confidently with your finance team and senior management colleagues. In the field of health economics, the study of the nature and degree of trade-offs between equity and efficiency in health policy is of particular interest. The aim in Module 2 of this course is to help you identify and describe the main aims and concepts in health economics, to analyse issues in management, planning and 4 UNSW School of Public Health and Community Medicine

Course Outline implementation that can be guided by economic thinking and most importantly, to guide you in developing an economic perspective to apply in your own work. Economics, let alone health economics, is not a discipline or area of knowledge health professionals commonly receive training in during their clinical/management career and many of you may come to this course with some fear and trepidation. By the end of this course, you should be able to bring together your own knowledge of health care, the health care system and delivery, personal and work experiences and tie that in with economic approaches to build up your ability to make judgments and decisions which are well informed. At the end of this course you should have a better understanding of the financial structure of the organisation in which you work and a greater appreciation of how the Australian healthcare system functions. Teaching strategies This course assumes no prior knowledge of accounting, financial management or economics and starts at a very basic level and then works into more complex problems. At all times the aim is to introduce you to concepts and skills that will be of value in your everyday work. The on-campus residential workshop External students are required to attend the two-day workshop during the residential week. The aim is to introduce the course, its outcomes, assessment criteria and some of the content. The residential workshop is an opportunity for you to clarify expectations, meet other students and establish a working relationship with us all. The on-campus weekly lectures Internal students are required to attend weekly lecture/tutorials during the University semester. These sessions provide the opportunity to discuss the content of the course, its applications to your work and to learn from each other in an informal environment. Lectures and are conducted on an interactive basis where you are encouraged to ask questions and to discuss issues that are raised. From time to time we will work through some of the examples in the lecture notes so it is essential to bring these with you to each class. UNSW School of Public Health and Community Medicine 5

PHCM9441 Healthcare Economics and Financial Management Online learning component using Moodle As part of the TELT (Technology Enabled Learning and Teaching) applications at UNSW, this course will use Moodle (Learning Management System) and the online component will be delivered in this environment. UNSW Moodle is a learning management system that supports university learning and teaching by extending the face-to-face learning environment to online learning spaces and providing virtual classrooms for distance learning courses. See: https://student.unsw.edu.au/moodle The online component of this course provides: 1. Course notes with Web links to required readings. 2. The weekly teaching session overheads, which will be posted in the week prior to each internal class. 3. A discussion facility for you to: a. Raise any questions. Unless questions are of a personal nature, please do not email me directly, but raise them using this facility. I will check UNSW Moodle at least twice weekly and address any issues raised. b. Notify your classmates of any issues of Health Economics and Financial Management which occur during semester. c. Join a discussion group where you can contribute your views on a series of specific discussion questions. Participation in these online discussion groups is worth 10% of the total assessment for this course (see Assessment Task 3 for more details and Assessment Folder in Moodle for the list of questions). 4. A place where you get to know more about your peers and chat socially amongst each other. Guidance for using UNSW Moodle The School runs an elearning tutorial during residential week at the start of each semester. If you are unable to attend this tutorial, guidance for using UNSW Moodle, including some basic tips, can be found at: https://student.unsw.edu.au/moodle If you are still experiencing difficulties with UNSW Moodle, please contact the UNSW IT Service Desk for assistance: Email: externalteltsupport@unsw.edu.au Tel: (02) 9385 3331 6 UNSW School of Public Health and Community Medicine

Course Outline Contact hours For internal students this course will be undertaken in a twelve-week semester of weekly two-hour classroom activities, or the two-day workshop for external students. In addition, four further hours of private study each week are expected, meaning that over the full semester you are expected to study for a minimum of 72 hours. Marking criteria Contributing elements for quality assignments are: 1. Application of your personal and professional knowledge and experience and 2. Application of your adherence to the set of commonly expected academic standards such as: support any claims you make with relevant statistics or literature; organise and develop your argument clearly; and analyse, don't merely describe. You may use any of the standard referencing styles as long as you use it consistently. Writing Assignments If you have time, you should do a draft of your assignment a couple of days before it has to be submitted and go through it for the final version to ensure you have covered all the key points. Simply regurgitating the course and published material is insufficient to pass this course I am looking for evidence that you understand the issues: try and show that evidence. The School has provided a guide to good assignment writing, as follows: 1. Does the introduction to the assignment foreshadow the theme/shape of your argument? 2. Does the assignment develop in a connected, logical way? 3. Does each paragraph present a main idea and subsequent elaboration? 4. Have you defined the way in which you intend to use term(s)? 5. Have you selected an appropriate place to define terms (e.g. when the term was first used) and incorporated it within the context of your discussion? 6. Does the conclusion draw together the threads of the argument, themes etc. and present your final comment or solution to the question? 7. Have you checked that your spelling and grammar are correct? 8. Have you referenced all ideas which are NOT YOUR OWN throughout your assignment? UNSW School of Public Health and Community Medicine 7

PHCM9441 Healthcare Economics and Financial Management Details of assessment requirements Assessment is based on an assignment for each module (Module 1 - Financial Management and Module 2 - Health Economics) worth 45 marks each, plus participation in the online discussion groups via Moodle that is worth 10 marks. Assessment Task 1 Module 1: Financial Management Assignment 1 Due date: 28 April 2014 Weighting: 45% Important: You must show all calculations and explain how you got all your answers. For example, suppose a question asks what the profit will be in a particular month and you put "$50,000". Even if this is correct you will receive no marks if you do not show how you got the answer. There is no need for footnotes or references unless you quote directly from a source. But it is essential that the work is your own. Question 1 (15 marks) Items from the Prince Harry Hospital s balance sheet and revenue and expense (income) statement for the 2012/03 financial year (ending 30 June) were accidentally listed in alphabetical order as follows: Balance sheet and profit and loss information Agency costs (Nursing) 12,973 Bank overdraft 73 Car park revenue 10,519 Cash and Cash Equivalents 25,126 Contributions received from the Department of Health 7,527 Current Payables 53,792 Current Receivables 33,994 Depreciation and Amortisation 61,360 Dividend income 38,798 Donations and Bequests 11,939 Equity 525,402 Finance Costs 1,545 Government grants received 713,203 Insurance expense 11,832 Interest income 5,207 Inventories 7,210 Long term Investments 44,478 Long term Loans 22,450 Long-term leave entitlements payable 17,187 Maintenance and Security expenses 23,244 Motor vehicles 12,270 Patient and Resident fees received 31,620 Power and utilities expense 1,301 8 UNSW School of Public Health and Community Medicine

Course Outline Property, Plant & Equipment 639,912 Rental/Property income 19,028 Revenue from Private Health Insurance 44,398 Revenue from private practice 31,071 Short term Loans 1,093 Short-term Employee Entitlements payable 142,993 Superannuation 89,483 Supplies & Consumables expense 179,819 Transport Costs 728 Wages and Salaries 549,489 Prepare a balance sheet. Make sure to distinguish between current and non-current assets and liabilities. All figures are in thousands of dollars. a. Prepare an income (profit and loss) statement for this organisation. b. Do you think that this hospital is in a good position to pay its short term debts? Explain your answer. The Hospital s cashflow information was also put in alphabetical order as follows: Cash flow information Cash at beginning of year 9,879 Cash at the end of year 17,134 Donations and Bequests Received 11,939 Employee Expenses Paid 553,246 Finance Costs paid 1,545 GST received 25,867 Non Salary Labour Costs paid 12,560 Operating Grants from Government 720,497 Other Receipts 52,946 Patient and Resident Fees Received 24,027 Payments for Supplies and Consumables 321,412 Private Practice Fees Received 41,590 Proceeds from Sale of Investments 332 Proceeds from Sale of Non-Financial Assets 335 Purchase of Property, Plant and Equipment 24,326 Repayment of Borrowings 1,026 Revenue received from private health insurance 43,837 c. Prepare a cashflow statement showing operating, investing and financing cashflows for the 2012/13 financial year. d. Did the hospital experience a net cash inflow or net cash outflow for this financial year? Did the hospital make a profit or loss during the year? Briefly explain why these figures are different. UNSW School of Public Health and Community Medicine 9

