EQUIVALENT INCOME AND FAIR EVALUATION OF HEALTH CARE

We argue that the economic evaluation of health care (cost–benefit analysis) should respect individual preferences and should incorporate distributional considerations. Relying on individual preferences does not imply subjective welfarism. We propose a particular non‐welfarist approach, based on the concept of equivalent income, and show how it helps to define distributional weights. We illustrate the feasibility of our approach with empirical results from a pilot survey. Copyright © 2012 John Wiley & Sons, Ltd.     

AXIOMATIC FOUNDATIONS FOR COST‐EFFECTIVENESS ANALYSIS

We show that individual utilities can be measured in units of healthy life years. Social preferences over these life metric utilities are assumed to satisfy the Pareto principle, anonymity, and invariance to a change in origin. These axioms generate a utilitarian social welfare function implying the use of cost‐effectiveness analysis in ordering health projects, based on maximizing the healthy years equivalents gained from a fixed health budget. For projects outside the health sector, our cost‐effectiveness axioms imply a form of cost–benefit analysis where both costs and benefits are measured in equivalent healthy life years. Copyright © 2013 John Wiley & Sons, Ltd.     

Is there a kink in consumers' threshold value for cost‐effectiveness in health care?

Background: A reproducible observation is that consumers' willingness‐to‐accept (WTA) monetary compensation to forgo a program is greater than their stated willingness‐to‐pay (WTP) for the same benefit. Several explanations exist, including the psychological principle that the utility of losses weighs heavier than gains. We sought to quantify the WTP–WTA disparity from published literature and explore implications for cost‐effectiveness analysis accept–reject thresholds in the south‐west quadrant of the cost‐effectiveness plane (less effect, less cost). Methods: We reviewed published studies (health and non‐health) to estimate the ratio of WTA to WTP for the same program benefit for each study and to determine if WTA is consistently greater than WTP in the literature. Results: WTA/WTP ratios were greater than unity for every study we reviewed. The ratios ranged from 3.2 to 89.4 for environmental studies (n=7), 1.9 to 6.4 for health care studies (n=2), 1.1 to 3.6 for safety studies (n=4) and 1.3 to 2.6 for experimental studies (n=7). Conclusions: Given that WTA is greater than WTP based on individual preferences, should not societal preferences used to determine cost‐effectiveness thresholds reflect this disparity? Current convention in cost‐effectiveness analysis is that any given accept–rejection criterion (e.g. $50 k/QALY gained) is symmetric – a straight line through the origin of the cost‐effectiveness plane. The WTA–WTP evidence suggests a downward ‘kink’ through the origin for the south‐west quadrant, such that the ‘selling price’ of a QALY is greater than the ‘buying price’. The possibility of ‘kinky cost‐effectiveness’ decision rules and the size of the kink merits further exploration. Copyright © 2002 John Wiley & Sons, Ltd.     

Quality adjusted life years based on health and consumption: A summary wellbeing measure for cross‐sectoral economic evaluation

We introduce a summary wellbeing measure for economic evaluation of cross‐sectoral public policies with impacts on health and living standards. We show how to calculate period‐specific and lifetime wellbeing using quality‐adjusted life years based on widely available data on health‐related quality of life and consumption and normative assumptions about three parameters—minimal consumption, standard consumption, and the elasticity of the marginal value of consumption. We also illustrate how these three parameters can be tailored to the decision‐making context and varied in sensitivity analysis to provide information about the implications of alternative value judgments. As well as providing a general measure for cost‐effectiveness analysis and cost‐benefit analysis in terms of wellbeing, this approach also facilitates distributional analysis in terms of how many good years different population subgroups can expect to live under different policy scenarios.     

