Economics of Public Health 1

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)

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?

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.