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Economics of Public Health 2

19 Dec 2011 | Prof Cam Donaldson, Kenny Lawson, Helen Mason and Emma McIntosh

Facing up to scarcity means recognising the basic notion of working within a fixed funding envelope (or, in multi-sectoral situations, a set of envelopes) from which all possible claims cannot be met.

Nevertheless, the fundamental challenge of managing scarcity for maximum population health and wellbeing seems to be consistently denied by the actions of those who govern and administer our public finances. Indeed, it could be argued that the most common reaction to resource scarcity is actually ‘scarcity-denial’, involving reorganisation or spending more. There is even a case to be made that establishing health technology assessment (HTA) agencies, despite appearing to deal with resource scarcity, does not actually achieve this. We will examine each of these in detail below. However, a general point is that all such innovations tend to focus attention on single sectors, which, again, militates against multi-sectoral, upstream public health approaches to health improvement.

‘Scarcity denial’: when in doubt…

Whenever they get round to addressing the constant challenges to their health care systems, governments have historically employed three main strategies:


This a popular activity, the countries of the UK being no exception. In broad terms, Scotland and Wales have gone from having more integrated health boards and authorities to internal markets and back again. Indeed, they have gone even further, now thinking of integrating health and social care budgets at the level of the locality. England has tried different forms of commissioning since the original internal market model of the early 1990s.

Generally, many societies continually stumble, often in circles, from one non-evidence-based reform to another, no doubt with the best of intentions. A common factor across these reforms is the creation of entities that have to manage a scarce resource. Yet, in over 60 years of the UK NHS, such entities have never been issued with comprehensive guidance or tools to do this that extends beyond political rhetoric and management speak.

....keep spending...

There is no question that overspending in publicly-funded health care systems is the norm. But, how does it happen? The simplest answer, of course, is that health professionals and organisations simply respond to incentives put in front of them. More often than not, and almost always, governments will bail out overspending health organisations. The incentive is, thus, to overspend, but not too much. In addition, such overspends, as a percentage of turnover, are often not that large, so, some may say, the problem is not too serious anyway.

There is logic to the above argument. However, it does also involve a certain amount of burying one’s head in the sand. Are we not concerned with how the money is spent?

Of course, it might be rash to accuse governments of not being concerned in this manner. However, it might be difficult to see this, as, most economies do not seem able to put in place a set of incentives to prevent the inexorable march of patients into the most expensive part of the system; the black hole of the acute care sector. Government reinforce this with policy initiatives often relying on non-evidence-based targets aimed at things like waiting lists. With little or no knowledge on how long the public is actually willing to wait nor indeed evidence on the ‘value’ to patients of reducing waiting time, and given that resources could be spent on other things, many countries continue to pile more and more resources into various such ‘initiatives’.

…and/or create a national HTA agency!

There is now a plethora of HTA agencies created around the world. The embodiment of such an agency is the National Institute for Health and Clinical Excellence (NICE) in England. From an economic perspective, the remit of such agencies is to assess interventions for ‘cost effectiveness’ and reduce geographic inequalities in health care provision. It is important to remember that national HTA organisations are looking in detail at the evidence for certain interventions, preventing duplication of effort and challenging the system to respond to what might appear to be sound evidence-based assessments. This is very important, and a role we do not question. Nevertheless, they deal only with a fraction of the NHS budget, do not necessarily look at what commissioners might want them to look at, nor indeed question the economic integrity of existing expenditure sufficiently. It could be argued that there is just over £110 billion or so that is spent in the UK NHS each year which remains largely unscrutinised, and that is just the NHS!

Any criticisms of HTA decisions are really about the need (from an economics viewpoint) for agencies’ remits to be widened and embedded in a more generalisable economic framework to account for budget impact and opportunity cost at the margin. To explain, national guidance on provision of a new therapy, despite being labelled ‘cost effective’, according to a positive ratio of incremental costs to incremental health gain relative to current provision, will, by definition, be cost-increasing – because the costs are incremental! (Of course, the incremental ratio could be negative (e.g. a technology which is cost saving and improves health relative to its comparator), in which case such a technology should be unambiguously recommended for implementation.) But returning to the case of a positive ratio, the real question is about the usefulness of the ‘threshold’ which determine whether or not a technology is acceptable. In this situation, resources to fund the implementation of NICE guidance must be found from elsewhere in commissioners’ budgets. Given all the other claims on their budgets, such guidance may not fit with the priorities of the commissioners, as national guidance make holistic judgements about the range of services to be funded in any given locality. Indeed, the temptation may simply be to ‘add on’ the cost consequences of NICE guidance to other local expenditures. If so, the guidance will simply be inflationary, an issue some health economists have warned others about for several years now. This would be reinforced by the threshold not being properly evidenced, providing incentives (for those seeking approval) to price products and interventions toward the threshold and does not consider overall budget impact (when costs increase) and therefore does not take into account opportunity cost, when budgets need to be found from elsewhere. 

To re-emphasise, we are not specifically gunning for HTA (which in our view has been a major step forward). But its unthinking use does carry some dangers. Also, whilst some may argue that HTA involves scrutiny of technologies to the Nth degree, this argument can be countered by saying that elsewhere in the system the budget is loosely spent.

Moving beyond health care

Because health economics has been so successful in becoming used in (some) NHS settings, many of our debates tend to be focussed on health care evaluation within the relatively narrow NICE reference case. This ignores the challenge of the multi-sectoral nature of many upstream public health interventions in the sense that what might be ‘efficient’ for one funder is not necessarily so for another, making implementation even more challenging. Nevertheless, attempts are being made to overcome such difficulties through mechamisms such as ‘Single Outcome Agreements’ (SOAs) and ‘One Glasgow’ (following the lead of ‘Total Place’ in England). The former are a set of national universal objectives that in theory (i) should provide coherence with local objectives and (ii) that all sectors could contribute to. The latter is where local budgets are being explicitly pulled together across silos to meet common objectives. At a strategic level, this may (begin to) create institutional incentives to consider economic trade-offs more appropriately and more explicitly.  

Where now?

Our view is that (1) evaluations need to reflect a societal perspective (the issue of perspective will be discussed in more detail later in the series) which will better reflect the multi-sectoral basis of many public health interventions and (2) we need to devise methods that not only reflect such a perspective but that can be applied locally as well as nationally.

Once again, although it is not necessary to answer these questions: what would you like to get out of applications of health economics to evaluations of public health interventions? Have we been fair on governments’ responses to scarcity with respect to public sector resources? What do you think economists might do differently when evaluating public health interventions? How well do single outcome agreements such as ‘One Glasgow’ and ‘Total Place’ work in practice?

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