Hypothetical versus real preferences: results from an opportunistic field experiment

Over recent years there has been renewed interest in cost‐benefit analysis (CBA) in health care but the ‘hypothetical bias’ concern (i.e. the belief that WTP values overstate real preferences) is a remaining anxiety. This paper reports new empirical data comparing hypothetical and real preferences in a health care context, using the clinical setting of patient self‐management (PSM) of anticoagulation (warfarin) therapy. The data offer considerable support for the use of WTP and CBAs in a self‐management health care context; the hypothetical bias hypothesis is not supported by our data. The generalisability of these results to other health care settings needs to be explored. Copyright © 2009 John Wiley & Sons, Ltd.     

Resource allocation, social values and the QALY: a review of the debate and empirical evidence

Most health economists agree that public preferences should play a major role in setting criteria for distributing scarce resources. The quality‐adjusted life year (QALY) is used as a preference‐based measure for the outcome of health‐care activities in health economic evaluative studies. Traditionally, health economists proposed maximizing the additional health gain in terms of QALYs so as to maximize social welfare. Evidence has grown however, that neither potential health gain as a single relevant determinant of value, nor the rule of maximizing this health gain are sufficient. Concerns about fairness and equity are also important to the public in distributional decisions. This paper reviews the debate on the role and limitations of the QALY in health‐care priority setting and the empirical evidence surrounding it. A framework is used to systematically explore the available data on factors considered to be important to the public in health‐care resource allocation, and to investigate how these fit with the implicit value judgements inherent in the original QALY formulation. Potential sources of social value are classified into (1) factors that relate to the characteristics of patients and (2) factors related to the characteristics of the intervention's effect on patients' health. As well as these main categories, the article considers preferences for distributional rules. Recent approaches that aim to capture public preferences more comprehensively and to better reflect the value attributed to different health‐care programmes in economic evaluation methods are outlined briefly.     

Distributional Cost‐Effectiveness Analysis of Health Care Programmes – A Methodological Case Study of the UK Bowel Cancer Screening Programme

This paper presents an application of a new methodological framework for undertaking distributional cost‐effectiveness analysis to combine the objectives of maximising health and minimising unfair variation in health when evaluating population health interventions. The National Health Service bowel cancer screening programme introduced in 2006 is expected to improve population health on average and to worsen population health inequalities associated with deprivation and ethnicity – a classic case of ‘intervention‐generated inequality’. We demonstrate the distributional cost‐effectiveness analysis framework by examining two redesign options for the bowel cancer screening programme: (i) the introduction of an enhanced targeted reminder aimed at increasing screening uptake in deprived and ethnically diverse neighbourhoods and (ii) the introduction of a basic universal reminder aimed at increasing screening uptake across the whole population. Our analysis indicates that the universal reminder is the strategy that maximises population health, while the targeted reminder is the screening strategy that minimises unfair variation in health. The framework is used to demonstrate how these two objectives can be traded off against each other, and how alternative social value judgements influence the assessment of which strategy is best, including judgements about which dimensions of health variation are considered unfair and judgements about societal levels of inequality aversion. © 2014 The Authors. Health Economics published by John Wiley & Sons Ltd.     

Exploring social welfare functions and violation of monotonicity: an example from inequalities in health

The social welfare function (SWF) has been used within the economics literature, to study trade-offs between equality and efficiency. These SWFs are characterised by properties determined by traditional welfare economics. One of these properties, the monotonicity principle is explored in this paper. In the context of health there may be occasions when the monotonicity principle is violated as there may be circumstances where distributional issues dominate efficiency concerns. When this is the case, conventional SWFs are not flexible enough to represent such social preferences. Therefore, we propose a SWF with an alternative specification, which is general enough to accommodate preferences that are not necessarily monotonic. A survey of the Spanish general public was undertaken to estimate preferences regarding equality in health, relative to efficiency in health. The results (with 973 usable responses) give strong support to the existence of public preferences which violate the monotonicity principle, and thus to the usefulness of the alternative specification proposed here.     