PHCM9441 Healthcare Economics and Financial Management Question 2 (10 marks) Assume that the December 2013 transactions for Dr Landry s Family Health Care are as follows: a. Received cash of $1,900 from patients for services provided during November 2013. b. Provided services of $10,800 in December 2013 to patients who had not paid by the end of December 2013. c. Received $6,500 for services provided in December 2013 for patients who paid cash. d. Received office supplies of $400 with the bill to be paid in January 2014. e. Received $6,900 from insurance companies that paid on for services that had been provided to patients in October 2013 and November 2013. In December 2013, $1,050 of services were provided to insurance company clients and this amount had not been paid by the end of December 2013. f. Paid $310 for supplies that had been purchased in November 2013. g. Expenses paid in cash during December 2013 were as follows: wages, $4,200, including $220 which was owed for work done in November; rent, $800; utilities, $610; interest, $100; miscellaneous expenses, $520. h. Paid dividends in cash of $1,200 to Dr. Landry. Dividends do not affect the profit figure as they are paid out after profits have been calculated. But they do affect cash flow. So dividends are NOT considered an expense. Additional information: i. For transaction (g), the $4,200 of wages paid includes wages of $220 that were accrued at the end of November. Also at the end of December, $340 was owed to employees for work done in December but had not been paid at the end of December. ii. In January 2013, Doctor Landry paid his yearly professional indemnity insurance of $13,200 in cash. iii. Office supplies used during December were $275. iv. Depreciation on office equipment for December was $160. v. The December 1, 2013 cash balance for Family Health Care s bank account was $7,730 1. Prepare a profit and loss statement for this practice for December 2013. 2. Show whether the cash flow of the practice was positive or negative during December 2013. 3. Explain why the profit and cash flow figures were different. You must itemise the differences eg if the difference was $10,000 you need to say $5000 of the difference was because.. etc. 10 UNSW School of Public Health and Community Medicine

Course Outline Question 3 (10 marks) The New Age Clinic has fixed costs of $250,000 per annum, its average fee per patient visit is $95, its variable costs per patient visit are $80 and it has a maximum capacity of 12,000 patient visits per year. 1. On the basis of these figures what profit or loss is the Clinic making per year if it is at its maximum capacity of 12,000 patient visits? What profit or loss would it make with 10,000 patient visits per year? 2. How much would the Clinic have to charge per patient visit to break even at its maximum capacity of 12,000 patient visits assuming fixed costs and variable costs remain unchanged? 3. Studies have shown that if the Clinic raises its fee above $95 per patient visit, demand would be dramatically lower. Keeping patient fees at $95, variable costs per patient at $80 and patient visits at 12,000 per year, what is the most the Clinic could spend on fixed costs to break even? 4. After further study, the Clinic determines that it can cut fixed costs to $200,000 per year, but no lower. If fees are kept at $95 per visit, the volume of patients is 12,000 per year and fixed costs are $200,000 per year, how much can the Clinic spend on variable costs per patient and still break even? 5. After many committee meetings the Clinic s managers decide to raise the fee per visit to $100, lower fixed costs to $200,000 and keep variable costs at $80 per visit. How many visits do they need to break even? Is this achievable, and what profit would be made if there are 12,000 patient visits? Question 4 (4 marks) The Urban Life Research Centre at Davis University needs to prepare a budget for a research proposal to do an in-depth study of the county s after-school programs. The county is willing to pay $17,500 for each site studied, up to 15 sites. A report must be submitted within a year of the start of the project. Regardless of the number of sites, the centre will need a primary researcher at $60,000 per year and 2 associate researchers at $35,000 each per year to do the study. Supervising the site studies is the responsibility of the associate researchers. Each associate researcher will be able to supervise up to eight sites. Research assistants are needed to transcribe field notes and provide support for the associate researchers. These part-time research assistants are each paid $6,000 and are only able to support 3 site studies each. The centre must budget 30% of the salary of the primary and associate researchers for fringe benefits. Based on past experiences the centre estimates that it will need $2,500 for supplies. Researchers will have to travel to each research site. Each trip will cost $20 and the centre expects that 40 trips will be made to each site during the study. Prepare a flexible budget of revenues and expenses for a study that includes 9 sites, 12 sites, and 15 sites. The University is not prepared to make a loss on this project. Write a brief report to the manager of the research centre about the financial viability of this project. UNSW School of Public Health and Community Medicine 11

PHCM9441 Healthcare Economics and Financial Management Question 5 (6 marks) Suppose you are asked to do a cash flow budget for the next 12 months for a newly opened baby health clinic. The budget must be done on a month-by-month basis. As the clinic has just opened you have no historical accounting data. The clinic is allowed to treat both private (fee paying) and public (no fee charged) patients. Outline the steps you would take, the type of questions you would need to ask and any assumptions you would need to make to develop the budget. Highlight the main areas of concern you would have about the accuracy of your forecasts for example would you be more confident about your revenue or expense forecasts? Course outcomes addressed 1. Identify the three main financial statements ie the balance sheet, profit and loss statement and cash flow statement. 2. Have a working knowledge of the doctrines and conventions of accounting - such as relevance, reliability, materiality and timeliness. 3. Explain the difference between cash and accrual accounting. 4. Calculate a break-even point. 5. Construct and analyse a budget. Graduate capabilities assessed in this assignment This assignment focuses on the following capabilities: Knowledge and skills to: o Interpret the dynamics of the healthcare system and policy context o Strategically plan and manage resources for health service delivery o Manage risk and quality in health service delivery o Strategically plan and manage resources for health service delivery Interactional abilities to work within and contribute to local, national and international communities The personal attributes to o Apply analytic and critical thinking for creative problem solving o Engage in lifelong learning and reflective practice. Financial concepts, statements and budgeting The purpose of this assessment is to assess your understanding of the key financial concepts, your ability to apply this understanding to the interpretation of financial statements and to the preparing and analysing of budgets. Important: You must show all calculations and explain how you got all your answers. For example, suppose a question asks what the profit will be in a particular month and you put "$50,000". Even if this is correct you will receive no marks if you do not show how you got the answer. There is no need for footnotes or references unless you quote directly from a source. But it is essential that the work is your own. 12 UNSW School of Public Health and Community Medicine

Course Outline Assessment criteria It is essential that you give explanations for your answers and answer the specific questions asked rather than give a general response. In particular in completing the questions you should be able to demonstrate that you can: Distinguish between a balance sheet, a profit and loss (or income) statement and a statement of cash flows. Identify the five major accounting categories - assets, liabilities, owner s equity, revenues and expenses and give examples of these. Apply a working knowledge of the doctrines and conventions of accounting - such as relevance, reliability, materiality and timeliness. Analyse why actual figures are different from budgeted figures. Recommend changes to the financial arrangements in an organisation which will improve the effectiveness of accounting controls. UNSW School of Public Health and Community Medicine 13

