Harnessing Information for Health Economics Analysis

Marilyn James, Elizabeth Stokes

• Publisher: CRC Press
• Year: 2018
• Print ISBN: 9781857759853
• eBook ISBN: 9781315345475
• Edition: 1
• Topic: Business
• Subtopic: Medical Theory, Practice & Reference
• Index: Business

Series Editor: Michael Rigby This completely up-to-date resource equips readers with practical tools to understand and apply health economic methods. It introduces the key economic tools and the data available that can assist an economic decision and covers a range of areas from primary care and national data to global indicators of health. The information presented is applicable to all economic issues - at individual practice or nationwide policy level. Harnessing Information for Health Economics Analysis is a vital handbook for all clinicians, managers, and policy makers and shapers who make decisions about planning, commissioning and delivering healthcare. It will also be of great value to health economists, and postgraduate students in health economics and related disciplines.

1 Introduction and key concepts in health economics

Introduction

Healthcare and the delivery and consumption of such care are an interesting series of complex processes. The process of care includes diagnosis, treatment, prevention, rehabilitation and palliative care. Many individuals deliver this care within organisations ranging from the general practitioner (GP) or hospital trust to commercial organisations such as pharmaceutical companies and government bodies. At the same time resources available for healthcare remain scarce, while the demand for healthcare rises with new and competing treatments and an aging population. With finite resources difficult choices will always have to be made regarding the delivery and receipt of healthcare.

Given the demands made upon the healthcare system the allocation and evaluation of care must become an increasingly scientific process, no longer dependent solely on a first-come, first-served basis. It necessitates a clearer understanding of the costs and benefits of delivering and providing such care. Health economics and the tools and thought processes it utilises can help those concerned with the delivery and receipt of healthcare to make these decisions. It is from the discipline and perspective of health economics that this book is written, with a particular focus on the information which is necessary and available to support evaluation processes.

Scarcity

In a cash-limited healthcare environment, healthcare will always entail choices between goods and services. Demand for healthcare will exceed supply, and choices between competing goods and services will have to be made. This is the concept of scarcity; all demand cannot be satisfied with the existing level of resources. Choices as to which healthcare will be delivered and how much of the competing alternatives will be provided will have to be made. Health economics is a tool to help decision makers make those choices in a rational fashion.

What is health economics?

Health economics measures the costs and benefits associated with healthcare. A number of different perspectives may be adopted from which to define the broad range of costs and benefits. These include a wide societal perspective, a narrower range of costs and benefits (for example, from the hospital’s perspective), or the costs and benefits as they accrue to the recipient of care (the patient).

Health economics as a discipline seeks to achieve efficiency in terms of the competing healthcare options. It seeks to indicate the treatment or procedure that maximises benefits in respect to cost, or minimises cost with respect to benefit in terms of the competing options. This may be either within a single healthcare area, for example cholesterol-lowering drugs, or across healthcare areas, for example between orthopaedics and paediatric care. Health economics is concerned with all the costs and benefits of a good or service, not merely the financial costs or pecuniary benefits.

This book is primarily concerned with providing the reader with the tools to achieve the allocation of goods and services on efficiency grounds. Although equity issues and the allocation of goods and services on the grounds of equity – that is, the ‘fair’ distribution of goods and services – are important, they are not the primary focus of this book.

The difference between health and healthcare

Before proceeding further with the chapter it is necessary to clarify the distinction between health and healthcare. When an individual takes a tablet it is not because they gain satisfaction from taking the tablet, but rather because they believe that taking the tablet will serve to improve their general state of health. The demand for healthcare is, thus, a derived demand. Health per se cannot be purchased or traded but the commodity healthcare – whether it is in the form of a tablet, surgery or palliative care – can be traded and purchased between individuals. This chapter will focus upon the demand and supply of healthcare in terms of the benefits and costs it yields for individuals’ and populations’ health.

Terminology

It is important as a preparatory step to become familiar with some of the terminology and language of health economics. The tools of economic evaluation will be discussed in Chapter 2. Many terms used in everyday language have different or very specific meanings in health economics.

The following are some key terms in health economics.

Benefit

Benefit is the output of a healthcare process. It is the outcome of treatment or care. Benefit can encompass many different facets: it can be as simple as a positive or negative test result; a measurement of pain or mobility; or can encompass the much broader area of changes in quality of Ufe. Benefit is largely thought of as the improvement to a patient’s health status following an intervention; it can however encompass maintenance of health in the case of preventative, rehabilitative or palliative care. Benefit will be discussed more fully in Chapter 7.

