The Economics of Resource Allocation in Health Care

Andrea Klonschinski

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317291817
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

The question of how to allocate scarce medical resources has become an important public policy issue in recent decades. Cost-utility analysis is the most commonly used method for determining the allocation of these resources, but this book counters the argument that overcoming its inherent imbalances is simply a question of implementing methodological changes.

The Economics of Resource Allocation in Health Care represents the first comprehensive analysis of equity weighting in health care resource allocation that offers a fundamental critique of its basic framework. It offers a critique of health economics, putting the discourse on economic evaluation into its broader socio-political context. Such an approach broadens the debate on fairness in health economics and ties it in with deeper-rooted problems in moral philosophy. Ultimately, this interdisciplinary study calls for the adoption of a fundamentally different paradigm to address the distribution of scarce medical resources.

This book will be of interest to policy makers, health care professionals, and post-graduate students looking to broaden their understanding of the economics of the health care system.

1 Introduction

The impression that economic thinking constitutes the paradigm of the modern world is widely shared – “We live in the age of the economist” (Harpham/Scotch 1988: 216). Considering any kind of choices in terms of costs and benefits not only characterizes theories in the social sciences, but also permeates the vernacular and shapes our quotidian perception of social reality. The economization of all spheres of life continues to expand and the discourse on public policy already is to a large extent dominated by concerns for efficiency. Thereby, the ubiquitous application of economic evaluation and cost-benefit analysis as its prime manifestation can be regarded as both a symptom and a result of this “economic worldview.” Although this development is sometimes reckoned with some unease, it is by no means obvious what exactly should be wrong about applying economic techniques to issues of public policy. After all, if economics is regarded as the discipline studying the “rational,” “efficient” use of scarce resources, economists are certainly the experts to turn to when it comes to allocating resources under conditions of scarcity in the public realm, an example par excellence being the resource allocation in health care.

Given the scarcity of medical resources, postulating that every monetary unit should be spent so as to maximize the induced benefit appears reasonable. Initially, health economists sought to accomplish this goal by means of cost-utility analysis (CUA), a form of health economic evaluation which defines the benefit at stake in terms of health-related quality of life (HrQOL), measured by the quality-adjusted life year (QALY).¹ An attempt to allocate medical resources strictly on the basis of CUA and subsequent socio-empirical studies in the 1990s revealed, however, that maximizing QALYs leads to resource allocations that are seriously at odds with people’s fairness intuitions.² For anyone familiar with utilitarianism and its critics, this did not come as a surprise. Just like utilitarianism, CUA only focuses on the sum of QALYs generated over and above all persons concerned and disregards their distribution. Interestingly, within health economics, the rejection of QALY maximization was not interpreted as a rejection of CUA as such.³ Instead, it was argued that the problem was entirely methodological in character, and so was its solution. By focusing on individual health as the unit of benefit, CUA had simply maximized the wrong measure. Since people apparently care about the distribution of QALYs on different persons as well, the correct maximand needs to incorporate their respective social preferences.⁴ Henceforth, researchers have empirically investigated the public’s social preferences as to how they want health care to be distributed in order to discover the different factors influencing the perceived fairness of a distribution – for instance, the patient’s age or the severity of illness. By quantifying the relative importance of these factors and incorporating them into CUA via attaching equity weights to QALYs, the correct social value of a resource allocation could be tackled. This social value, thus the idea, combines concerns for efficiency in terms of the sum of QALYs and equity in terms of their distribution at once,⁵ so that its maximization mirrors the socially desired equity-efficiency trade-off in medical resource allocation.⁶

The weighting approach basically presents an attempt to solve CUA’s fairness issue by modifying its maximand within the value-maximizing framework of CUA. Although the extent to which such a corporation is feasible is discussed in the literature,⁷ the underlying interpretation of CUA’s fairness issue is broadly shared, even among fierce critics of mainstream health economics and ethicists.⁸ It is generally assumed that efficiency is not the only aim of health care resource allocation, but needs to be supplemented by concerns for fairness, and the task of allocating scarce resources is regarded as pursuing the socially desired equity-efficiency trade-off – indeed, “equity-efficiency trade-offs prevail in virtually all areas of social policy,” the philosopher Schmidt (1994: 45) states. This study challenges this interpretation. The basic thread of the criticism it provides goes back to Lübbe (2005, 2009b, 2009c, 2009d, 2010a, 2010b, 2010c, 2011, 2013, 2015), who has pointed out that this value-oriented framework is by no means normatively innocuous – in fact, it is inappropriate to consider health care resource allocation in a satisfying manner. Lübbe argues that CUA’s fairness issue actually does not stem from a mistaken conception of the maximand, but results from the value-maximizing framework of CUA as such. Insofar as both the weighting approaches and the trade-off notion stick to this paradigm, they rely on strong and ultimately unjustified premises as to the choice behavior of the respondents in empirical studies, the nature of equity judgments, and the accurate relationship between equity and efficiency. CUA’s equity problem thus does not call for piecemeal corrections but rather for a fundamentally different paradigm.

