Economics of Public Health 1

05 December 2011

Introduction: The need for economic evaluation in public health

Scarcity and value

All societies limit what they spend on the health of their population. Some spend more than others, but, at some level, such limits imply a value on life or health. More and more, we see controversial rationing decisions played out in the popular press. Should we be providing drugs for people with mild dementia? What about extending life for people with terminal cancer? Does it make a difference if these people have children or a wedding to go to in the next six months? The ‘credit crunch’ emphasises that society has to limit what it spends on population health, whether interventions originate from within the health sector or, for more ‘upstream’ cases, other areas of the public sector. Therefore, the frequency with which such questions are asked looks set to increase.

Underlying all of this is the notion of scarcity in the sense that we do not have enough resources to meet all of society’s needs. Scarcity has always been with us, but, in the good times, we are not so focussed on recognising this. Good management of scarcity is required to maximise lives saved and health gained. Scarcity simply means that there is an inevitability of choice; whereby in choosing to use resources to meet one need, we give up the opportunity to use those resources to meet some other need. This means that we are forced, as a society, to place value on health interventions.  It also means we are either implicitly or explicitly placing values on life and health in different contexts.

For most commodities, these notions of value are played out in the market place. A good example of this is food. It could be argued that access to food is a more fundamental human right than access to health interventions. Yet, no country has a National Food Service in the way that many have a National Health Service. Beyond setting some standards for food producers and supplementing the income of the less-well-off, the delivery of food to individual members of society is largely left to the market. Yet, if food is so fundamental a commodity, why not the same for health care? The answer is that there are basic and persistent characteristics of health and well-being interventions which make them susceptible to ‘market failure’, and thus more efficiently financed through the public purse, than just about any other ‘good’.  Most advanced economies of the world have recognised this. The table below illustrates that the vast majority of health spending in such countries comes from the public purse. The arbitrary years chosen are merely to illustrate that this situation has been sustained over some time. 

Total health expenditure, and percent of total which is public (selected OECD countries, 1990 and 2006)

Health Economics blog 1 table

Source: OECD Health Data 2008. * 2004. # 2003. + 2005

$PPP is simply a form of currency conversion making spends across countries more easily comparable


The question still remains, however, about how to achieve maximum value from this spend, and from other public and private resources that contribute to health and well-being. I chose the examples in the opening paragraph of this blog to emphasise that, even within public sector budgets, societies often focus on drugs and ‘gadgets’ when prioritising what should be provided by our publicly-funded systems. Public health tends to receive less attention, especially in times of ‘fiscal tightness’, and even less so in the case of ‘upstream’ interventions which are more about improving people’s life circumstances and environments than providing individualised prevention services. Furthermore, upstream interventions are complex in the sense of being multi-sectoral, aimed at prevention, having long term perspectives and a focus on reducing health inequalities. It may be the case that, while such interventions are thought to be vitally important, with budget holders having multiple aims, health may even be a secondary consideration. Furthermore, we also know that health is determined by many different factors. For example, the diagram below shows that the Czech Republic spends almost five times less on health care than does the USA but has equivalent healthy life expectancy, highlighting the need to map the complexities of resource inputs and resulting health outcomes.

Does spending more improve health outcomes?

Health Economics blog 1 graph 

Sources: OECD Health Data 2009 and WHO

Thus, for many reasons, public health interventions cannot be exempt from the general scrutiny of ‘economic evaluation’. Despite a lot of support for acting on health determinants (a recent example being the recent Wanless Report), evidence regarding both effectiveness and value for money is still seriously lacking.


From scarcity to value in public health

If public funding does not solve the scarcity problem, we still have to decide as a society who gets what in health, and, occasionally, who shall live and who shall die. But what is it about public health that might require the economic evaluations informing such choices to be undertaken differently? The need to answer this question arises from the simple and compelling logic of economics itself: if we can enhance societal well-being by undertaking economic evaluation differently, we should do it.

Obvious answers to the above question might be that, as currently practised, health economic evaluation does not take a broad enough perspective in terms of impacts of social resources and societal well-being, or that such evaluations do not take account of longer-term time horizons.  We will get to such issues later in the series. However, the challenge is not only about developing the economic evidence, but also about fostering decision making that will seek and use value for money evidence, and be able to explicitly prioritise between  short-term health care and longer-term preventive spends. In seeking to achieve this latter aim, we thought that writing about economic evaluation as applied to public health in the form of an interactive blog might help.