Resources and cost

Resources represent the input into a healthcare intervention. In economics, resources are reported in natural units. It is to these natural units that monetary costs are then attached. A natural unit is the resource or event itself – for example, the bed day – rather than the cost attached to the bed day. Reporting in natural units rather than costs alone allows the findings of any work to be transferred across settings. By clearly specifying the natural unit rather than the cost, the information can be applied to the decision maker’s own environment and local costs substituted for the ones reported. Costs are the monetary value of producing the resources. Sometimes prices rather than costs are reported. The price may be greater than the cost and represent an economic rent or profit over and above the actual cost for the producer.

It is the interaction between cost and benefit that is important in terms of economics. Chapter 2 will look specifically at the types of analysis to combine measures of cost and benefit. The relationship between the costs and the benefits defines whether an intervention is economically efficient or not.

Efficiency

In health economics it is the relationship between costs and benefits that is important, not merely the costs and benefits singularly. In order to achieve the efficient allocation of goods and services it is important therefore to:

• maximise benefit with respect to cost or
• minimise cost with respect to benefit.

Choice of care for treatments x and y could be represented in the following way, where treatment x is more efficient in terms of the benefits (B) with respect to costs(C) that it generates over treatment y:

∑C_y/∑B_y > ∑C_x/∑B_x

Hence treatment x generates more benefits at less cost.

It is also important to highlight the distinction between technical efficiency and allocative efficiency.

Technical efficiency

Technical efficiency refers to choices made within goods and services. It is defined as:

• maximising benefit with respect to cost or
• minimising cost with respect to benefit in a single product.

This may include choices between the type of hip prosthesis, for example, or the delivery of surgical care such as open versus closed laparoscopy.

Allocative efficiency

In contrast allocative efficiency refers to choices made between goods and services. It is defined as:

• maximising benefit with respect to cost or
• minimising cost with respect to benefit across a range of goods or services.

This may include choices regarding allocation between prevention versus treatment (for example, cholesterol-lowering drugs versus cardiac care) or in providing funding across specialties, for example, for orthopaedics versus ophthalmology. To compare goods and thus achieve efficiency a key requirement is that costs and benefits can be measured in common units across goods and services.

Opportunity cost

The opportunity cost is the value of a good in its next best alternative. Hence the opportunity cost is the benefits gained by one option expressed in terms of the benefits forgone by not doing the competing alternative.

The concept of value is an important issue here: value may often be thought of as being expressed in terms of a common monetary unit. By choosing to purchase a certain number of cataract operations at a given cost that provide a given benefit, there will be a specific number of hip replacements that could have been purchased to achieve the same level of cost or benefit. Hence the opportunity cost of the cataract replacements may be expressed in terms of the hip replacements forgone.

The concept is however more meaningful than this and should not merely reflect the monetary value placed upon a good or service, but in addition reflect the marginal utility or personal or collective benefit to be gained from a good or service. One may be prepared to sacrifice two bottles of cheaper wine to purchase one really good bottle, but may not be prepared to give up three bottles of cheaper wine to purchase one good bottle. Again in terms of economics it is about comparing the costs and benefits of one alternative good or service, or bundle of goods and services, over another competing alternative.

Scope of this book

This book is not a theoretical textbook, but an applied book designed to equip its readers with the practical tools to both understand and apply health economic methods. This book seeks to provide anyone faced with making choices, personal or interpersonal, regarding the supply or receipt of healthcare with the information to make informed decisions about that healthcare. It seeks to introduce the reader to the key economic tools and the data available that can assist an economic decision and how to use and interpret such data. Its aim is not to turn the decision maker into a health economist but to provide them with the ability to ask the appropriate questions, understand the relevant data and literature and to access the resources available to them.

Chapter 2 describes the key steps necessary for undertaking and understanding economic evaluation. The situations where such analysis would be useful are detailed. It introduces the reader to some of the key analytical methods for undertaking such analysis. This is considered alongside the checklist for good practice guidelines in economic appraisal.

Data are required in many different healthcare settings and at many different levels for economic decision making. At the macro level these are country-wide or national data. National data must both be fuelled and fed back into micro-economic data, at the level of the hospital trust and into primary care.

Considerable advances have been made in the provision of national cost data both at the level of the trust and at the national level, with data such as Healthcare Resource Groups (HRGs) and the National Schedule of Reference Costs.¹ These are data reported at the national level, but crucially based on improvements in the collection of secondary care data. Similarly data are available for primary care in the Unit Costs of Health and Social Care.² In terms of drug costs national data are available from sources such as the British...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Contents
• Series editor’s preface
• About the authors
• 1 Introduction and key concepts in health economics
• 2 Techniques of economic appraisal
• 3 UK national data
• 4 Secondary care data
• 5 Primary care data
• 6 Organisations providing health economic information
• 7 Measuring benefits and preferences
• 8 Resources and costs
• 9 Reflections and futures
• Index