Building on and elaborating Lübbe’s claims,⁹ the present study offers a comprehensive critical examination of the weighting approaches’ normative-ethical framework. Providing a thorough conceptual analysis of the health economic debate and connecting this applied field with fundamental issues in moral philosophy and economics, it explicates the normative assumptions underlying the weighting approaches. In doing so, it demonstrates that the problems these accounts are facing are by no means methodological in nature but rather point toward intricate and still unresolved problems in both disciplines. For one thing, the debate on CUA’s potential to incorporate concerns for fairness resembles the debate on the scope and limits of consequentialism in moral philosophy. This is important for health economists to be aware of because, as mentioned above and as will become clearer in the following, the value-maximizing paradigm and its implications are not sufficiently reflected in the literature. The considerations are also of interest for philosophers as they illustrate the practical relevance of current fundamental debates. For another, the study reveals that the concepts and methods used and implicit assumptions made in the realm of economic evaluation ultimately stem from its consumer choice framework, which is inextricably connected with the utility concept and the very idea of value maximization. This connection is elaborated by embedding the tools and concepts of health economic evaluations into the history of the utility concept in economics. Thereby, the historical consciousness of health economics is fostered, the lack of which has been explicitly criticized in the literature. Finally, this study seeks to serve a mediating function as it makes the health economic discourse approachable to a broader audience, thereby enabling policy makers to grasp (health) economic reasoning and its pitfalls.

The study proceeds as follows. Examining the literature on equity weights and social value shows that it is replete with implicit assumptions on people’s equity judgments and with conceptual ambiguities, especially regarding the concepts of value and utility. As both phenomena are deeply rooted in economics, Chapter 2 offers an analysis of the historical development of the utility concept from its first introduction to economics at the end of the nineteenth century to its formalization in the middle of the twentieth century. Yet, while the concepts became more and more formal, the terminology from early consumer choice theory and the associated connotations remained the same; economists still speak of utility as something substantial that can actually be maximized. This leads to serious conceptual vagueness in modern economics in general and in health economics in particular.

Chapter 3 pigeonholes health economic evaluations into another development of recent decades: the rise of the market ideal and cost-benefit analysis (CBA) as its epitome in both public policy and economic theory. It is against this background that the establishment of health economics as a subdiscipline of economics and the current authority and influence of (health) economic evaluations needs to be considered. The chapter also provides for the welfare economic basis of economic evaluation. It illustrates that within economics, the market advanced to the ideal allocation mechanism with the statement of the two fundamental theorems. Henceforth, interventions in the market have been regarded as legitimate only when the market fails, and this is where economic evaluations enter the scene, their rationale being to mimic the market, i.e., to guarantee an efficient resource allocation. However, when it comes to health care, this aim seems beside the point: as it turns out, some costs and benefits are habitually excluded from actual CBAs in health care, an observation indicating a fundamental problem of seeking efficiency in the realm of health care.

Chapter 4 introduces CUA, outlines the happenings in Oregon around 1990 that put the issue of distributive justice irrevocably on the agenda, and elaborates the basic idea, the normative claim, and the current implementations of equity weighting. Characterizing economic evaluation as a form of applied consequentialism, the chapter offers the conceptual prerequisites for the subsequent considerations. In addition, it illustrates that the development from CUA to equity weighting resembles the development from classic utilitarianism to modern consequentialism. In the latter case, it was also argued that the problems of utilitarianism could be ameliorated by changing its axiology while sticking to the maximizing formula. Implicitly, however, both modern consequentialist theories and the weighting approach still rely on certain assumptions of classical utilitarianism.

