Health Economics: An Introduction for Health Professionals

156 Pages·2005·1.107 MB·English

by  Ceri J. Phillips

Health Economics: an introduction
for health professionals
Health
Economics: an
introduction
for health
professionals
Ceri J. Phillips
CentreforHealthEconomicsandPolicyStudies,SchoolofHealthScience,
UniversityofWalesSwansea,Swansea,UK
(cid:2)2005C.J.Phillips
PublishedbyBlackwellPublishingLtd
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Firstpublished2005
LibraryofCongressCataloging-in-PublicationData
Phillips,Ceri.
Healtheconomics:anintroductionforhealthprofessionals/CeriJ.Phillips.
p.;cm.
Includesbibliographicalreferencesandindex.
ISBN-13:978-0-7279-1849-9(pbk.)
ISBN-10:0-7279-1849-4(pbk.)
1.Medicaleconomics.
[DNLM:1. Economics,Medical.2. HealthCareCosts.3. HealthServicesNeedsand
Demand. W74.1P559h2005] I. Title.
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Contents
Acknowledgements,vi
Chapter1 Introduction,1
Chapter2 Organisationandfundingofhealthcareservices,20
Chapter3 Thecostsofhealthcare,41
Chapter4 Thebenefitsofhealthcare:outputsandoutcomes,71
Chapter5 Evaluatinghealthcareinterventionsfromaneconomic
perspective,97
Chapter6 Theroleofhealtheconomicsindecision-making,119
Chapter7 Consideringthewayforward,139
Index,148
v
Acknowledgements
My thanks go to all the health care professionals – dentists, doctors, nurses,
occupationaltherapists,pharmacists,physiotherapists,psychologists–whom
Ihavehadtheprivilegeofmeetingandworkingwith.ThestudiesinwhichI
havebeeninvolvedhaveincludedmanyanatomicalpointsfromheadtotoe,
andhavegivenmeaninsightintothebeautyandcomplexityofthehuman
formanditsamazingcapacitytorecover.Atthesametime,Ihavealsobeen
forcedtoconsiderwhatactuallyisofvalueandshouldbetreasured.Healthis
ahighly preciouscommodityandhealth caremakesan importantcontribu-
tioninitsprotectionandimprovement.Ithereforewishtorecordmythanks
tothehealthcareprofessionalswhohavebeeninvolvedinmytreatmentand
care from the cradle thus far. They are too numerous to mention but I am
deeply indebted to Dr Haydn Mayo for his interest in my work, but also his
dedication as a GP when one of my children was suffering from prolonged
boutsofillhealth.
Colleagues ata number ofinstitutions haveprovided invaluable guidance
and assistance over many years. Again they are too numerous to mention,
butmyfriendsatthePainResearchUnitinOxfordwarrantaspecialnoteof
thanks – it was Andrew Moore and Henry McQuay who persuaded me to
embarkonthisventure!
IwouldalsoliketoexpressmygratitudetomycolleaguesatSwanseawho
have given me the scope to write this book and the encouragement to
completeit.Again,I cannotreferto everyonebutmustmention Shaˆn,Sue,
Angela, Ginevra and Sally for their efforts and support. My students also
deserve appreciation for acting as the guinea pigs on whom most of the
ideascontainedinthebookhavebeentested.
Twopeople–PaulThomasandColinPalfrey–whohavetried‘sinceIwasa
boy’ to initiate me into the finer points of the English language warrant
thanks for their friendship, support and encouragement over too many
yearstocontemplate.
The assistance and support of Mary Banks and Veronica Pock, Editors at
BMJBooks/Blackwells,havehelpedsmooththeprocessandmaketheeffort
worthwhile.
FinallyKarin,Rhian,DanandmymotherJeanhavehadtolivewith‘the
book’formanymonths,andtheyhaveaccumulatedmany‘browniepoints’,
which I will endeavour to repay. I accept responsibility for any errors and
failingsthatthisbookcontains.
