EUROPEAN JOURNAL OF PUBLIC HEALTH 1999; 9: 309-512

C O M M E N T A R Y

The trouble with health economics

JAN J. BARENDREGT, LUC BONNEUX '

Economic studies in health care are of increasing importance. Unfortunately these studies are often plagued by an unacceptable level of arbitrariness. Health economists have been trying to raise standards by publishing guidelines, but this, while useful, is not sufficient. In addition health economists will have to be more aware of the value judgements underlying their methods, and be prepared to adjust their methods to reflect empirically measured preferences.

Keywords: health economics, standards, preferences

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but generally the result is a cost-effectiveness ratio (which JL^conomics is on the march in the health care sector. is a fancy name for the price of a QALY when bought with Increasingly the economic consequences of health the intervention studied). Examples abound, because this behaviour, ill health, and medical interventions are asis the kind of outcome policy makers want: when the price sessed and results used to direct policy making. The reason for this is clear: with advancing medical technology and per QALY is too high they can decide not to implement ageing populations, governments and other parties that the intervention. pick up the health care bill are struggling to contain costs. Evaluation studies always include or use the results of a Naturally they turn to economics for help. descriptive study, so all problems with descriptive studies As such this is a good development. Economics, despite affect evaluation studies. We will therefore discuss deits nickname as 'the dismal science', has developed useful scriptive studies first. methods and a body of theory to facilitate decision making under a resource constraint, which is exactly the DESCRIPTIVE STUDIES kind of problem policy makers in health care are facing. The first of two main problems with a descriptive ecoUnfortunately, the practice of economic assessment in nomic assessment can be stated very simply: which costs health care is frequently problematic. Study outcomes are to be included? Giving a definite answer to this often depend to a large extent on arbitrary decisions in question is easy for some items, such as health care costs, study design. Rather paradoxically, in the more theoretbut for others is fiendishly difficult, and perhaps impossiical aspects of their methods, researchers often display an ble. This is particularly true for the so called 'indirect' unseemly rigidness. We will try to point out, for ecocosts. With indirect costs economists mostly mean pronomists and non-economists alike, where these problems duction losses that occur because someone is unfit to originate, how they may affect policy decisions - in parwork. For example, when a car worker falls ill, the indirect ticular in the case of prevention and what could be done non-medical cost for his employer is the value of the cars about them. that have not been produced because of his absence. This seems perfectly reasonable. The problem is that you don't know where to stop: production losses tend to TWO KINDS OF STUDIES propagate through the economy. In the car example the We can distinguish two kinds of economic assessment car dealer gets fewer cars to sell, which means lost prostudies. The first kind is descriptive: taking account of duction too, with lower bonuses for the salesmen, who costs caused by a particular health problem. Examples then spend less on presents for their kids, which means include costs of congestive heart failure, costs of illness in lower sales for the toy shop, etc. etc. Of course the wider general, costs of smoking, drinking and accidents.1' the effect spreads, the more it gets diluted, but it keeps The second kind of economic assessment aims to evaluate going on and no logical stopping rule exists. a medical intervention, by measuring both its costs and The problem of which costs to include is not restricted to its effectiveness, the latter often expressed as quality indirect costs, it is only most conspicuous there. Which adjusted life years (QALY) gained. Outcomes may differ. costs will be considered in any particular study is largely left to the discretion of the researcher. * J.J. Barendregt , L Bonneux The second main problem is the valuation of costs. Many 1 Department of Public Health, Erasmus University Rotterdam, The Netherlands cost items do not have a money value associated with Correspondence: Dr. Jan 1. Barendregt, Department of Public Health, them, so this value has to be imputed. For example, what Erasmus University Rotterdam, P.O. Box 1738, 3000 DR Rotterdam, are the costs of lost years of life? The commonly used The Netherlands, e-mail: barendregt@mgz.fgg.eur.nl
