Getting Health Economics into Practice

David Kernick

• Publisher: CRC Press
• Year: 2018
• ISBN:
  9781315347950
• Edition: 1
• Topic: Medicine
• Subtopic: Public Health, Administration & Care

Fifty years ago medicine was straightforward. Doctors had limited therapeutic options and patients did as they were told. Today, an array of medial interventions is putting increasing pressure on limited resources, patients are questioning everything and doctors are uncertain of their role. Health economists hoped to offer important insights to aid decision making, but their technical frameworks bore little resemblance to the practical requirements of end users. Now, this book presents the concepts and insights that health economics has to offer in a way that is accessible to every healthcare decision maker. Getting Health Economics into Practice is for all those who are involved in the planning, commissioning and delivery of healthcare. It illuminates the practical value that the concepts and principles of health economics can offer decision makers at all levels. Comprehensive and extensive, it is the first such book to be edited by a clinician rather than a health economist, with contributions from an expert panel of specialists. This approach ensures it is accessible and useful in the everyday work of health professionals. It is relevant for all healthcare sectors, in particular for Primary Care Trusts, and is essential reading for managers, researchers, and especially practitioners.

Section 1

Getting to grips with the basics

The first section of this book lays out the basic framework of health economics for those who have no knowledge of the subject, introducing some basic concepts and principles.

Health economics applies economic theory to problems in healthcare and, like its parent discipline it has two distinct branches. One uses economic theory to understand how health systems work and how they can be configured to operate more effectively. The other uses economic theory to facilitate decisions on how to allocate limited resources efficiently between different healthcare interventions. Chapter 1 offers a brief introduction to economic theory and an overview of these two divisions, exploring how they can help facilitate decisions at all levels of healthcare planning and delivery. It also demonstrates how health economists are ‘wired-up’ to look at the world.

In Chapter 2, Anthony Scott addresses the first branch of health economics and explores how economic theory can explain and predict how health systems work and offers insights into how healthcare can be delivered. The starting point of any economic analysis is the assumption that a competitive market is the most efficient way to distribute limited resources. The problems of applying this model to healthcare are well recognised, but by using regulation and alternatives to markets, some of the desirable features of perfectly competitive markets can be replicated.

Of most interest to practitioners and healthcare managers will be the second branch of health economics. Economic evaluation aims to offer a framework within which the costs and benefits of alternative healthcare interventions can be compared. In Chapter 3, Ruth McDonald and I discuss in a little more detail the economic evaluation that forms the core of this book and provides the bulk of health economists’ work.

CHAPTER 1

An introduction to health economics

David Kernick

This chapter outlines the basic principles of health economics and describes its context within the spectrum of healthcare decision making.

Key points

• Health economics is a subdiscipline of economics and is exerting an increasing impact on decisions in healthcare at every level.
• There are two distinct branches of economics and this distinction is carried through into health economics. One uses economic theory to explain and predict the operation of the health system. The other uses theory to facilitate decision making from a perspective of making the most efficient use of limited resources.
• Economic theory takes as its starting point the thesis that the most efficient way to distribute resources is using a market where individuals act rationally to maximise their satisfaction.
• The difficulties of applying this model to healthcare is well recognised, but its importance is that it provides useful insights into how healthcare can be organised and financed and it can provide a framework to address a broad range of issues in an explicit and consistent manner.
• Other inputs enter the decision-making process in healthcare such as equity and public opinion. These considerations can conflict with efficiency.
• Health economics has been slow to be adopted in practice due to a gap between health economic theory and the conflicting directives and pragmatic requirements of policy makers, managers and practitioners.

Chapter sections

• What is health economics?
• What drives health economists?
• What do health economists get up to?
• Conclusion

What is health economics?

Health economics is the discipline of economics applied to the topic of health. Broadly defined, economics concerns how society allocates its resources among alternative uses. Scarcity of these resources provides the foundation of economic theory and from this starting point three basic questions arise.

• What goods and services shall we produce?
• How shall we produce them?
• Who shall receive them?

Thirty years ago there were limited options for doctors making treatment choices and patients did as they were told. Any values that contributed to the decision-making process were implicit and determined by the physician. However, against a background of limited healthcare resources, an empowered consumer and an increasing array of intervention options, there is a need for decisions to be taken more openly and fairly.

Health economics offers an explicit explanatory and decision-making model based on the underlying value of efficiency. This approach ensures that goods and services are allocated in a way that maximises the welfare of the community. It is not the only approach to decision making but it is an important one.

The basic economic model

We need to make sense of the world and act. We do so using models that help us to see patterns in our environment. We create reality around ‘bundles of related assumptions’, conceptual lenses through which we view the world. All models are approximations but they can often be useful. Models help us with four basic questions.

• What does happen?
• What will happen?
• What would we like to happen? (For this stage, objectives need to be defined and values made explicit so that judgements can be made about what is right or wrong.)
• How can we make it happen using insights from our model?

The fundamental starting point of economic theory is that the best way of distributing society’s limited resources is using the model of a competitive market where decisions are determined by independent consumers and producers using signals in the form of prices regulated by the interplay of supply and demand. Economics can be distinguished from other social sciences by the belief that behaviour can be explained by assuming that individuals have stable, well-defined preferences and make rational choices consistent with those preferences to maximise their own well being. These assumptions are known as the ‘neo-classical’ economic model. Although there are other economic frameworks, it is the most important one and the starting point for health economics. Box 1.1 outlines this economic model.

Box 1.1: The basic economic model upon which health economics is constructed. The model gives a predictive or explanatory framework (sometimes known as positive economics) - if certain actions are taken, certain results will follow and a prescriptive framework (sometimes known as normative economics) to facilitate decision making

• Resources are scarce and sacrifice is inevitable.
• The best way of distributing society’s limited resources is using the model of a competitive market where decisions are determined by independent consumers and producers using signals in the form of prices regulated by the interplay of supply and demand.
• Each individual has preferences regarding the outputs of any given economic activity that can be ranked by priority and assigned utilities - quantitative measures of their ranking.
• People act as individuals and act so as to maximise their satisfaction or utility.
• The well being of society is reflected in the sum of the utilities of its individual citizens.

The difficulties of applying market theories to health are well recognised.

• There may be an uncertain relationship between the consumption of healthcare and health.
• Consumers do not have accurate information to allow them to make choices about their consumption of healthcare.
• There may be a reliance on clinicians to make choices on behalf of their patients, but these same clinicians as suppliers may have vested interests such as financial incentives.
• Consumers are not independent of each other’s actions. Often, one individual’s consumption of healthcare (e.g. immunisation) impacts on the health of others in the community.

The importance of the economic model is that it provides useful insights into how healthcare can be organised and financed, and provides a framework to address a broad range of issues in an explicit and consistent manner.

The two branches of health economics - descriptive and prescriptive

There are two distinct branches of economics that arise from the above economic model, and this distinction is carried thro...

Table of contents

• Cover
• Title Page
• Copyright Page
• Contents
• About this Book
• List of Contributors
• Prologue
• Section 1: Getting to Grips with the Basics
• Section 2: Aspects of Health Economics
• Section 3: Aspects of Economic Evaluation
• Section 4: Getting Economic Evaluation Into Practice
• Section 5: Health Economics and Rationing
• Section 6: Health Economics: Some Perspectives
• Epilogue
• Glossary
• Useful Resources
• Appendix 1: Studies Assessing the Impact and Relevance of Health Economic Analyses in Practice at Purchaser Levelresearch Focus
• Appendix 2: PBMA or MA Studies at Local Level in the NHS
• Index