Eliciting people's preferences for the distribution of health: A procedure for a more precise estimation of distributional weights

In order to incorporate distributional concerns into cost-effectiveness analysis, it would be useful to elicit distributional weights that express people's valuation of marginal health gains at various levels of health. Distributional preferences are commonly elicited either through a person trade off (PTO) or a gain trade off (GTO) technique. An inherent problem of the GTO is that it is based on the valuation of non-marginal health gains. In practice, many contributions using the PTO also focus on non-marginal health gains. This paper demonstrates that the failure to distinguish appropriately between marginal and non-marginal health gains may lead to seriously misleading estimates of distributional weights. Moreover, the paper proposes a methodology for utilising information obtained through non-marginal analysis more efficiently in order to obtain more reliable estimates of distributional weights. The methodology was successfully applied in an empirical study of age weights.     

Evaluating the redistributive impact of public health expenditure using an insurance value approach

This article analyses the redistributive impact of public health expenditure in Spain using an insurance value approach to compute individual and household’s value of health services non-cash benefit. We model the intensity of use of different health care services using a count data framework on a nationally representative health care survey and then predict probabilities on the 2006 Spanish EU-SILC sample. This allows us to extend disposable income with the expected monetary value of public health services and to compare it with strictly cash income. Since non-cash income due to public health services is associated with health needs, we use needs-adjusted equivalence scales to perform distributional analysis and poverty/inequality comparisons. The results show that public health expenditure in Spain acts progressively on income distribution, and that health in-kind benefits, once considered as part of disposable income, can be extremely effective in reducing poverty and inequality.     

Willingness to pay for diagnostic services. A new approach to modelling patient benefits in health care

The paper investigates the benefit the patient derives from medical diagnosis. By considering explicitly the prospects with respect to both health and monetary consequences resulting from a decision taken by the physician, a fairly general approach to discuss diagnostic services is developed. The willingness to pay of the patient is taken to be measured by his compensating option price, evaluated with respect to the reference state without further diagnostic information. Of particular interest are conditions governing positivity of the patient benefit. Imposing additional restrictions upon individual preferences considerably simplifies the analysis by relying on a loss function. The final section discusses the role of the patient benefit as regards cost-benefit analysis of diagnostic services. If health insurance is available providing at least partial coverage, a positive willingness to pay of the patient net of diagnostic cost can be shown to give no clue as to whether utilization of a diagnostic service is beneficial to society in the sense of cost-benefit analysis.     

Comparing aversions to outcome inequality and social risk in health and income: An empirical analysis using hypothetical scenarios with losses

Evaluation of future social welfare may not only depend on the aggregate of individual prospects, but also on how the prospects are distributed across individuals. The latter in turn would depend on how people perceive inequality and risk at the collective level (or “social risk”). This paper examines distributional preferences regarding inequality in outcomes and social risk for health and income in the context of losses. Specifically, four kinds of aversions are compared, (a) outcome‐inequality aversion in health, (b) outcome‐inequality aversion in income, (c) social‐risk aversion in health, (d) and social‐risk aversion in income. Face‐to‐face interviews of a representative general public sample in Spain are undertaken using hypothetical scenarios involving losses in health or income across otherwise equal groups. Aversion parameters are compared assuming social welfare functions with constant relative or constant absolute aversion. We find that in both domains, outcome‐inequality aversion and social‐risk aversion are not the same; and that neither aversion is the same across the two domains. Outcome‐inequality aversion in income is the strongest, followed by social‐risk aversion in income and social‐risk aversion in health, and outcome‐inequality aversion in health coming last, where most of these are statistically significantly different from each other.     