We would like to hear your views and opinions about the role of health economics in the evaluation of public health interventions. What do you think economists might do differently?  We want to ensure that value-for-money public health interventions don’t lose out and that decisions are well coordinated across stakeholders.  If you have examples of good practice – or room for improvement – in either of these areas, please let us know. 

We hope you’ll give us your thoughts on this blog, and as the series develops, and look forward to hearing your views.


Cam Donaldson

Kenny Lawson

Helen Mason

Emma McIntosh


About the author

Prof Cam Donaldson NIHR Senior Investigator and Yunus Chair in Social Business & Health


Cam Donaldson holds the Yunus Chair in Social Business & Health at Glasgow Caledonian University. He has worked as an academic health economist for nearly 30 years, mainly on development and implementation of methods of economic evaluation of health interventions.

Read all articles by Prof Cam Donaldson

Comments (7)

  • Ken Judge replied on Mon 05 Dec 2011 at 04:09PM:

    This blog seems like a great idea. Thank you. My own experience leads me to believe that many investments in high-profile public health interventions in the UK in recent years have been disappointing in terms of outcomes achieved. Much of this has to do with the poor design and implementation of interventions. This in turn is partly the consequence of poor appraisal techniques at the outset. So anything that strengthens the case for and widens the acceptance of prospective evaluations of the potential costs and benefits of different policies would be very valuable. This interactive blog could be a very important step in the right direction.

  • Lawrie Elliott replied on Tue 06 Dec 2011 at 10:03AM:

    Really interesting Blog and well worth the effort in keeping it going. I think public health poses real challanges for health economics, particulalry when the outcomes are a) short term b) not necessarily limited to existing QUALYs or death rates. For example interventions that aim to reduce drug use may achieve this in the long term but short term goals often include other outcomes such as recovery, improved social relationships, and preparation for, rather than actual entry into, the job market. Placing a value on such outcomes is difficult. Is there an easy answer and does it include 'social return for investment' as favoured by some politicians? Anyway I look forward to the new blog and I am sure it will be very popular.

  • Stuart Telfer replied on Tue 06 Dec 2011 at 02:08PM:

    This is a fantastic idea, well done GCPH for facilitating it. I wonder at times, if health economists really are up against it. Afterall, if you ask an economist whether an intervention is 'worthwhile' the good ones always answer with "why do you want to know?" and rightly so! Fundamentally at board level the big resource allocation decisions are a hidious mix of normative and positive economics, ie if a programme is allocatively efficient (should we do it) and if it's technically efficient (having decided to do it how best can we achieve outcome versus spend) However, the paradox seems that the closer you get to being a decision maker the closer you're wrapped in quasi-political chains which move you toward making decisions which are 'risk-averse', afterall your board are made of elected and appointed members, the former literally being feline on a hot tin roof in terms of their local electorate, the latter working under simply immense pressure (attached to very large salaries) in terms of accountability. As the blog implies, when the accountants squeeze the net, the things which are easy to measure will remain under the shroud-waving label of 'front line services' whilst the things which arguably add greatest economic value will be swept under the rug for fear of failure in cyclical political re-election. This is simply an observation and not meant to be scaithing, however, big public health decisions of an allocative nature seem easier to drive via vote winning than economic value. Whether that's ethically wrong or just good business is another conversation. But my real fear is that we have a chap in Westminster who seems to belive that the private sector, by adopting elements of the free-market paradigmn (competition), can deliver technically efficient interventions, when in reality these are even less economicaly efficient based on an accountant supply-chain mentality which will focus only on some costs (ie the ones with numbers) and fail to match these to benefits at all.

  • Brian H Young replied on Tue 06 Dec 2011 at 07:47PM:

    Can I please add my thanks to GCPH for organising this blog on what is rapidly becoming an interesting topic. Of course working in the public sector, we should be mindful and prudent about public money expenditure. I share some of Stuart's views and look forward to some lively debates.

    I wonder also if anyone managed to catch the 2-part Nick Robinson series on BBC2 entitled "Your Money and How They Spend It". It is still available on iplayer -

  • Jean Hamilton replied on Wed 07 Dec 2011 at 03:22PM:

    Also agree the idea of blog seems a really good idea. I'm an economist who works in economic development doing all sorts of appraisal, evaluations etc but focused on impacts on the economy such as jobs, wealth, gross value added etc. I suspect, but am not sure, that there is a much more established set of rules of appraisal/evaluation (our lovely Treasury Green Book) and standard definitions, common proxies and standard methodologies for gathering and analysing key indicators. If I am right, great to get equivalent for health economics.