PHCM9441 Healthcare Economics and Financial Management Assessment Task 2 Module 2: Health Economics Assignment 2 Due date: 2 June 2014 Weighting: 45% Length: 1500 words. This is a strict limit. You will lose marks for going over the word limit. Please note that I have deliberately not given any references for these questions. Part of the assignment task is for you to find your own references and how well you do this will contribute to your mark for this assignment. Also as this is an economics course you should focus on the economic not medical aspects of these issues. Task description: Give a response to ONE of the following questions: Question 1 Activity based funding for hospitals In an August 2007 news release, Canadian Doctors for Medicare warned that an over-dependence on activity-based payments would also erode hospitals' commitment to providing a full range of services to all patients and reduce efficiency through higher administrative costs. What are the economic reasons for the Australian government introducing activity based funding (ABF) to Australian Public Hospitals in 2012? Do you agree with the criticisms of this method of funding made by Canadian Doctors? Overall, do you think that ABF is an improvement on the way hospitals were funded in Australia? Explain your reasons. OR Question 2 Public or Private? Victorian public hospitals fear further budget cuts as the state government pushes on with a controversial scheme to make them compete with private hospitals for $421 million in elective surgery funding. Doctors are also concerned about the plan that could see private hospitals doing thousands of publicly funded procedures over the next four years. Discuss the positive and negative aspects both economic and noneconomic - of a policy which allowed public and private hospitals to compete for public patients. Would you be in favour of such a policy? Explain your reasons. OR 14 UNSW School of Public Health and Community Medicine

Course Outline Question 3 Economics of waiting lists Long waiting times for surgery have been associated with poorer health, quality of life and patient outcomes. Select one state of Australia and discuss the length of waiting lists for 3 different health procedures. What is the ideal length of a waiting list? What are the economic costs and benefits of reducing waiting lists? OR Question 4 The economics of breastfeeding Although much research still is needed in this area, evidence suggests that a significant return on investment is likely with breastfeeding promotion. What do you think? Is there a strong economic case against breastfeeding? Or is there a strong economic case for breastfeeding? Assessment criteria: Presentation: Marks 10 Spelling, grammar and punctuation of suitably high standard, clear, concise, fluent expression and logical progression of ideas. (5 marks) Adherence to correct referencing procedure with all sources referenced. Do not just drop references in at end of sentences or paragraphs- integrate author and year or report title and year into sentences. Page references must be provided for quotes. (5 marks) It is essential that you use data where possible to back up your statements. For example, do not say the number of aged people in Australia is increasing. You need to be specific eg by the year 2030 it is estimated that X% of the Australian population will be over 65 years of age. 35 marks will be allocated to how you have answered the specific questions and the data used to support your arguments. Note that all the questions ask for your opinion. If you do not give your opinion you will lose marks. Course outcomes addressed 1. Outline the unique features of the healthcare market and how these influence decisions relating to equity and efficiency; 2. Explain the reasons why governments intervene in the healthcare industry and the impact this has on the demand for health services. 3. Identify specific factors that influence the demand and supply of health care in particular what are likely trends in future demand and supply of health services. 4. Outline the main features of the Australian healthcare system in particular how health spending is financed and the roles and responsibilities of various levels of government. UNSW School of Public Health and Community Medicine 15

PHCM9441 Healthcare Economics and Financial Management Graduate capabilities assessed in this assignment: This assignment focuses on the following capabilities: Knowledge and skills to o Interpret the dynamics of the healthcare system and policy context o Strategically plan and manage resources for health service delivery o Manage risk and quality in health service delivery o Strategically plan and manage resources for health service delivery Interactional abilities to work within and contribute to local, national and international communities The personal attributes to o Apply analytic and critical thinking for creative problem solving o Engage in lifelong learning and reflective practice. Assessment Task 3 Final deadline: 2 June 2014 Weighting: 10% External students will be allocated to groups by the end of Week 1 and you will need to log in to Moodle to access your group. We will provide you with instructions to access your group discussion area. There are ten discussion questions commencing in Week 2 of the course. You must contribute to at least five of these discussion topics you can contribute to more discussion topics if you wish. The actual discussion questions are in the same folder as the lecture notes on the Moodle site for this course. You will be assessed on how meaningfully you have contributed to your discussion group across the semester. Your contributions can be practical and reflective eg you can comment on how particular concepts could be applied in your work environment. If you do not contribute to at least five of the discussion topics you will receive no marks for this part of the assessment for this course. If your five responses are superficial or show a lack of effort you will receive a mark of less than five out of ten. If you make five contributions but do not engage in any discussion with other group members - you will receive 6-8 marks - depending on how thoughtful your contributions are. If you make most of your contributions in the last week of the semester it is unlikely that you would get more than 2/10. Student who have five insightful responses and have some engagement with other group members will receive 10 marks for this component. The last date to post responses to the group discussions is 2 June 2014. Responses posted after this date will disregarded for this part of the assessment for this course. 16 UNSW School of Public Health and Community Medicine

Course Outline Grading and marking Grades to be used are represented by the following symbols (and corresponding range of marks): HD (85%-100%), DN (75%-84%), CR (65%-74%), PS (50%-64%), FL (<50%) HD DN CR PS FL This grade represents a High Distinction. This level of performance involves all of the characteristics of a DN performance but also a level of excellence that makes it outstanding. The level of originality, creativity, or depth of thought and understanding shown would be higher than normally expected for postgraduate students. It demonstrates a higher order of critical thinking and reflection than that demonstrated at the level of DN. This grade represents a Distinction. This level of performance involves all of the characteristics of a CR performance but also a level of originality, creativity, or depth of thought and understanding. The work might involve a high level of abstract thinking, or the ability to take an idea or an application into a new context, understand the demands of that context and make modifications. Specific assessment criteria relevant to this assignment are adequately addressed and ALL aspects well done. (This distinguishes it from a CR in which one or two aspects may be incomplete or otherwise not well done.) This grade represents a Credit. The assignment or project comes together to make a broadly coherent whole. The response answers the question, makes a good argument, draws on appropriate evidence, and shows some selectivity and judgment in deciding what is important and what is not. Communication is clear and effective. Specific assessment criteria relevant to this assignment are adequately addressed. (One or two aspects may not be well done but the overall result is still MORE THAN satisfactory). This grade represents a pass. The student has demonstrated understanding of the basic aspects of the topic, but they may be minimally integrated and fail to make a convincing coherent statement or argument. Written work may be descriptive rather than analytical. It may rely too much on retelling other sources such as texts and lecture notes, with little evidence that the student is capable of transforming these into a personal understanding. Significant elements of the assignment are treated superficially. Assessment criteria relevant to the assignment are sufficiently addressed to warrant a PS however the overall standard is no more than satisfactory. This grade represents a clear fail. This grade is used when the student has misunderstood the point of the assignment, or failed to address the most important aspects of the topic. In other words a substantial failure, which would need major work before it could be passed. NOTE: Students are expected to meet UNSW standards of academic writing and in particular must meet standards of referencing described by the Learning Centre. Failure to reference correctly may limit marks to PS or below. Plagiarism or collusion will result in an automatic FL. UNSW School of Public Health and Community Medicine 17