This claim is elaborated in Chapters 5 and 6, which present the central analysis and critique of the weighting approach. Chapter 5 carves out that the interpretation of CUA’s failure and the weighting approach are based on the economic conception of choices as trade-offs, revealing the relative value of the alternatives at stake. Thereby, the consumer choice framework is implicitly and illegitimately transferred to the interpretation of prioritization judgments. To buttress this claim, the pivotal concepts of health economic fairness discourse are characterized as metaphors, which highlight certain aspects of their subject and suppress others. As it turns out, the metaphors used are inappropriate insofar as they restrict the perspective on the subject far too much (not all choices are value maximizing choices), lead to the usage of meaningless concepts (social value, good for society, etc.), imply high demands on the individuals’ distributive judgments and the functioning of equity considerations (stable equity weights, atomism of reasons and values), and suggest a mistaken relationship between equity and efficiency (trade-off).

Chapter 6 reinforces the claim that the weighting approaches make unjustified assumptions on people’s equity judgments by considering preference anomalies arising in empirical studies. It is argued that the apparent inconsistencies – such as scope insensitivity of the stated willingness to pay – indicate the inappropriateness of the value-oriented framework presumed by the surveys, according to which the respondents’ task in a stated preference study is to indicate how much a particular item or alternative is worth to them. The hypothesis that the respondents do not share the value-maximizing framework is buttressed by analyzing so-called protest responses, data on the respondents’ actual reasons behind their choices stemming from qualitative studies, and CUA’s problem of disability discrimination. Up to now, attempts to solve the latter by axiological modifications have not been successful, but ran into theoretical inconsistencies. The chapter argues that this failure stems from the fundamental opposition of economic evaluation’s value orientation on the one hand, and the attempt to take non-consequentialist concerns for equal treatment and non-discrimination into account on the other hand. All in all, there is much evidence that the respondents’ answers do not meet the requirements outlined in Chapter 5 so that equity weights are probably only artefacts of the value-maximizing paradigm presumed by the surveys.

Chapter 7 challenges the weighting approaches from another angle and examines the normative-ethical relevance of empirically elicited prioritization preferences. For this purpose, the different rationales in favor of public participation on the level of the theoretical-normative prioritization discourse put forward in the literature are considered and rejected. They can be divided into two categories: one thread maintains that the elicitation of public preferences somehow improves prioritization decisions, while the other rests on the claim that individual autonomy in a democratic system requires public participation. In a nutshell, however, the first group of arguments does not sufficiently differentiate between empirical ethics and empirically informed ethics and neglects the expertise of professional ethicists, while the latter is based on a category error. Hence, even if the attempt to solve CUA’s fairness issue by attaching equity weights to QALYs was theoretically sound, it would have to be rejected for other normative reasons anyway.

To sum it up, the study shows that the weighting approaches rely on more controversial assumptions than the literature generally acknowledges. These premises remain largely unreflected since they are deeply embedded in the consumer choice framework of economic analysis and are carried by metaphors. Yet, if the respondents’ choice behavior does not align with the basically consequentialist assumptions presumed by the theoretical weighting approach and the empirical surveys, the derived weights lack any informative value beyond the concrete study. The attempt to solve CUA’s fairness issue by modifying its maximand is thus not promising. In fact, the problem is rooted in the value-maximizing framework of economic evaluation as such.

Before concluding this introduction, it is important to emphasize what is and what is not within the scope of this study. To make it clear right from the start, the critical analysis of the weighting approaches provided here is neither accompanied by a positive suggestion of an alternative algorithm for resource allocation, nor is it supplemented with an elaborate account of the demands of justice in health care. As to the first aspect, critics might argue that “destroying” a method without simultaneously coming up with a better one is worthless. However, as Chapter 7 elaborates, I take it that the tasks of philosophers working in applied fields primarily consist in critically monitoring the discourse, carefully analyzing the proposed arguments, investigating their consistency, disclosing implicit premises, and questioning fundamental premises and arguments the researchers themselves take for granted. When it comes ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of illustrations
• Acknowledgments
• List of abbreviations
• 1 Introduction
• 2 The utility concept in economics: from pleasure maximization to rational choice
• 3 On the rise, rationale, and authority of economic evaluation
• 4 The empirical failure of CUA and the approach of equity weighting
• 5 Values, weights, and trade-offs: the conception of choice in economics
• 6 Inconsistencies in the determination and measurement of social values
• 7 On the normative status of empirically elicited prioritization preferences
• 8 Conclusion
• Bibliography
• Index