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Centre for Public Health in Economics and Business

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Evaluating big investments in healthcare

Datum:16 februari 2017
health treatments
health treatments

Health treatments can sometimes be found both cost effective and unaffordable. How to resolve this apparent paradox?

In 2016  Britain’s National Health Service was accused in the media of “abandoning” thousands of people to potential death by rationing curative treatment for Hepatitis C. Although the treatment was deemed to be cost-effective, the sheer scale of the cost of providing it would have had a budget impact – estimated at £772 million (€906 million, NICE 2015) – that the NHS could not afford. 


The 'cost-effective but unaffordable' 'paradox'

This gives rise to the ‘cost-effective but unaffordable’ ‘paradox.’ That a treatment could be cost-effective and yet unaffordable is indeed paradoxical. In principle, assessments of cost-effectiveness and affordability of an intervention aspire to know the same thing: that the benefits of a treatment outweigh its opportunity cost. This means the gains that could have been achieved if those same resources had been put toward another treatment.

This notion of opportunity cost is fundamental in all decision-making due to infinite demands (for health in the case of healthcare) and the scarcity of resources with which to supply. However, quantifying opportunity costs in health requires establishing the effect of health care expenditure on health outcomes: i.e. the duration and quality of life.

In principle, we know what these health opportunity costs are and how they can be estimated, but in practice they are rarely informed by actual data analysis. 

A growing research area surrounds the estimation of health opportunity costs using econometric analysis of health care expenditure and health outcome data. In particular, Claxton et al. (2015) found that marginal activity in the NHS produced Quality-Adjusted Life Years (QALYs) at a rate of £12,936 (€15,195) per QALY in 2008-2009. 

This figure can appropriately be used to estimate health opportunity costs at the margin in the NHS, but it doesn't account for the scale of expenditures, and isn't applicable for budget impacts of the magnitude of £772 million. When bigger quantities of expenditure are required to be cut, 'easy savings' are less available and the result is that more cost-effective services have to be cut. As such, the cost-effectiveness analysis of hepatitis C treatment and other high-budget impact treatments requires a method of estimating opportunity costs that depends upon the scale of budget impact involved.


Our latest research

Myself and my University of York colleagues Karl Claxton, Stephen Martin and Marta Soares have addressed this in a paper: “Resolving the ‘cost-effective but unaffordable’ ‘paradox’: estimating the health opportunity costs of non-marginal changes in available expenditure”. It uses the same data to build on the analysis done by Claxton et al.

We recognise that the NHS is broadly made up of two types of Primary Care Trusts: those that are over-target in their budget allocation (and therefore facing less scarcity) and those that are under-target in their budget allocation (facing more scarcity).

Econometric analysis accounting for this distinction reveals differences in the rate at which opportunity costs occur in the NHS: £13,464 (€15,818) per QALY for over-target PCTs and £12,047 (€14,154) per QALY for under-target PCTs. We used these results to estimate health opportunity costs for a range of non-marginal budget impacts. In one example, a hepatitis C case study, we found not fully accounting for the non-marginal impact results in an underestimation of health opportunity costs by around 4%.

This provides context to why health systems might wish to borrow resources against future budgets, or through mortgage-style loans from the manufacturer of a drug. To sum up, the 'paradox' examined in this research is more apparent than real. There should be no conflict between results of assessments of affordability and cost-effectiveness provided that opportunity costs are properly reflected in cost-effectiveness analysis.

by James Lomas, research fellow at the University of York

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