PHCM9441 Healthcare Economics and Financial Management Submitting your assignments 1. You are required to submit your assignments electronically via Moodle. This course will use the Turnitin similarity detection software in Moodle. All assignments must be submitted electronically via the Turnitin assignment dropbox, available in the Moodle course site, by the due date. (Turnitin is an originality checking and plagiarism prevention tool that enables submitted written assignments to be checked for plagiarism including improper citation or misappropriated content. Each assignment submitted to Turnitin is checked against the submitted assignments of other students as well as the internet and key resources selected by the course convenor. Student assignments submitted to Turnitin will remain in the Turnitin database for an unknown period.) If you are unfamiliar with the Turnitin software, a demonstration can be found at https://student.unsw.edu.au/turnitin-support 2. You can view the originality report of your submission and resubmit as often as you wish until the assignment due date. This will help you in self-reviewing and revising your submission until the due date. Please note that draft assignments submitted in this way will be regarded as the final version at the due date if you have not uploaded a subsequent, finalised version (each file uploaded overwrites the previous version). No resubmissions will be allowed after the due date and time of the assignment. IMPORTANT: The first submission generates an originality report almost immediately. For the second or subsequent submissions there is a 24 hour delay between time of submission and the originality report being available. You will need to allow for 24 hours before your assignment due date and time, if you want to see an originality report before submitting the final version. 3. Only use your student ID to identify yourself in your assignment (DO NOT INCLUDE YOUR NAME). All assignments submitted to the Turnitin database will be used to determine whether other students in your course, and in the future, have plagiarised or inappropriately included work that is not their own. Therefore, personal details (such as your name and/or contact details which can be used to identify you) should be removed from your papers to protect your privacy. 4. You will need to include your student ID, course code, date and assignment title in the header or footer on every page, and in the file name. 5. Assignment must be submitted in Microsoft Word assignments submitted in Excel or as a PDF file will not be marked. 6. You are not required to submit a coversheet with your assignment. Instead, there is a checkbox within the Turnitin dropbox that you will need to tick in order to submit your assignment. By ticking the checkbox you are confirming that the work you are submitting is entirely original. 7. After you submit your file, Turnitin will display a digital receipt in your browser window. If you can't see a receipt it means that you have not successfully submitted your file. A copy of the receipt is also sent to your e-mail address. 18 UNSW School of Public Health and Community Medicine

Course Outline Save the receipt and the paper ID it contains, as this is proof of a completed submission. 8. More details on assignment submission will be available within your Moodle course site. 9. See School website for more information on Assessment Guidelines www.sphcm.med.unsw.edu.au/current-students/student-resources Return of assignments Assignments will be marked and sent back electronically via the Moodle site. Feedback on assessment All students will be provided with a summary providing detailed feedback on the assignments. Academic honesty and plagiarism At UNSW plagiarism is a form of academic misconduct and is viewed very seriously. The following notes describe what plagiarism is and where you can obtain additional information about it. It is part of your responsibility as a student of UNSW to ensure that you understand what plagiarism is, so that you avoid it in any of your assignments and other academic work. What is Plagiarism? Plagiarism is using the words or ideas of others and presenting them as your own. Plagiarism is a type of intellectual theft. It can take many forms, from deliberate cheating to accidentally copying from a source without proper acknowledgement, that is referencing. The basic principles are that you should not attempt to pass off the work of another person as your own, and it should be possible for a reader to locate information and ideas you have used by going to the original source material. Acknowledgement should be sufficiently accurate to enable the source to be located quickly and easily. If you are unsure whether, or how, to acknowledge your source material, consult your lecturer or visit The Learning Centre. UNSW groups plagiarism into the following categories: * Copying: using the same or very similar words to the original text or idea without acknowledging the source or using quotation marks. This also applies to images, art and design projects, as well as presentations where someone presents another person s ideas or words without credit Inappropriate paraphrasing: changing a few words and phrases while mostly retaining the original structure and information without UNSW School of Public Health and Community Medicine 19

PHCM9441 Healthcare Economics and Financial Management acknowledgement. This also applies in presentations where someone paraphrases another s ideas or words without credit. It also applies to piecing together quotes and paraphrases into a new whole, without referencing and a student s own analysis to bring the material together Duplication: submitting your own work, in whole or in part, where it has previously been prepared or submitted for another assessment or course at UNSW or another university Collusion: working with others but passing off the work as a person s individual work. Collusion also includes providing your work to another student before an assignment is due, or for the purpose of them plagiarising at any time, paying another person to perform an academic task, stealing or acquiring another person s academic work and copying it, offering to complete another person s work or seeking payment for completing academic work. The School recognises and encourages the need of external students to have contact with each other and where possible collaborate in their studies. However, there have been instances where students have copied each other's material and submitted it as their own this is an example of collusion. Lecturers are alert to this practice. You should not work with any other student to answer assignment questions and submit the same or very similar work as someone else unless it is a group assignment. Also, is it not acceptable to submit an assignment which has been submitted by a student in a previous year or submit an assignment which is substantially similar to one you have submitted for another course. *These categories are adapted from by Oxford Brookes University (UK) Plagiarism Information Skills, Oxford Brookes University Library Skills Resource http://www.brookes.ac.uk/library/skill/plagiarism.html Where can I find more information? In many cases, plagiarism can be the result of inexperience or poor academic skills, rather than the deliberate intention to deceive. The University has adopted an educative approach to plagiarism and developed a range of resources to support students, which are outlined below. The University has also developed a clear set of procedures for managing serious and repeat instances of plagiarism. These require a set of formal processes be undertaken to investigate students academic standards. A range of penalties can be applied by the University if a student is found to have plagiarised. 1. UNSW s Plagiarism & Academic Integrity Website This site aims to address three issues that often result in plagiarism: unfamiliarity with the concept of plagiarism; knowing how it occurs, and developing the necessary academic skills to avoid plagiarism. As a student, you will be able to use this collection of resources (worked examples, activities and links) to improve your allround academic literacy and, consequently, reduce the possibilities for plagiarism. More information is available at: http://www.lc.unsw.edu.au/plagiarism. UNSW has also produced a booklet to assist you with essential information for avoiding plagiarism: https://my.unsw.edu.au/student/academiclife/plagiarism.pdf. 20 UNSW School of Public Health and Community Medicine

Course Outline 2. The Learning Centre The Learning Centre provides a range of programs and resources for students including website materials, workshops, individual tuition and online tutorials to aid students in: correct referencing practices and citation practices; paraphrasing, summarising, essay writing, and time management; appropriate use of, and attribution for, a range of materials including text, images, formulae and concepts. Individual assistance is available on request from The Learning Centre (http://www.lc.unsw.edu.au/). Students are also reminded that careful time management is an important part of study and one of the identified causes of plagiarism is poor time management. Students should allow sufficient time for research, drafting, and the proper referencing of sources in preparing all assessment items. 3. The Elise Study Skills tutorial ELISE (Enabling Library & Information Skills for Everyone) is an online tutorial to help you understand how to find and use information for your assignments or research. It will help you to search databases, identify good quality information and write assignments. It will also help you understand plagiarism and how to avoid it. The Elise Study Skills tutorial (http://subjectguides.library.unsw.edu.au/elise) is highly recommended to Postgraduate students in their first semester of study. On completion, students will be able to: Understand the need for citing information and be able to use appropriate referencing styles Conform with conventions and requirements relating to the access and use of information Understand and abide by copyright laws 4. Turnitin Turnitin is an originality checking and plagiarism prevention tool that enables submitted written assignments to be checked for plagiarism including improper citation or misappropriated content. Each assignment submitted to Turnitin is checked against the submitted assignments of other students as well as the Internet and key resources (including library databases, text-book publishers, digital reference collections, subscription-based publications, homework helper sites and books) as selected by the course convenor. Some courses may require all students in that course to submit their work into Turnitin when they submit their work. However, academics can also use it to check an individual student s assignment when they are marking it. You can find out more about Turnitin here: https://student.unsw.edu.au/moodle. UNSW School of Public Health and Community Medicine 21