Diolchynfawrichigyd.
vi
Health Economics: an introduction for health professionals
Ceri J. Phillips
Copyright © 2005 by C.J. Phillips
CHAPTER 1
Introduction
Aspolicymakersandpoliticiansgrapplewiththeever-increasingproblemof
how health services should be provided and funded, and as commentators
andmediacorrespondentsdevotenumerouscolumninchesandprogramme
minutes to highlighting the problems and inadequacies of health care sys-
tems,healthcareprofessionalsareincreasinglybeinginundatedbythepres-
sures and demands placed on them to meet a variety of targets as part of
contractual obligations, to provide the same (or greater) volume of services,
butwithfewerresourcesandagainstthebackgroundofanincreasingthreat
oflitigationifthingsgowrongorifpatientsarenotsatisfied.
The aim of this chapter is to provide an insight into the subject of health
economicsanditsderivation.Thechapterinitiallyconsiderssomeoftheissues
confrontinghealthcaresystemsatthebeginningofthetwenty-firstcentury
andwhatthedisciplineareaofeconomicsentails.Theconceptsthatunderpin
healtheconomics–efficiencyandequity–areexplored,beforeamoredetailed
explanationofhealtheconomicsanditsrelevancetohealthprofessionals.The
chapterconcludeswithanoverviewoftheremainderofthebook.
The issue of how health services should be provided and the extent of
resources required for such provision is clearly one of the most contentious
politicalissuesoftheday.Itcontinuestoexercisegovernmentsandpolitical
parties of all colours and persuasions, as they attempt to offer remedies and
solutions for an increasingly complex set of problems. However, aside from
the short-term political controversies, there is a more fundamental issue
taxing the minds of all governments in the developed world – that of what
hasbeentermedthehealthservicedilemma.1–3Thishealthservice(orhealth
care) dilemma is part of a wider economic problem that characterises every
area ofsocietyandaffectsindividuals, organisations, communities,societies,
economiesandtheglobalcommunity.Theattemptstodealwiththeproblem
inrelationtohealthandhealthcare,toreduceitsmagnitudeandeffects,and
achieveacloserfitbetweenthesupplyofservicesanddemandforhealthcare
provision provide an underlying theme for this book. It is important to
emphasise that there is no single correct answer or solution to the problem
and that health economics has the ability to deliver utopia or at least move
thingsinsuchadirection.Ratherwhatisofferedinthisbookisanattemptto
provide health care professionals with an insight into what underlies health
economics, and how its techniques and processes can assist in the highly
1
2 Chapter1
complexandemotivedecisionsthathavetobemadeinhealthcareatevery
hourofeveryday.
We all realise that there are only 24 hour in each day, that every week
containsonly7daysandwedonothaveenoughtimetofitineverythingthat
weneedtodoandwouldverymuchliketodo.Inaddition,ourshoppinglists
farexceedourabilitiestopurchaseeverythingtheycontain,whileourgood
intentions to maintain our strict exercise routines are often thwarted by the
lack of energy after a busy day at the office, in surgery or in theatre. The
fundamental economic problem is that while we all have unlimited wants
and desires, we only have limited resources (time, energy, expertise and
money)atourdisposaltosatisfythem.Thissituationhasbecomeparticularly
evident in health care and has been compounded by factors such as the
increasingexpectationsofthepopulationinrelationtowhatcanactuallybe
delivered by health care services, the continuing advancements in health
technology and medical science, and the increasing health needs and
demands of an ageing population. For example, in the UK the number of
people aged 80 and over will virtually double over the next 25 years or so,
increasing from around 2.5 million (4% of population) in 2005 to nearly 5
millionby2031(7.6%ofpopulation)andto11%ofthepopulationby2071.
In contrast, the number of people in the working-age population in 2005
standsat38million(64%oftotal)butissettofallto59%ofthetotalby2031
(38million)and57%ofthetotalin2071(37million).4
In terms of health expenditure in the UK, for example, £67.2 billion was
spentontheNationalHealthService(NHS)in2002,equivalentto£1200per
person, compared to £3 billion 30 years ago, which was equivalent to £58
per person. There are now over 1.2 million employees in the NHS, a figure
whichhasdoubledover40years.5Theadditionalresourceshavereapedtheir
rewards,witnessed,forexample,bytheimprovementsinlifeexpectancy,as
showninFigure 1.1.Malesbornin1950wereexpectedtolivefor67.7years
andwomenborninthatyearwereexpectedtoliveuntiltheywere71.8years.