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EUROPEAN JOURNAL OF PUBLIC HEALTH VOL. 9 1999 NO. 4 human capital method assumes that someone's productivity is reflected in his or her wage (a big assumption). Then the value of lost years of life is simply the number of productive years lost times the annual wage. The procedure tends to produce large numbers: in a typical cost of smoking study, for example, the costs of lost years of life according to the human capital method are much larger than the medical costs attributable to smoking. 3 ' 4 This way of valuing lost years of life is not undisputed. Some researchers have proposed an alternative to the human capital method, the 'friction costs' method, which assumes the economy will adapt in a rather short period, with markedly lower cost estimates than the human capital method as a result.2 Many people reject these methods outright because of the equity problems they introduce: a high earners' death is valued higher than a low earners'. If you do accept them, you still face the problem that a large part of total production is non-wage, requiring imputation of a money value to, for example, home making, raising kids, and being a grandparent. No standard methods for such imputations exist. We have concentrated here on the costs of lost years of life because, if included, they tend to swamp other cost items. But many other cost items have their valuation problems too, with various imputation methods, again leaving much room to the discretion of the researcher. The prevailing attitude in descriptive studies seems to be to include ever more cost items at ever higher valuations. At a conference on 'The social costs of smoking' in Lausanne, August 1998, Dorothy Rice presented a historical overview of cost of smoking studies.4 It was striking to see how the estimated costs of smoking in the US have ballooned over the years, even with smoking prevalences going down. This of course reflects in part the rise in health care costs, but the main cause by far was the inclusion of ever more (mostly indirect) costs. If this proves anything, it is that if you cast a wider net, you catch more fish. At that same conference the results of a Swiss cost of smoking study were presented. 5 This study went one further and included 'intangible' costs: the costs of suffering by the patient and sorrow of the bereaved. While this provided yet another boost to the costs of smoking, one may seriously wonder what it means. Problems arise as soon as the setting diverges from this idealised model. We will concentrate here on a problem that uniquely affects evaluation studies, and arises when there is a more protracted period between the intervention and medical outcome: time preference. Time preference What economists call 'time preference' is the simple observation that most people prefer to receive money (or other goods) as soon as possible, and postpone payments as long as possible. Economists have suggested conflicting explanations for this behaviour, but few doubt its existence. Just ask a child what he prefers, one cookie now or two cookies in a month time. Clearly time preference will affect decisions when costs and benefits do not coincide in time: we will prefer, all other things being equal, a case where benefits are up front and costs in the future rather than the other way around. To deal with time preference economists use the discounting procedure: costs and benefits are assigned a weight that becomes smaller the further the cost or benefit is away in time. The degree of time preference is expressed in the discount rate, with 0% being no time preference, 3% and 5% commonly used values, and 10% expressing strong time preference. When costs are up front and benefits in the future the effect of discounting is to raise the price of the intervention. If an intervention buys a QALY 10 years from now, a 3% discount rate will raise the price per QALY (as compared to no discounting) with 34%, a 5% rate with 63%, and a 10% rate with 160%. Economists have endlessly debated what the right discount rate is, to no avail. There has been a tendency over the years for rates to come down: fifteen years ago a 10% rate was common, now 5 or even 3% rates are much used. But even with the range of values used narrowing, the fact remains that what rate is used is essentially an arbitrary decision. It is clear that discounting strongly affects decisions with a long period between costs and benefits, as is often the case with prevention where, by definition, costs are up front and benefits in the future. Discounting will therefore raise the price per QALY of preventive interventions, and this has upset the proponents of prevention. Their remedies, such as not applying discounting to benefits, have met with theoretical objections from economists. Prevention advocates, however, feel that perfectly good and effective interventions might be ruled out because of obscure technicalities. Child health care The dilemma becomes even starker in the case of child health care. In the Netherlands an elaborate and popular system of child health care exists, with visits to a child health centre according to a fixed schedule. Much of the activity in the centres is preventive, such as vaccinations and screening. Although no systematic assessment has been made, we think that, with the exception of vaccinations, very few of these actions would qualify as cost-effective. For example, the hip check (with adequate