PHCM9441 Healthcare Economics and Financial Management Addressing plagiarism and academic misconduct As a postgraduate student you need to be aware that any allegation of plagiarism needs to be investigated by the School and that if the allegation is proven, the student is placed on the UNSW Student Plagiarism and Misconduct Register. Plagiarism varies in its extent and seriousness and procedures are in place that deal with plagiarism through education and referral to the Learning Centre to more formal reprimands and penalties depending on the seriousness of the plagiarism and previous history of the student. Penalties for students found guilty of repeated plagiarism can include a reduction in marks, failing a course, or for more serious matters, suspension or exclusion from the University. For more information on academic misconduct you can refer to: http://www.gs.unsw.edu.au/policy/documents/studentmisconductprocedures.pdf Referencing It is your responsibility to learn one of the accepted academic methods for acknowledging sources of information (citing references). Guidelines for acknowledging sources of information can be found on the following websites: Faculty of Medicine http://web.med.unsw.edu.au/infoskills/cite.htm SPHCM www.sphcm.med.unsw.edu.au/current-students/student-resources The Learning Centre http://www.lc.unsw.edu.au/olib.html#referencing How to adopt a critical approach to your assignments It is important that you adopt a critical approach to your assignments, to the material that you obtain for assignments, to the required readings, and to other information with which you are presented in this course. You are expected to go beyond simply reporting and paraphrasing what you read: your assignments must show evidence of reflecting on what you have read and writing about its applicability or otherwise to your professional work. A critical approach does not mean a disparaging or belittling attitude to information. Rather, it means that you do not absorb what you are reading in a passive way and that you do not accept without question what may often seem to be authoritative pronouncements by authors and commentators. It means you think about and evaluate the material which you are reading and, which you are presenting in assignments. It means that you attempt to cast aside your assumptions and biases and, attempt to assess the logic and consistency of the material in light of the supporting evidence. Wide reading on a topic facilitates this process. 22 UNSW School of Public Health and Community Medicine

Course Outline Readings and resources Learning resources for this course consist of the following: 1. Learning folder lecture notes, online course notes and readings 2. On-campus residential workshop (2 days) for external students 3. On campus weekly lectures for internal students. The Learning Folder This collection of material consists of lecture notes, online course notes, and readings. The learning folder consists of 2 modules, each divided into several sections. Readings Financial Management For the Financial Management module of this course, the learning resources consist of the following: Textbook J. Birt, K. Chalmers, D. Beal, A. Brooks, S. Byrne and J. Oliver, Accounting: Business Reporting for Decision Making, 4th edition, John Wiley & Sons, 2012. The 3 rd edition can also be used. Suggested further reading Gary A. Porter and Curtis L. Norton, Financial Accounting the impact on decision makers, The Alternative to Debits and Credits, 6 th edition, Harcourt Inc, 2009. Aseervatham, A, Accounting Essentials for Business, Prentice Hall, 1994. Courtney, M., and Briggs D., Health Care Financial Management, Elsevier, 2004. Health Economics Textbook Thomas E. Getzen (2007) Health Care Economics, Wiley. Suggested further reading Mooney, G. (1992) Key Issues in Health Economics. Harvester Wheatsheaf, Hertfordshire. UNSW School of Public Health and Community Medicine 23

PHCM9441 Healthcare Economics and Financial Management Internet Sites International AIHW 2012 Australia's Health 2012. AIHW Cat. No. AUS 156, Canberra: AIHW. http://www.aihw.gov.au/publication-detail/?id=10737422172 Feldstein PJ (2012). Health Care Economics 7 th Edition. New York. Delmar Publishers. http://books.google.com.au/books?id=utxfe4a9fbsc&pg=pa566&lpg=pp1&o ts=x5recnynt8&dq=feldstein+health+care+economics McGuire A, Henderson T and Mooney G (1988). The Economics of Health Care: An Introductory Text. London. Routledge and Kegan Paul. Centre for Health Economics Research and Evaluation www.chere.uts.edu.au Social and Public Health Economics Research Group http://sphere.curtin.edu.au/ Centre for Health Economics, University of York www.york.ac.uk/inst/che Health Economics Research Group, Brunel University http://www.brunel.ac.uk/about/acad/herg The Department of Health Economics, University of Birmingham http://www.haps.bham.ac.uk/healtheconomics/ Health Economics Research Centre, University of Oxford http://www.herc.ox.ac.uk/ Health Economics Research Unit, University of Aberdeen http://www.abdn.ac.uk/heru/ International Health Economics Association www.healtheconomics.org The Office of Health Economics http://www.oheschools.org/ Continual course improvement Periodically student evaluative feedback on both courses and teaching is gathered. The UNSW's Course and Teaching Evaluation and Improvement (CATEI) Processes are used along with student focus groups, student forums, and at times additional evaluation and improvement instruments developed in consultation with the Faculty of Medicine's Program Evaluation and Improvement Group. Student feedback is taken seriously, and continual improvements are made to the course based in part on such feedback. 24 UNSW School of Public Health and Community Medicine

Course Outline Evaluation activities across the Faculty are strongly linked to improvements and ensuring support for learning and teaching activities for both students and staff. In order to improve this course I will ask you for your views about the workshop (both during and after the workshop) and your reflections about participating in the online environment. I will also ask you to complete the CATEI form on-line at the end of the course for external students and at the end of Week 12 for internal students. Additional support to students IT requirements for UNSW students Our courses have online components which have been developed and are taught on the assumption that all students meet the UNSW IT Requirements Policy. Viewable online at: https://www.it.unsw.edu.au/students/policies/index.html UNSW IT Service Desk (Moodle support) The IT Service Desk is your central point of contact for assistance and support with UNSW Moodle, UniPass, zpass, UniMail, UniWide, zmail and Anti-virus software. Contact them directly for assistance with IT related matters, including UNSW Moodle: Website: www.it.unsw.edu.au/index.html Tel: +61 (2) 9385 1333 Email: itservicecentre@unsw.edu.au Location: UNSW Library UNSW library support Staff at the library can help you: find information resources for your assignments access electronic resources & databases advise you on library and information services. Information about UNSW library assistance is available at: Library Homepage: http://www.library.unsw.edu.au/ Postgraduate Services: http://www.library.unsw.edu.au/servicesfor/pgandh.html Tel: 02 9385 2650 Location: UNSW Library, Level 2 Service desk Library resources Online training and resources There are a variety of online tutorials and resources available to Postgraduate students to help equip you with the information skills you will need to get started in your program such as: searching databases (which include videos and screen captures), evaluating different types of resources like peer-reviewed journals and websites, and citing references. These resources are designed to help students learn more about: searching for information to complete assignments and projects, UNSW School of Public Health and Community Medicine 25