    I am now involved in public health project - linked to active aging - and would love to find out more about the doing economic appraisal/evaluation in this area - any pointers on where to go?

  • Vittal Katikireddi replied on Thu 15 Dec 2011 at 02:18PM:

    Excellent idea for a blog that's addressing an issue of profound importance to public health. This is an area that seems to have been neglected for too long.

    I'm intrigued about the greater potential for economics within public health. However, in common to many of the other responses, there are a number of likely difficulties. Our team at the MRC/CSO SPHSU recently assessed the evidence base for a number of interventions that are being advocated within the English public health white paper. Unfortunately, there was a lack of robust evaluations in many areas, but particularly those addressing broader determinants of health. While there's a need for more evaluations, I suspect there is a need for greater integration of economic evaluation within such studies.

    Second, there has been relatively limited consideration of the role of politics within decision-making. Addressing broader determinants of health often needs to be balanced against other values. Unlike health care where there is broad consensus that the goal to be achieved is an improvement in health, public health often competes with other interests. For example, many interventions that benefit health can be considered to have other negative impacts. These may include infringements on liberty (and other ethical and normative
    considerations) as well as adverse consequences to some sectors or groups. From a policy analysis perspective, decision-making often revolves around establishing the relative importance of each set of issues based on power relationships.

    A third related issue is the importance of quantification of values. A central feature of health economics seems (to me as a non-economist) to be agreeing a scale that allows quantification of the benefits of an intervention, hence allowing comparison between interventions. While there is a wealth of literature that critiques the use of QALYs, DALYs and so forth, there is some level of agreement between stakeholders on what to measure. In many public health areas, the process of measurement may have adverse political consequences. There is a potential risk that policy stakeholders will choose measures to support their decisions post-hoc. Similarly, having to quantify the relative importance of different outcomes may impede negotiation between stakeholders involved in decision-making (although hopefully the opposite would occur).

    I look forward to seeing the rest of the blog.

  • Response from Cam, Kenny, Helen and Emma replied on Thu 15 Dec 2011 at 02:20PM:

    Obviously, we are pleased by the positive responses received to our first posting on this blog. Our initial intention had been to write a more-conventional paper on the economic evaluation of population health interventions. However, after some discussion, we thought that writing the paper as a series of blog postings might make for a better product in the end, as well as being more fun. If it continues like this, it will be great, although we also welcome even more support, challenges and controversies!
    Ken Judge’s indication of the need for an appraisal of our appraisal methods confirms our own views about the need for such a blog. The challenges then begin to come via Lawrie Elliott. Placing values on ‘intangibles’ sounds almost contradictory, and we hope that later methods discussed in the blog postings can take us some way towards that. More specifically on ‘social return on investment’, our understanding is that the quantitative aspect of SROI looks to weigh costs incurred by an intervention against costs saved through achievement of certain goals – improved social relationships is an example used by Lawrie, and such improvement may lead to less future demands on services. Although this is important, our view is that SROI suffers from three main weaknesses: to continue the above example, it does not account for the value of better social relationships in and of themselves, regardless of the costs this saves; costs saved always seem to come out as much higher than costs incurred, but there surely has to be doubt as to whether such costs would indeed be saved to such degrees; and, finally, most SROI estimates are produced by service providers themselves and not independent researchers. We need such frameworks, but need to go further in addressing such issues.
    Stuart Telfer and Brian Young, too, continue with the challenges, by showing that economics has to be able to cope with the chaos created by politics, whether local or national. We think that, later, we can show some approaches that help locally. In terms of what system governments impose upon us, economists will have things to say, but that is not the purpose of this particular series. Except to say, whatever reforms are enacted, entities are always created that have to manage scarcity of resources, and we hope we can at least help them with that.
    Jean Hamilton asks where to go for more information on (health) economic evaluation. There is a rich history of economic evaluation in health. We could even promote some of our won work here, but the ‘go to’ person is always Michael Drummond, of the University of York, whose textbook, written with various colleagues over several editions since the mid-1980s, has been standard. We are happy to interact further on such issues of literature of course.
    Then a biggie arrived from Vittal Katikireddi! In short, first, we agree on the need for greater integration of health economics into public health studies. Second, we would also agree that the types of political issue referred to by Vittal can be accommodated within some economic frameworks – see later blogs and please comment again if we have missed the boat on that one. The third point about policy makers choosing values to suit the decision they have already made is well taken but, for us, emphasises further the need for independent research and for universities to be at the heart of the work and debates in this field.

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