Economics of Public Health 2

19 December 2011

Scarcity denial in health: economists' rant


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?


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 (8)

  • Jim Swift replied on Fri 13 Jan 2012 at 02:01PM:

    Thank you for your thought provoking post.
    I cannot fault your logic in your critique of avoiding facing up to scarcity, nor your assessment that HTA generally encourages inflation of costs.I wholeheartedly agree that the majority of what gets done (across the whole public sector and not just the NHS) never gets analysed in relation to the outcomes delivered or the resources diverted to attain these outcomes as to whether stuff is cost-effective, you are having a laugh. I do take on board that we have thresholds, but set with whose values, for this narrow niche of interventions that are subject to HTA.
    As regards SOA's they are useful tools for setting politically expedient / acceptable broader goals that encourage joint working across the public sector towards broadly acceptable goals. However, this is not going to be without some challenges, in social care we commission care that we would never commission in health, as the thresholds set are different and barriers to access ditto. What we really need is some understanding as to what society's preferences and values are as a starting position before we regard:-
    a.improving access to treatment for rare diseases
    b. developing closer affiliation of the NHS to social care
    c. developing a Scottish GP contract
    (All in the pipeline)
    a. improving access to treatment for rare diseases, what thresholds should we set and how do we ensure that we value differing patients’ values differently, e.g. surgeons all tell patients what the risk is likely to be of not leaving hospital if the procedure goes ahead, the prospect of success and what the likelihood of adverse outcomes are; some patients choose to go ahead and some do not, should it be the same with chemo; some patients value not just the mean gain in LE at say 3 months, but the chance at life, i.e. the long tail that has people living for 2 years plus, others would prefer to not take chemo with additional AEs for a paltry mean 3 month gain. Further, how much of a trade-off do we want between absolute overall health gain (QALY maximisation) and also distributive justice and what are Scottish values around this thorny subject and how do we set incentives such that we ensure the system more closely captures society’s values and the Govt.’s desire to reduce inequalities and improve equity.
    b. developing closer affiliation of the NHS to social care that is planned for the autumn - big issue with disparity in thresholds and service values, e.g. how many QALYs are gained when we put a client on a £2.5million per annum care package and they have almost zero HRQoL, not quite routine in social care, but these clients exist. How do we ensure some form of just and fair thresholds between the services, or do we throw the lame and infirm off the Tarpeian Rock, in social care like we metaphorically do in health? Quite clearly there are things done in the public’s name and at their expense in one service that would not be considered in the other and how do we ensure equity in what is going to be a co-managed and co-run entity.
    c. develop a Scottish GP contract – what do we seek to differentiate in what we prioritise from elsewhere in the UK and why, taking smoking cessation as an example, it would probably deliver greater health gain, reduction in inequalities and consequently improve equity if more effectively delivered and how do we ensure that we adequately set incentives such that those interventions that are most in keeping with our values and aspirations for the NHS are suitably prioritised, incentivised and resourced, other than by setting a framework that reflects our values? So again what should we be prioritising and how does that fit into what we want GPs to be doing in our collective mind-set.
    All of this relates to societal values, i.e. what do we want, what do we value and what should we (as a society) be willing to pay for, ergo what key overarching frameworks and incentives should be set and how do we attribute value to both maximising health gain and attaining some form of distributive justice, vis a vis disease rarity all bound up in the issue of resource scarcity.
    Not a complex set of inter-related issues at all.



  • mark deverill replied on Tue 17 Jan 2012 at 12:39PM:

    You say

    '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'

    I look forward to seeing the world's very first CBA of health interventions.

  • Response from Cam, Kenny, Helen and Emma replied on Tue 17 Jan 2012 at 02:51PM:

    Jim at the Health Inequalities Alliance outlines a very sensible and logical agenda along the lines of first establishing social values with respect to what matters when managing scarce resources in health (and social care), and then having this then guide the objectives of service providers and government not only in terms of what is funded but also in designing sets of incentives to encourage behaviour of GPs and others towards achieving such ends.

  • Response from Cam, Kenny, Helen and Emma replied on Tue 17 Jan 2012 at 03:40PM:

    We like Mark Deverill's comment about looking forward to the world's first CBA of a health intervention. This is an interesting comment in many ways and does, as we know reflect the view of many health economists about the feasibility of CBA (i.e. cost-benefit analysis). However, if one takes a broad view of what CBA is (i.e. involving assessment of inputs and outputs, establishing relationships between them and measuring and valuing what can be measured and valued whilst not forgetting other less-tangible attributes) just about every economic evaluation in health could be defined as a CBA. We hope we can explain ourselves better when we get to the issue of perspective.

  • Linda Semple replied on Wed 18 Jan 2012 at 10:24AM:

    I whole heartedly welcome these discussions as it hasn't always been easy to get conversations around 'applied' health economic practice - which is often either nothing to do with 'pure' HE or not 'applied' in any useful sense of the word! Pragmatically, NHS boards in Scotland are looking to HE to help with the funding gap exemplified by the oft-referenced 'Goudie wedge' as, if we are to do this ethically, prioritisation and decision-making must be based on improving quality of outcomes, not just cost-minimisation, although that may have a place. I look forward with interest to the continued debate on here...

  • Response from Cam, Kenny, Helen and Emma replied on Wed 18 Jan 2012 at 03:29PM:

    Obviously, we very much agree with Linda Semple's comment that engagement of priority setting with health boards (and health boards with prioritisation) is crucial, especially as it is at that level, where budgets are fixed (and unlikely to grow in forthcoming years), that scarcity and the consequent need to make choices really bite. Of course, this is the same for other sectors too.

  • Wally Knox replied on Fri 02 Mar 2012 at 06:56PM:

    Thanks for your frank discussion of scarcity denial. The ultimate denial of scarcity is to conduct research and development of novel medical procedures and treatments with no regard to their ultimate costs when implemented. We live with the result: incessant medical inflation.

    Victor Fuchs recently called attention to this in the August 10, 2010, issue of the New England Journal of Medicine saying,
    "An additional important result of a value-conscious environment would be the encouragement of innovations whose main effect is to substantially decrease cost while holding quality constant or reducing it only slightly. Such innovations are common in other industries but rare in medicine. If some of the resources devoted to marginal advances in the quality of care were reallocated to the development of innovations that reduced the cost of care, the problem of paying for high-value advances in quality for the entire population would be much easier to address."

    The alternative, one that admits the fact of scarcity, is to allocate a substantial portion of R&D to investigations that show promise of reducing costs. We should now move to a broad, vigorous debate on how effective standards could be devised for that allocation.

    The goal, as Fuchs points out, is to develop cost-savers whose use substantially offsets the effect of cost-drivers, not to limit all novel developments to those which save costs.

    Why, I wonder, is this not more fully debated?

  • Response from Cam, Kenny, Helen and Emma replied on Thu 08 Mar 2012 at 01:22PM:

    Yes, the connection between medical 'innovation' and the broader societal issues, one of which is cost, has often been a puzzle to some of us, even having worked in academia at top medical schools!

    It might be that some of the economic evaluation methods now being applied to setting research priorities (e.g. value of information) might also be applied to development of such 'novel' procedures and treatments in the first place. Of course, one caveat in Fuchs' argument is knowing in advance which are the 'marginal' advances and which are the high-value ones. Otherwise, we might be accused of stifling innovation and curiosity-driven research. But, broadly, this is a very useful perspective.

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