PHCM9441 Healthcare Economics and Financial Management and self-directed learning. It is highly recommended that students complete the Online Information Skills Tutorial prior to commencing their studies and assignments. http://subjectguides.library.unsw.edu.au/eliseplus Subject guides Use these guides as a quick and easy pathway to locating resources in your subject area. These excellent guides bring together the core web and print resources in one place and provide a one click portal into the online resources. UNSW Library Subject Guides: http://subjectguides.library.unsw.edu.au/ Public Health and Community Medicine Subject Guide: http://subjectguides.library.unsw.edu.au/publichealth Learning Centre The Learning Centre provides a wide range of workshops and study skill resources to students enrolled in degree programs at the University. Students can access information on: Essay and assignment writing, Exam skills, Reading and writing skills, Referencing and plagiarism, Organisation skills, Oral presentations. See: http://www.lc.unsw.edu.au Administrative matters All administrative matters are covered comprehensively on the SPHCM Website. Check for details on how to access email, obtain your zpass etc. at: www.sphcm.med.unsw.edu.au/current-students See the school website for information on school assessment guidelines: www.sphcm.med.unsw.edu.au/current-students/student-resources If you do not have a prospectus you can pick one up from the Postgraduate Coursework Office, Level 2 Samuels Building or download if from the web. http://sphcm.med.unsw.edu.au/sites/sphcm.cms.med.unsw.edu.au/files/sphcm/about_sphcm/sp HCM_Prospectus.pdf For any further assistance, you can contact: Postgraduate Office School of Public Health and Community Medicine The University of New South Wales Level 2, Samuels Building UNSW Sydney NSW 2052, Australia T: + 61 (2) 9385 1699 - Graduate Health Management Programs T: + 61 (2) 9385 2507 - Graduate Public Health Programs T: + 61 (2) 9385 1928 - Graduate International Public Health Programs F: + 61 (2) 9385 1526 E: postgrad-sphcm@unsw.edu.au Other matters Occupational Health & Safety: http://www.ohs.unsw.edu.au/ohs_students/index.html Complaints procedures: https://my.unsw.edu.au/student/atoz/complaints.html Equity & Diversity: www.studentequity.unsw.edu.au 26 UNSW School of Public Health and Community Medicine

Course Outline Course schedule 2014 - internal Week Content Assessment Week 1 7 March Week 2 14 March Week 3 21 March Week 4 28 March Week 5 4 April Week 6 11 April Week 7 18 April Week 8 2 May Week 9 9 May Week 10 16 May Week 11 23 May Week 12 30 May Residential Workshop Module 1 Financial Management Section 1 The nature and purpose of accounting Section 2 Basic accounting and healthcare financial statements Section 3 Recording financial transactions Section 4 Cash accounting versus accrual accounting Section 5 Budgets and budgeting Section 6 Budgets and budgeting Good Friday no class Mid semester break 18 April to 27 April Module 2 Assignment 1 Health Economics due 28 April Section 1 Financing the Australian Health Care System Section 2 Introduction to economic concepts Section 3 The Market System Section 4 Distinctive economic characteristics of health Section 5 Activity based funding Assignment 2 due 2 June The two-day residential workshop for external students will cover most of the material presented in the internal lectures but given the time constraints of the workshop this will be done much quicker than in the internal classes. The above internal timetable can be used by external students to help guide the progress of their study in this course during the session. Remember that you must also contribute to five of the ten on-line discussion topics you can structure your involvement in discussion groups to best suit your work commitments and interest in particular topics. The final date for contributions to online discussion is 2 June 2013. UNSW School of Public Health and Community Medicine 27

PHCM9441 Healthcare Economics and Financial Management Glossary of Economic Terms Term Adverse selection Balance of payments Budget share health funding Bundling Case payment (per case payment) for health care Casemix classification Command economy Competition Consumer price index Brief explanation In insurance, the process whereby those members least at risk of requiring health care are the most likely to drop their membership thus leading to a progressive increase in need for care in the remaining membership. This is the balance between the inflows and outflows of foreign exchange of a country. When Australia sells a product overseas, foreign exchange flows into Australia from the purchasers of the product. We have tended to have an adverse balance of payments in recent years, because we have been buying more overseas than we have sold overseas. A type of funding where health care facilities receive a share of the payers' fixed total budget. The share is usually based on relative casemix-weighted production. In the health care funding context, aggregation of components of care so that they can be funded as a single product. For example, operating room procedures can be bundled with inpatient accommodation. An inpatient episode can be bundled with post-discharge ambulatory care. Often used to describe funding systems where predetermined payment rates are set to cover complete episodes of care. An approach that aims to achieve high levels of bundling. A clinical classification where classes are designed to be both clinically coherent AND homogeneous in terms of variable of global interest (like cost, quality of care, or outcome). In a command economy, an agency exists which has power over both the production and purchasing functions. It makes decisions about the allocation of scarce resources on the basis of its own views of cost and benefit. Command economies existed in the Soviet bloc until recently. Most are now changing to allow for competition in the marketplace. A process whereby suppliers compete to sell and purchasers compete to acquire goods and services. The consumer price index is a measure of the change in the price of a representative sample (or basket) of goods in the proportion that consumers typically buy them. For example, consumers spend more on the average on food than they spend on entertainment. Therefore a large change in the price of food would have a bigger impact on the CPI than the same change in the price of entertainment. Put another way, food is a larger proportion of the cost of the basket of goods. 28 UNSW School of Public Health and Community Medicine

Course Outline Term Consumer sovereignty Co-payment Cost-based health care funding Cost-benefit analysis Costeffectiveness analysis Costminimisation analysis Cost-utility analysis Demand Brief explanation The concept of consumers ultimately controlling which goods and services are produced, and in what quantities, is known as consumer sovereignty. In practice it is unlikely that consumers have sufficient knowledge about all products and prices to be able to make purchases without being unduly influenced by producers (that is, sellers). In the health context, the proportion of the charge for a service which is paid by the user. The remainder (usually the larger part) is paid by the insurer (which may be government or private). Also known as the patient moiety, and as 'out-of-pocket' payments. A method of funding, whereby the primary determinant of the funding received by the care provider is the estimated cost of care actually provided (or expected to be provided). A form of economic evaluation where both the costs and the benefits are expressed in money terms. A form of economic evaluation where the benefits are expressed in locally relevant metric (one which has relevance only to the options under consideration). For example, different ways of performing a procedure may be compared in terms of proportion of complications, whereas different methods of screening for breast cancer might be compared in terms of cost and detection rates. A form of economic analysis whereby a search is made to find the lowest-cost way of attaining a predetermined goal. For example, it might involve comparing two ways of creating product X, where both deliver X but at different cost. Also may be termed efficiency analysis. Sometimes called partial economic analysis, because only the costs are the subject of analysis. No consideration is given to whether product X is worth having (even at minimum cost). A form of economic evaluation where the benefits are expressed in terms of a single and generally relevant measure of value. One such measure is the quality-adjusted life-year, and this can be used to evaluate many different kinds of health services. Demand is the quantity of a particular good (or service) which consumers wish to buy at a particular price. It refers to the relationship between price of a good or service and the quantity demanded at that price. Reference is usually made to the demand for a particular category of related goods and services. For example, there may be "an increasing demand" for hip replacement procedures by the publicly insured. There may be low demand for private health insurance. Demand is usually expressed in relative terms. For example, demand may be said to be high in relation to supply, or there UNSW School of Public Health and Community Medicine 29