By2020,malesborninthatyearareexpectedtoliveuntiltheyare78.6and
femalesuntiltheyare83.3.5
However, it should be remembered that more does not necessarily mean
betterhealthcare,anddivertingadditionalresourcesintohealthcarefacilities
andserviceswillnotautomaticallygenerateanimprovementinthehealthof
the population. Despite increases in both the level and proportion of public
expendituredevotedtotheprovisionofhealthcarewithintheUKinrecent
years,oneofthegovernment’sinfluentialadviserswrote(ironicallyinareport
to the Treasury rather than the Department of Health) that ‘the burden of
chronic disease isgrowingandthreatensto overwhelmtheNHS...smoking
ratesmustbehalvedduringthenext20years,andtheproblemsofobesityand
healthinequalitiesmustbetacklednowifthemainthreatstoourfuturehealth
aretobeavoided’.6
Theissueofwhetherhealthcareandtheavailabilityofhealthcarefacilities
arethemostimportantdeterminantsinsecuringgoodhealthforsocietyhas
Introduction 3
90
80
70
60
50
40
30
20
10
0
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060
Male Female
Figure1.1 Lifeexpectancyatbirth,1950–2060.
been widely challenged.7–10 For instance, it has been stated that ‘a society
thatspendssomuchonhealthcarethatitcannotspendadequatelyonother
health-enhancing activitiesmayactually bereducing thehealthofits popu-
lation,’8 and the issue of whether resources are used in the most beneficial
way has also been raised,9 with the suggestion that up to 25% of all health
care services provided may be unnecessary.10Other workhas demonstrated
that10–15%ofhealthcareinterventionsareknowntoreducehealthstatus–
with a similar percentage known to improve health status, and the residual
70–80%havinginsufficientevidencetodeterminetheireffectiveness.11The
recent emphasis attached to evidence-based medicine and evidence-based
healthcarehas,inallprobability,reducedthesizeofthisresidual,butefforts
needtobemaintainedtoensurethatthemomentumintherightdirectionis
maintained.12,13 However, what is of concern is that a recent study under-
taken by the Office of National Statistics revealed that the NHS may be
wasting as much as £6 billion a year as a black hole of rising inefficiency
consumes as much as 9% of the extra cash being pumped into the service,
with ‘tumbling productivity’ accounting for much of this gap between
expenditureandoutputs.14
Another facet to consider is whether the distribution of any additional
resources provided for health care services could be regarded as being fair.
An increase of resources may simply reinforce existing inequalities and
inequities between groups within society, and do nothing to reduce differ-
ences between them in terms of life expectancy, health status or access to
treatmentsandfacilities.
This book aims to demonstrate the relevance and importance of health
economics toall professionalsin thehealth caresystem. Itisnotmeant asa
4 Chapter1
‘cookbook’or‘how-to-do-itmanual’,butratheranattempttostimulateand
challengethinkingandbehaviour,andenableprofessionalstotakeonboard
the challenge thrown down by one of the leading health economists, Alan
Williams(ProfessorofHealthEconomics,UniversityofYork),whosuggested
that ‘in a system with limited resources, health professionals have a duty to
establishnotonlythattheyaredoinggood,butthattheyaredoingmoregood
thananythingelsethatcouldbedonewiththesameresources’.15
What is economics?
Ashintedabove, thediscipline ofeconomicsis foundedon thepremisethat
there will never be enough resources to completely satisfy human desires,
referredtobyeconomistsasscarcity.Thisconceptisfundamentaltoeverything
elseineconomics.Itsimportancewashighlightedinanintroductorychapterin
ahealtheconomicstextbook,whichstatedthat‘ourstartingtextissimply,‘‘In
thebeginning,middleandendwas,isandwillbescarcityofresources’’’.16Asa
result, the use of resources in one area inevitably means that they are not
availableforuseinotherareas,andthebenefitsthatwouldhavebeenderived
fromtheiruseinotherareasaresacrificed.Asindividualswe areconstantly
making choices as to how we allocate our time, into which activities we
channel our energies and on what we spend our available funds. In other
words,wearemakingchoices.Onsomeoccasionsthechoicesthataremadeat
theindividuallevelmayappear,atleast,ratherstrange(seeBox 1.1),andithas
beenarguedthatwesufferfromchoiceoverloadinsomeareas(seeBox 1.2).