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EVALUATION STUDIES The role model for an evaluation study is a randomised controlled trial where medical effectiveness and costs are measured simultaneously for ajyell defined intervention which effects become apparent within a limited period of time. For example, two different thrombolytic agents are administered to patients with a myocardial infarction, their outcome is measured, and at discharge you know what the medical results and the costs of each treatment are. In such a setting this is a robust way to determine the price per QALY of differences between the two treatment HM outcomes.

Commentaries action taken when dysplasia is found) will prevent the early onset of hip arthrosis in 30-40 years time. At a discount rate of 5%, a 40 year long time interval will raise the cost per QALY by about 600%. Few interventions are so cheap that they can take such a price hike, and still be cost-effective. Yet nobody has seriously proposed discarding much of the child health care program because of this. On the contrary, policy makers are concerned about the alleged relatively low participation rate of some ethnic minorities. Clearly, the child health care program is seen as valuable by parents and policy makers alike (and pleas to discard large parts of it on grounds of not being costeffective would probably cause outrage). It seems that the outcome of economic evaluation is in this case at odds with both parental and societal preferences. Such an outcome should at least cast some doubt on the validity of the standard model for this kind of problem. Perhaps the standard model is simply not appropriate when such intergenerational effects are present. '^ Parents want to give their child a good start in life (we think such a preference is bred into our genes), and that may include the prevention of disease even if the disease will show up only when the child has become an adult. If that is the case, then it is parental preference and benefit that counts here, and the benefit is their success in giving their child a good start. WAYS OF IMPROVEMENT Given how much the measured outcome depends on arbitrary decisions made by the researcher, it is unsurprising that outcomes of economic assessment studies show huge variation. For example, estimates of the cost-effectiveness of screening for breast cancer range from US$ 3,400 to US$ 83,830 per life-year gained, an almost twenty-five fold difference (a few studies that showed a negative cost, i.e. savings, per life year gained were excluded from this review). This state of affairs, in conjunction with the often vast financial interests involved, has brought an influential journal to impose additional restrictions on the publication of economic assessment studies.9 Economists have been trying to improve matters by a drive towards standardisation: in recent years several publications have proposed checklists and standards. As such standardisation is an improvement: the arbitrariness of assumptions becomes a smaller problem when the assumptions are made in commission. But standardisation also harbours the danger that researchers will mindlessly follow the recipe in the cookbook, without reflection on appropriateness. An excellent and embarrassing - example of this can be found in a book edited by Gold et al. It concludes with two 'worked examples'. One is a meticulous assessment of all the costs and effects of supplementing folic acid for the prevention of neural tube defects: it includes for instance the costs of the extra time parents need to care for an affected child. ^ However, the prime reason why a woman would take folic acid, that parents simply want a healthy child, is not included in the evaluation. The reason is that the outcome measure is QALYs of the child, and these are not affected by the parents' preference. This very detailed assessment which leaves out the main motive is a case of fake precision. An obvious and simple outcome measure that includes parental preferences would have been the number of neural tube defects prevented. Transparency and modesty When health economists want to improve the state of their craft we think two key words should loom large in their minds: transparency and modesty. Economists should be modest in choosing the scope of their study. In a recent editorial in Health Economics two cost-effectiveness studies published in the same issue are criticised for including only health care costs.14The editorial argues that identifying "efficient uses of social resources for health care" requires the wider societal perspective. This is quite true, from a theoretical point of view. But it is also true that the societal perspective requires including diminishingly well-defined cost items, with all the arbitrary assumptions and imputation methods we mentioned above. Generally, studies induce more trust when the cost items included are well defined and can be readily interpreted. At current knowledge a robust analysis that uses the societal perspective is not feasible, and we rather doubt it ever will be. Restriction to health care costs is therefore to be applauded, not criticised. Lack of transparency is a major problem in health economics. Standardisation will increase transparency, but not if the proposed standard requires researchers to make a host of additional assumptions and use controversial imputation methods. A modest standard, on the other hand, would be a boon for transparency. Economists should also be modest about the scientific status of their craft. Economics is not an exact science, it is a quantitative science, and underlying the quantifications are many value judgements. When the outcome of an evaluation study seems to be at odds with people's preferences, economists should be prepared to question their model, instead of just blaming the people. What is needed is a willingness to discuss the basic assumptions and value judgements of economics. Health is not just any other commodity, like cars or television sets. Lately mainstream economics has accepted the importance of such non-economic issues as institutions and property rights, and incorporated them into its body of theory. In our opinion health economics also requires a major rethink. In particular we need a careful investigation of the assumptions underlying the standard theory, to decide which ones clearly do not apply to health. On the basis of that investigation we should formulate alternative assumptions, and try to incorporate the specific characteristics of health in the theory. Many people think that economics is about money, and surely it is. But it is also about people's preferences, and the choices they make given limited resources. Health economists should measure those preferences and choices, and adjust their models and assumptions accord-

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EUROPEAN JOURNAL OF PUBLIC HEALTH VOL. 9 1999 NO. 4 ing to what they find. With an open mind and more empirical observation health economics will become a much more useful science, and a more exciting one too. The authors are grateful to Erwin Birnie, Marie-Louise Essink-Bot, Paul van der Maas, Willem-Jan Meerding and Johan Polder for comments on an earlier draft. Of course the opinions expressed above are entirely of the authors.
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