Economic Evaluation in Health Care

Evidence-Based Medicine and Evidence-Based Health Economics

The field of economic evaluation of health services deals with the systematic evaluation of the costs and benefits arising from the comparison of different treatments and health technologies. Such evaluations are based on a thorough and accurate comparison of the alternative treatments and/or technologies to identify those that maximize the welfare of the society in general or of specific patient groups. Also, economic evaluation attempts to link evidence-based medicine to the wishes of the patients and society in general, and aims to achieve viability, societal fairness, and improved efficiency in the health care system. This approach is known as evidence-based health economics. Economic evaluation does not aim to restrict health care expenditures, particularly because in certain cases health care expenditures are increased when this is financially or socially acceptable, but rather aims to rationalize the distribution of the available resources such that the highest possible level of population health based on certain societal criteria is achieved. As such, it can be considered more of a guideline for a systematic way of thinking rather than a set of quantification methods to determine the various therapeutic options to which a health care system should direct its resources. Overall, economic evaluation of health services is useful not only to economists but also to clinical scientists and, most importantly, policymakers, to inform them about the available treatment options and the consequences of adopting them for the health and the health care expenditures of the country.

Keywords

Economic evaluation; health care expenditure; health economics; alternative treatments; health technologies

The Scope of Economic Evaluation of Health Services: The Science of Economics

Economic evaluation of health services is a branch of economics that deals with “the systematic evaluation of the benefits and costs arising from the comparison of different health technologies.” Economic evaluation is a way of thinking and problem-solving rather than a sterile set of terms or methods used by health economists. Before moving on to its subject matter, we should define its general framework, which is economics itself.

It is a widely held opinion that economics deals exclusively with the processes of production and distribution of wealth, as well as the properties and origin of that well-known means of transaction for a society: money. This approach could be made even broader. The object of economics is primarily the combination of options we should adopt to maximize our welfare under conditions of limited resources. We do not analyze the term “welfare” from an ethical or social point of view, but the term is used liberally by economists to describe the degree of euphoria, exultation, and pleasure produced specifically by the consumption of commodities and services available in the market.

Households, employees, and businesses all face similar “survival” problems and are forced to make certain choices regarding the use of the available resources, regardless of whether the society they live in follows a tender-based or an exchange-based economy. According to economics, the behavior of all these actors should be determined by certain simple tenets, including:

From these simple “polished” tenets, we see that achieving infinite welfare is an unobtainable goal, whereas the maximization of welfare with the available means is achievable. For example, a worker follows his or her own maximization pattern and spends any available money to buy a “basket” of commodities (food, clothes, entertainment, health care, etc.), balancing market prices against his or her own preferences.

Without going further into the principles of economics, we should also note that a certain level of welfare can be achieved by different combinations of commodities associated with different costs, and that there is a specific combination that achieves a target level of welfare with minimum cost. For example, if we were interested in an individual’s welfare, we could identify several combinations of the commodities “consumption of health care services” and “available income for other services” that would provide a specific target level of welfare. Naturally, we could always achieve this by increasing the consumption of one commodity at the expense of the other, and vice versa, for each combination of choices. To make such an estimate, however, the stakeholders’ preferences and the commodities’ prices must be expressly specified in each case.

By expanding the application of this example, we can see how a society may decide that it can achieve maximum welfare through a public health system that provides free health care at the expense of “sacrificing” part of the citizens’ income, because insurance and taxation costs will take a part of the income available for consumption to invest it in public health institutions. Other societies with more privately oriented health systems provide “less public health care” but compensate for this by taking less income, leaving the rest available for consumption and savings. In accordance with tenet 5, most societies avoid the extreme choices and do not accept a “fully private” or “fully public” character for their health care, instead selecting a mixture of the two. This analysis is simplistic and does not take into account special interest groups or the political scenery; however, it is obvious that each country, financial organization, or individual needs to identify all available choices and rank them by the level of welfare they provide. This process is called “evaluation.”

Therefore, “evaluation” refers to a process of comparing various choices to rank them (based on a certain criterion) by order of attractiveness. At a much narrower level, the same evaluation process is performed within a health system or (even more narrowly) within a segment of a health system (e.g., hospitals), or even within the methods of management of a single disease (available budget, treatment options, maximization of patient/taxpayer welfare, etc.). In this book we deal extensively with the criteria we use to make decisions in the health care industry.

The definition of economic evaluation we first provided includes the word “systematic.” It is obvious that analyses based on simplistic criteria of cost comparison between treatments (such as the price of one product compared with another), which include neither the entire financial burden nor the associated benefit for each treatment, are not systematic. When performing economic evaluations, we seek a complete, thorough, and accurate comparison of the alternatives to judge their attractiveness and then rank them. In conclusion, we might say that economic evaluation combines objective data (prices of production factors, medical technology, etc.) with preference data to rule on which of the available options maximize the welfare of the society in general or of specific patient groups.

Evidence-Based Medicine and Evidence-Based Health Economics

A common misconception is that economic evaluation deals exclusively with the (albeit systematic) determination of the cost or the difference in cost between two therapeutic interventions, with no regard for their effectiveness. If that were true, then economic evaluation would be demoted to a simple “accounting” assessment of burden, which...