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Introduction To Health Economics For The Medical Practitioner
Introduction To Health Economics For The Medical Practitioner
REVIEW
Against a background of increasing demands on limited framework to address a broad range of issues in
resources, health economics is exerting an influence on an explicit and consistent manner. Organisational
changes such as the development of the National
decision making at all levels of health care. Health Institute for Clinical Excellence and the devolu-
economics seeks to facilitate decision making by tion of decision making to primary care organisa-
offering an explicit decision making framework based tions have led to an increasing interest in the
subject and its influence on health care organis-
on the principle of efficiency. It is not the only ation and decision making.
consideration but it is an important one and
practitioners will need to have an understanding of its WHAT DO HEALTH ECONOMISTS DO?
basic principles and how it can impact on clinical Health economists are interested in the produc-
tion of health at a number of levels. For example:
decision making. This article reviews some of the basic
• What is health and how do we put a value on
principles of health economics and in particular it?
economic evaluation. • What influences health other than health care?
.......................................................................... • What influences the demand for health care
and health care seeking behaviour?
WHAT IS HEALTH ECONOMICS? • What influences the supply of health care?
Health economics is the discipline of economics (The behaviour of doctors and health care pro-
applied to the topic of health care. Broadly viders.)
defined, economics concerns how society allo- • Alternative ways of production and delivery of
cates its resources among alternative uses. Scar- health care.
city of these resources provides the foundation of
economic theory and from this starting point, • Planning, budgeting, and monitoring of health
three basic questions arise: care.
• What goods and services shall we produce? • Economic evaluation—relating the costs and
benefits of alternative ways of delivering health
• How shall we produce them? care.
• Who shall receive them? Although all of these elements offer useful
Health economics addresses these questions insights into the delivery of health care, it is eco-
primarily from the perspective of efficiency— nomic evaluation that provides the bulk of health
maximising the benefits from available resources economists’ work and is of most relevance to
(or ensuring benefits gained exceed benefits managers and practitioners. This exercise offers a
forgone). Equity concerns are also recognised— framework for measuring, valuing, and compar-
what is a fair distribution of resources. Considera- ing the costs (negative consequences) and ben-
tions of equity often conflict with efficiency efits (positive consequences) of different health
directives. However, due to the contested nature care interventions. In this way we can assess
of this area and the difficulties in quantifying whether the benefits gained by introducing an
equity dimensions, this element has not been a intervention outweigh the benefits that are
major focus of health economist’s work. foregone. A discussion of economic evaluation
and its principles forms the rest of this paper.
WHY IS HEALTH ECONOMICS
IMPORTANT? CONCEPT OF ECONOMIC EVALUATION
Thirty years ago there were limited options for The concept of economic evaluation underpins
doctors making treatment choices and patients efficiency choices in health care.1 It relates the
....................... did as they were told. Any values that contributed benefits of alternative interventions to the re-
to the decision making process were implicit and sources incurred in their production (see fig 2).
Correspondence to: determined by the physician. However, against a We will first explore three principles that are an
Dr D P Kernick, St Thomas’ background of limited health care resources, an important part of any economic analysis before
Medical Group, Cowick
Street, Exeter EX4 1HJ, UK; empowered consumer and an increasing array of looking at the types of economic studies.
su1838@eclipse.co.uk intervention options (see fig 1) there is a need for
decisions to be taken more openly and fairly.
Submitted 1 July 2002 .................................................
Accepted
The importance of the economic model is that
5 November 2002 it provides useful insights into how health care Abbreviations: GP, general practitioner; QALY, quality
....................... can be organised and financed and provides a adjusted life year
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148 Kernick
Figure 3 Costs and benefits in terms of life years saved from statin
treatment. Costs/life years saved are shown for very high risk, low
risk, and very low risk patients.
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Health economics 149
Table 1 The four types of formal economic Table 2 A cost effectiveness league
evaluation table. Cost per quality adjusted life
Measurement and valuation of
year (QALY) of competing
Form of evaluation outcomes therapies—some tentative estimates
(1) Cost minimisation analysis Outcomes are assumed to be Cost per
equivalent. Focus of measurement QALY (£,
is on costs. Not often relevant as Intervention 1990 prices)
outcomes are rarely equivalent
GP advice to stop smoking 270
Antihypertensive therapy 940
(2) Cost effectiveness analysis Natural units (for example, life
years gained, deaths prevented) Pacemaker insertion 1100
that are common to competing Hip replacement 1180
interventions. This approach Value replacement for aortic 1410
forms the bulk of published stenosis
studies and will be of most Coronary artery bypass graft 2090
relevance to practitioners Kidney transplant 4710
Breast screening 5780
(3) Cost utility analysis Health state values based on Heart transplant 7840
individual preferences (for Hospital haemodialysis 21970
example, quality adjusted life
years gained). An approach
which is gaining in importance
due to the need to decide
between different interventions at
a national level and the
importance placed on quality of Table 3 An example of a cost consequence
life. Many methodological study—transferring gastroscopy services to primary
problems remain
care
(4) Cost benefit analysis All outcomes valued in monetary
Consequences
units (for example, valuation of Costs (benefits/dysbenefits)
amount willing to pay to prevent
a death). Rarely used due to GP and nurse (what activity is Health state
methodological problems in being given up by these
valuing all outcomes in monetary practitioners to undertake the new
terms service)
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150 Kernick
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