Box1.1 StrangeChoices
BernardLevin,describedasaninfluentialnewspapercolumnistand
controversialist,andasoneofthetwoorthreemostinfluentialBritish
journalistsofthelatetwentiethcenturyinhisobituaryinTheIndependent
(10August2004),providedanilluminatinginsightintothechoices
peoplemake.Inanarticleentitled‘RelativeValues’inTheTimeson27
June1983,hehighlightedtheproblembeingfacedbyCopelandCouncil
inCumbria,England.OnehalfoftheCouncil’shousingtenantshad
failedtopaytheirrent,whichhadlefttheCouncilwithamajordefi-
ciency.Enquiriesweremadeastowhypeoplehadchosennottopay
theirrentandtwoexamplesofresponseswereprovidedbyLevin.One
familyindicatedthattheycouldnotaffordtopaydespitethemain
breadwinnerearning£7500ayear,becausetheywerepaying£25per
weektohirefivetelevisionsetsandthreevideorecorders!Another
familycouldnotpaybecauseofthecostoftheirholidaytoAlgeria–
whichtheyhadtakensinceithadrainedeverydayontheirearlier
holidaytoMalta!
Introduction 5
Box1.2 TakeYourChoice
Whenwewerelads,we’dgoovertothebakersforaloafofbread,and
there’dbeachoiceofbrownorwhite.Ifyouwerelucky,youmighthave
achoiceofslicedorunsliced.Butter?Well,youcouldhavebutteror
Storkmargarine.
Ortakesomethingassimpleasshampoo.Timewaswhenitwasjust
shampoo.Thenitwasshampoofordry,normalorgreasyhair.Cool.
Thenitwasforpermedorfly-awayhair.Coolerstill.Thenanti-dandruff.
Seemsagoodidea.Thenforhairthat’sbeeninthesuntoolong.OK,I’m
stillwithyou.Orespeciallyforblondehair;nowI’mbeginningtogetjust
alittlebitcynical:howcanwashingblondehairbeanydifferentfrom
washingbrownhair?There’sshampooforhairwithsplitends–pre-
sumablycontaininggluetosticktheendsbacktogether.Shampoofor
hairthat’sbeendyed,andshampoo[forhair]that’sbeendyedandis
returningtonormal.There’sshampooforhighlightedhairandforlow-
lightedhair.Shampooforthickorfrizzyhair.Andthat’snottomention
‘washandgo’.Theshampooshelvesinthesupermarketusedtohave
aboutthreevarietiesacross6inchesofshelfspace.Nowit’sabout6feet
acrossandfiveshelvesdeepandittakesyouhalfanhourtofindtheone
youwant.
Weareplaguedbythetyrannyofchoice.
Source:BillBryson.InPreebleS(ed).GrumpyOldMen.London:BBCBooks,
2004:124–26.
In addition, governments also provide examples of confused thinking, at
best.BillionsofpoundsarespenteachyearontheNHStoimprovehealthand
prevent death, while at the same time so-called scarce resources are being
pouredintomanufacturingbombsanddevelopingmilitaryhardwareinorder
to maim and kill people! Another example of a ‘lack of joined-up policy-
making’ was illustrated in the government’s response to a series of railway
crashes. The Hatfield railway crash in October 2000, following on from two
other serious railway crashes near London, had brought about a series of
headlinesinthepresscryingoutforsomethingtobedoneabouttheapparent
lack of safety and risk to rail passengers within the UK. In contrast, the
headlineinTheEconomistwasthat‘Britainspendstoomuchmoney,nottoo
little, making its railways safe’17 and that ‘overreaction to last month’s rail
crash has increased the risks to rail passengers, not reduced them’.18 It
concluded:
Fromsociety’spointofviewitisfarfromrationaltospend150timesas
much on saving a life on the railways as on saving a life on the roads.
A bereaved mother cares little how her child was killed. Many more
livescouldbesavedifthemoneycurrentlybeingpouredintoavoiding