PHCM9441 Healthcare Economics and Financial Management Term Demand curve Demand-side health reforms Diminishing marginal returns Economic evaluation Economics Economies of scale Equity Externalities (market externalities) Fiscal policy (government fiscal policy) Brief explanation may be an increasing demand for hip replacement procedures by the publicly insured (compared to the demand in a previous period). The change in demand as the price changes. In most circumstances, demand will decline if price increases. These are changes intended to improve performance which focus on changing the conditions which affect demand (that is, the desire to purchase goods and services). For example, it might be possible to improve performance by increasing the price of one kind of health service (say, through copayments) to drive down the volume of purchases, or by advertising campaigns (which increase the perceived utility of the service). The situation in which the profit through selling each additional good or service declines relative to the previous sale. The process of comparing optional courses of action in terms of their costs and their consequences. There are several commonly used methods. The main differences are in terms of the ways in which the consequences are measured. The most common definition is that economics is the study of how societies allocate their limited resources among largely insatiable demands. Put another way, it is the science of allocation of scarce resources. The emphasis is on the main factors which influence resource allocation: what it costs to produce goods and services, production capacity, price, profits, demand for goods and services, and the utility (value, worth) of the goods and services. This refers to the change in costs per unit of production as the volume of production is varied. For example, there are economies of scale if it costs $1500 per normal delivery when a hospital undertakes 50 per year, and only $1000 per normal delivery if it undertakes 2000 per year. The degree to which goods and services produced in the economy are distributed in a fair way among members of the community. Factors which cause people other than those directly involved in selling and buying in a market to be affected. Whenever someone inflicts a "harm" on other people without compensating them, there exists a spillover cost or benefit such as smoking. Also, various forms of water, air and noise pollution impose spillover costs on others which are not compensated. There can also be spillover benefits such as one person being vaccinated can improve the health status of other people in the community. The government's fiscal policy is its policy with respect to spending. Keynesian economists would argue that the government should (say) increase expenditures on public works when the economy is in a depression. The Monetarists (economic rationalists) would argue that the government should 30 UNSW School of Public Health and Community Medicine

Course Outline Term Flat-rate insurance Community rating Front-end deductible Gross domestic product Gross national product Health economics Health care financing Health care funding Health care purchasing Health insurance benefits Health insurance contributions Income-based insurance Inflation (price inflation) Input-based (or cost-based) Brief explanation continually seek every opportunity to reduce its own outlays by cutting public services, reducing taxation, and so on. Members of an insurance scheme contribute in equal amounts without regard to their ability to pay, or their risk rating. Known in Australia as community rating. In the health insurance context, the amount paid by the service user in the form of the first $X or X% of the charge. For example, the patient may have to pay the first $100 of any bill. The GDP is that portion of the gross national product (GNP) which is produced within the country. Thus, it excludes elements of the GNP such as profits from overseas operations (like an Australian company's drugs factory in Singapore). The GNP is the total market value of all final products (goods and services) produced by an economy in a year. The idea of the final product is an attempt to avoid double counting. Thus steel is not a final product, because it is a component of other final products like the car and the washing machine. The study of economics in the health sector. As with any industry the basic economic questions need to be answered: what type of health services should be provided? how should these be provided? who should get the benefit of these services? how should they pay for them? The process of determining how much money should be raised to fund health care, and how it should be raised (through taxation, voluntary private insurance, user-pay, and so on). Normally used to describe both health care financing and health care purchasing. Acquiring health services in agreed volumes and at agreed prices. Purchasers include governments, private insurers, and individuals. The services to which an insured person is entitled (such as free dental care, or access to a hospital of choice). Insured persons are often termed 'beneficiaries' since they are the recipients of insurance benefits. The amounts routinely paid by an insured person in order to become and remain a member of the insurance plan. Membership fees. Members of an insurance scheme contribute through their premiums in proportion to their income (or a similar measure of ability to pay). Inflation is the change in price from one period to the next, for the same good or service. It excludes price changes which are a consequence of a different specification (such as a price increase in cars because they are now fitted with airbags). A method of funding, whereby the primary determinant of the funding received by a health care provider is the estimated cost UNSW School of Public Health and Community Medicine 31

PHCM9441 Healthcare Economics and Financial Management Term funding Iso-resource classification Keynesians Keynesian macroeconomics Lifetime community rating Macroeconomics Marginal cost Marginal revenue Brief explanation incurred in provision of care. Also called expenditure-based funding. Classification where members of same class are intended to have similar costs (such as DRGs and RUGs). In contrast to (say) iso-utility or iso-outcome classifications like OCCs and HBGs. Keynesian macroeconomics originated in the writings of John Maynard Keynes in the chaos of worldwide economic depression in the 1930s. He argued that much of the chaos was a consequence of the hands-off behaviour of governments, and he proposed many ways in which they could intervene to improve the operation of the economy. For example, the government could smooth out peaks and troughs in business by its own spending, and it could ensure that what he believed to be the biggest constraint to wellbeing unemployment -- were minimised. A variant of community rating. All members of an insurance scheme contribute in equal amounts without regard to their ability to pay or their risk rating but with one exception. The rate is lower if you join when young: it may be twice as much for a 70-year old than for a 35-year-old. In effect, there is an element of risk rating. There is also a reward for loyalty (staying a member for a long time). This is the study of the behaviour of entire economies. It looks at matters of cost, price, demand, utility and so on from the point of view of (say) the private health care sector or an entire country. The marginal cost of production is the cost of producing one extra product. For example, suppose 10 patients are scheduled for an operating room session, and the decision is to be made whether to add one more patient to the list. The marginal cost is the difference between "producing" 11 rather than 10 procedures. It might be a surprisingly small difference if (say) the nurses are salaried and would otherwise be underworked. The marginal revenue is the difference in revenue as a consequence of producing one extra product. From a financial point of view, we should always produce the extra product if the marginal revenue is greater than the marginal cost. If there are economies of scale, the costs per product should continue to decline as the volume of production increases. If the revenue were always the same, regardless of the volume of sales, then there would always be reason to increase production. However, many factors cause the marginal revenue eventually to drop below marginal cost. One obvious factor is that, as supply increases, customers begin to expect lower prices. Eventually, their demand is fully satisfied. Equilibrium is the point at which the quantity of goods or services supplied to purchasers equals the quantity they want to purchase, such that a mutually agreeable price prevails. One 32 UNSW School of Public Health and Community Medicine

Course Outline Term Marginal utility Market Market economy Market equilibrium Market failure Market structure Merit goods Microeconomic reform Brief explanation might expect that the point of equilibrium is where the marginal cost of production equals the marginal revenue. This refers to the usefulness (value or worth) of having an additional unit of a product. The utility of having one ambulance may be very high. The second ambulance has less utility, and the additional usefulness of having (say) 35 rather than 34 ambulances may be zero. For any individual, the utility of having an appendectomy may be very high. However, the marginal utility of having the second appendectomy is zero. A situation in which goods and services are bought by one agency and sold by another. There are separate roles and interests for those who sell and those who buy. The marketplace is where agencies with competing interests bargain over price, volume, and utility. When supply equals demand, we say the market is in equilibrium. The market price is such that the quantity supplied equals the quantity demanded. Price is one factor which determines whether there is an equilibrium. If the price declines, the consumer may be willing to buy a larger quantity, but the producer becomes less interested in production. At some stage, the price will fall below production cost, and the producer will not be able to afford to produce. If the price increases, the producer becomes increasingly willing and able to produce. However, the customer will become less interested in purchasing. At some stage, the price may become beyond the consumer's willingness or ability to afford, and therefore sales volumes will fall. Situations in which the impersonal forces of supply and demand fail to ensure that resources and goods and services are provided in the right quantities to those most able and willing to pay. Factors causing market failure include imperfect knowledge, external effects, and public goods. Refers to the pattern of competition in the market place. Four key types of market structures are pure monopoly, oligopoly, monopolistic competition, and pure competition. Goods or services that are socially worthwhile, regardless of consumers views. They might therefore be subsidised by governments. Examples include various kinds of health and education goods and services. Many countries have talked about microeconomic reform in the last decade or so. The main focus is on how individuals in their own work can change to become more productive. For example, microeconomic reform of the hospital sector might involve creating financial incentives for doctors and nurses to become more efficient through devolved management or outputbased payment. UNSW School of Public Health and Community Medicine 33