Cost‐effectiveness Analysis and Insurance Coverage: Solving a Puzzle

The conventional model for the use of cost‐effectiveness analysis for health programs involves determining whether the cost per unit of effectiveness of the program is lower than some socially determined maximum acceptable cost per unit of effectiveness. If a program is better by this criterion, the policy implication is that it should be implemented by full coverage of its cost by insurance; if not, the program should not be implemented. This paper examines the unanswered question of how cost‐effectiveness analysis should be performed and interpreted when insurance coverage may involve cost sharing. It explores the question of how cost sharing should be related to the magnitude of a cost‐effectiveness ratio. A common view that cost sharing should vary inversely with program cost‐effectiveness is shown to be incorrect. A key issue in correct analysis is whether there is heterogeneity in marginal effectiveness of care that cannot be perceived by the social planner but is known by the demander. It is possible that some programs that would fail the social efficiency test at full coverage will be acceptable with positive cost sharing. Combining individual and social preferences affects both the choice of programs and the extent of cost sharing. Copyright © 2014 John Wiley & Sons, Ltd.     

Reimbursement and value‐based pricing: stratified cost‐effectiveness analysis may not be the last word

During recent discussions, it has been argued that stratified cost‐effectiveness analysis has a key role in reimbursement decision‐making and value‐based pricing (VBP). It has previously been shown that when manufacturers are price‐takers, reimbursement decisions made in reference to stratified cost‐effectiveness analysis lead to a more efficient allocation of resources than decisions based on whole‐population cost‐effectiveness analysis. However, we demonstrate that when manufacturers are price setters, reimbursement or VBP based on stratified cost‐effectiveness analysis may not be optimal. Using two examples – one considering the choice of thrombolytic treatment for specific patient subgroups and the other considering the extension of coverage for a cancer treatment to include an additional indication – we show that combinations of extended coverage and reduced price can be identified that are advantageous to both payers and manufacturers. The benefits of a given extension in coverage and reduction in price depend both upon the average treatment benefit in the additional population and its size relative to the original population. Negotiation regarding trade‐offs between price and coverage may lead to improved outcomes both for health‐care systems and manufacturers compared with processes where coverage is determined conditional simply on stratified cost‐effectiveness at a given price. Copyright © 2010 John Wiley & Sons, Ltd.     

Benefits and costs of lifestyle change to reduce risk of chronic disease

Individuals do not benefit equally from attempts to change their lifestyles in an effort to lower their risk for disease or to improve their quality of life. A change in one lifestyle behavior may cause an increase in another risk factor and reduce the benefits of the anticipated change. The social environment exerts pressures and makes available resources that also influence the benefits and costs of a particular health behavior change. These pressures and resources vary depending on the individual and his or her social context. This article uses the target behavior of smoking as an example of a lifestyle change and considers the benefits and costs that interventionists need to be aware of if they are to effectively facilitate health behavior change. This approach requires the identification of resources at different levels of the environment (e.g., family, community, institutions) that may influence the cost/benefit ratio. Such an analysis is appropriate whether one is considering a model of individual behavior change or a public health model that seeks to intervene at the community-wide level to promote health and reduce disease risk among a large segment of the population. Specific recommendations based on this approach are offered and it is concluded that both individual and public health approaches are necessary to achieve optimal health behavior change in our population and to optimize the cost/benefit ratio of such change for all individuals.     

Attitudes of Germans towards distributive issues in the German health system

Social health care systems are inevitably confronted with the scarcity of resources and the resulting distributional challenges. Since prioritization implies distributional effects, decisions regarding respective rules should take citizens’ preferences into account. In this study we concentrate on two distributive issues in the German health system: firstly, we analyze the acceptance of prioritizing decisions concerning the treatment of certain patient groups, in this case patients who all need a heart operation. We focus on the patient criteria smoking behavior, age and whether the patient has or does not have young children. Secondly, we investigate Germans’ opinions towards income-dependent health services. The results reveal the strong effects of individuals’ attitudes regarding general aspects of the health system on priorities, e.g. that individuals with an unhealthy lifestyle should not be prioritized. In addition, experience of limited access to health services is found to have a strong influence on citizens’ attitudes, too. Finally, decisions on different prioritization criteria are found to be not independent.     