PHCM9441 Healthcare Economics and Financial Management Term Microeconomics Monetarists Monetarist macroeconomics Monetary policy (government monetary policy) Monopolistic competition Moral hazard Need Brief explanation This is the study of the economic behaviour of individuals, families, individual companies, and industries. There is particular interest in how individuals can operate more effectively in producing, selling, and purchasing of goods and services. Monetarist economics is a set of ideas about macroeconomic policies which were advocated by Milton Friedman and others from the 1950s onwards. His key argument was that a market freed from government control would find the right answers. He believed that there was no reason for businesses to worry about ethics: if they were free to fight for profits in the marketplace, the result would be benefit for everyone. The monetarists reject the view that unemployment is an evil -- they see it as a necessary presence to ensure competition and efficiency. They are much more concerned about inflation, which they see as a tax on everyone. They are against government spending, because "it crowds out the more efficient private sector". The government's monetary policy concerns how it chooses to control the supply of money (and consequently how it manages such matters as interest rates). The monetarists believe this is the crucial role of government it should stay out of such areas as regulating the marketplace, producing services, and so on. There are two measures of money which are relevant to management of an economy. M1 comprises the most accessible money (checking account balances, cash in hand, and so on). M2 includes M1 plus savings and money market accounts. Monetarists believe that governments should focus on managing the levels of M1 and M2 (by controlling interest rates and in other ways). Monopolistic competition is where there are many suppliers with many products which can be differentiated. Competition exists, but within bounds. A supplier can gain advantage by offering reduced prices for reduced service frills, but only within limits. Incentives for individuals to act in ways which lead to costs being incurred by other people. For example, the purchase of private health insurance in Australia carries moral hazard in several ways (such as, when a person buys health insurance, the government subsidises the premiums by 30%). The need for a good or service may be defined as the extent to which the customer would benefit (gain utility) from purchase. Note the difference, compared with demand. Demand is a measure of willingness to purchase a good or service, and a customer may demand a good or service which delivers no utility (and hence is not needed). 34 UNSW School of Public Health and Community Medicine

Course Outline Term Needs-based health care funding Nominal and real changes in price (expenditures, etc) Oligopoly Opportunity costs Output-based (or casemix-based) health care funding Population need for health care Price Market price Price elasticity Brief explanation A method of funding, whereby the primary determinant of the funding received by the care provider is the estimated need for care in the population serviced by the care provider. If changes in prices are measured without regard to the presence of inflation, they are called nominal changes. If an attempt is made to discount the effects of inflation, they are called real changes. In health care, statistics are often quoted which refer to "an increase in real terms" of 10%. Another common phrase is that expenditures increased by 5% "after accounting for inflation". In both cases, the statistics refer to changes which would have occurred if there had been no inflation (real rather than nominal changes). An oligopoly is where there are only a few suppliers of a product, and there are no close substitutes for the product. The suppliers may be able to choose whether or not to compete on price. They can hold the prices at a high level and compete on other grounds, or they can enter into price wars. Some markets, such as airlines, may change from one extreme to another over time. One definition is that they are the costs incurred by choosing to produce one product rather than another when there is a limit on what may be produced. For example, if an area health service chooses to build a hospital to "produce" admitted patient episodes, it is no longer able to produce some other kind of health care service, such as a traffic accident reduction program. Another definition is that opportunity costs represent the utility foregone because a resource is not available for its best alternative use. This latter definition is considered to be more useful by many people. A method of funding, whereby the primary determinant of the funding received by the care provider is the number of products (or cases) of each type and their relative costs. The extent to which a population would benefit from health care. There may be a demand for health care which exceeds the need (as in the case of expecting a surgical intervention when the evidence suggests it is ineffective). The amount paid by a purchaser to a provider of a good or service. The market price is the price which would be paid under normal market conditions. The degree to which buyers are affected by price is called price elasticity. If buyers are sensitive to prices, their demand is said to be elastic. For example, the demand for McDonald's hamburgers would probably fall quite rapidly if the price were doubled. Many health care products tend to have an inelastic demand. For example, if you have acute appendicitis, you are unlikely to choose not to have treatment because the price seems too high. UNSW School of Public Health and Community Medicine 35

PHCM9441 Healthcare Economics and Financial Management Term Price taking and price takers Productivity Public goods Pure competition Pure monopoly Quality adjusted life-year Reinsurance Risk-based insurance Scarcity Supplier-induced demand Brief explanation Price taking is where one party has little option but to accept the prices preferred by the other party. For example, a supplier is a price-taker where there are competing suppliers, such that if he does not accept the price offered by customers they will take their business elsewhere. A purchaser may be a price-taker where there is only one supplier and the purchase has to be made. The degree to which production is efficient. Goods and services which are unlikely to be provided in a market in quantities that are economically efficient. Markets are inefficient mechanisms. Whenever a 'pure' public good is provided, its benefits are available to everyone without charge and the use of it by any individual does not reduce the available amount for others. Pure competition is where there are many suppliers selling similar (and substitutable) products. Hardly any other factor applies, apart from price. The suppliers are likely to be "price takers" because the market forces of supply and demand determine prices through competitive bidding. A pure monopoly is where there is a unique product (there are no near substitutes) and there is only one supplier. This may be the case where a new drug has been developed for which a single company has an exclusive patent. A measure of utility. It takes account of the quality of life, and the duration over which the quality of life is affected. In the Australian private health insurance sector, companies which have a lower than average proportion of high-risk (highuse) members have to transfer funds to those companies which have a higher than average proportion. A way of equalising the insurance risk across companies. Members of an insurance scheme contribute through their premiums in proportion to the estimated risk that they will need health care. For example, elderly people with chronic illnesses would tend to pay more into the insurance scheme than young and healthy people. Peoples needs and wants for a commodity exceed the resources available to buy them. Scarcity is the normal situation it exists in any situation where there is anyone whose desires are not entirely satisfied. The existence of scarcity means there must be rationing in some way for example, through price or production constraints imposed by government. This refers to a situation where the suppliers take actions to encourage demands -- they act to increase the level of purchasing. In health care, it is common for doctors to create supplierinduced demand. They have excess production capacity, and 36 UNSW School of Public Health and Community Medicine

Course Outline Term Supply Supply curve Supply-side economics Supply-side health reforms User-pays Utility Brief explanation therefore encourage consumers to have more medical treatments than they would otherwise want. Supply simply refers to the quantity of a particular good (or service) which is available for purchase. It refers to the relationship between the price of a good or service and the quantity which suppliers are collectively prepared to make available on the market. Reference is made to the supply of a particular category of related goods and services. For example, there may be "an oversupply" of admitted patient services in the private hospital sector. There may be "an undersupply" of GPs in rural areas. The change in supply as the price changes. In most circumstances, supply will increase if price increases. The core idea is creation of more power and opportunity for the suppliers relative to the purchasers. One commonly held view is that there should be reduced taxation and reduced government expenditure. This will lead to increased savings by both producers and consumers, and the savings can then be invested in projects to increase production capacity and efficiency. There will consequently be more supply than otherwise. These are changes intended to improve performance which focus on changing the conditions for supply (that is, the desire or capability to produce goods and services). For example, it might be possible to improve performance by increasing the number of hospital beds or by reducing the number of doctors. A form of financing of a service where the amount contributed by an individual is in proportion to actual usage of the service. This means the value or worth of a product in the eyes of a consumer. For some products, the utility changes depending on the quantity already available (see marginal utility). Source: Hindle D, Course notes for Health Economics, School of Health Services Management, UNSW, Sydney. UNSW School of Public Health and Community Medicine 37