Recognizing diversity in public preferences: the use of preference sub-groups in cost-effectiveness analysis

Public preferences are typically incorporated into cost-effectiveness analyses (CEA) on the basis of the average health state utilities of a sample of individuals drawn from the general public. The cost-effectiveness of a programme is then assessed on an 'all-or-nothing' basis: the programme is declared either cost-effective or not for all patients in clinically homogeneous sub-groups. However, this approach fails to recognize variability between individuals in their preferences. In this paper, we consider how diversity in the preferences of individuals can be handled within CEA when the public's preferences are considered appropriate for defining benefit, with the objective of increasing the efficiency of health care delivery. The concept of preference sub-group analysis is described and some of its implications are assessed. These include the methods that could be used to identify sub-groups from amongst public raters, the appropriate approach to eliciting preferences and the possible implications of preference sub-group analysis for clinical decision making.     

Social welfare and the Affordable Care Act: Is it ever optimal to set aside comparative cost?

The creation of the Patient-Centered Outcomes Research Institute (PCORI) under the Affordable Care Act has set comparative effectiveness research (CER) at centre stage of US health care reform. Comparative cost analysis has remained marginalised and it now appears unlikely that the PCORI will require comparative cost data to be collected as an essential component of CER. In this paper, we review the literature to identify ethical and distributional objectives that might motivate calls to set priorities without regard to comparative cost. We then present argument and evidence to consider whether there is any plausible set of objectives and constraints against which priorities can be set without reference to comparative cost. We conclude that - to set aside comparative cost even after accounting for ethical and distributional constraints - would be truly to act as if money is no object.     

Troubled families and individualised solutions: an institutional discourse analysis of alcohol and drug treatment practices involving affected others

Research shows that members of the families with patients suffering from alcohol and other drug‐related issues (AOD) experience stress and strain. An important question is, what options do AOD treatment have for them when it comes to support? To answer this, we interviewed directors and clinicians from three AOD treatment institutions in Norway. The study revealed that family‐oriented practices are gaining ground as a ‘going concern’. However, the relative position of family‐orientation in the services, is constrained and shaped by three other going concerns related to: (i) discourse on health and illness, emphasising that addiction is an individual medical and psychological phenomenon, rather than a relational one; (ii) discourse on rights and involvement, emphasising the autonomy of the individual patient and their right to define the format of their own treatment; and (iii) discourse on management, emphasising the relationship between cost and benefit, where family‐oriented practices are defined as not being cost‐effective. All three discourses are connected to underpin the weight placed on individualised practices. Thus, the findings point to a paradox: there is a growing focus on the needs of children and affected family members, while the possibility of performing integrated work on families is limited.     

Alternative evaluation metrics for risk adjustment methods

Risk adjustment is instituted to counter risk selection by accurately equating payments with expected expenditures. Traditional risk‐adjustment methods are designed to estimate accurate payments at the group level. However, this generates residual risks at the individual level, especially for high‐expenditure individuals, thereby inducing health plans to avoid those with high residual risks. To identify an optimal risk‐adjustment method, we perform a comprehensive comparison of prediction accuracies at the group level, at the tail distributions, and at the individual level across 19 estimators: 9 parametric regression, 7 machine learning, and 3 distributional estimators. Using the 2013–2014 MarketScan database, we find that no one estimator performs best in all prediction accuracies. Generally, machine learning and distribution‐based estimators achieve higher group‐level prediction accuracy than parametric regression estimators. However, parametric regression estimators show higher tail distribution prediction accuracy and individual‐level prediction accuracy, especially at the tails of the distribution. This suggests that there is a trade‐off in selecting an appropriate risk‐adjustment method between estimating accurate payments at the group level and lower residual risks at the individual level. Our results indicate that an optimal method cannot be determined solely on the basis of statistical metrics but rather needs to account for simulating plans' risk selective behaviors.