Economic Evaluation in the National Health Service (NHS)

The National Health Service is built on the Bentham’s concept of utilitarianism of maximising ‘utility’ for greatest number (Lockwood,1988), enabling risk sharing across the entire population by confronting moral hazard and adverse selection. This can be linked to the microeconomic theory of supply and demand (Frank, 1994). Supply and demand underlies the allocation of limited resources or commodities used to achieve maximum health output. In this situation, “demand” refers to both willingness and ability to pay, and “supply” is the willingness and ability of potential sellers to produce and sell a particular commodity (Schafermeyer, 2000). Consumers subject to their individual income constraints, maximise their individual utility through their purchasing of particular goods. As such, health in this respect has both aspects of an investment good and a consumption good.

The demand for health care services is very different to that of food. Health, unlike other resources, cannot be traded over time. “It is a derived demand, in which consumers have a demand for health but cannot directly purchase it” (Ringel, 2002). Like a capital good, health is capable of depreciation over time and as such; its demand is a time-dependent variable, which changes with exogenous and endogenous factors. Therefore, one could suggest there is unlimited health care demand that will always exceed limited supply due to the overall burden of ill health being impossible to anticipate due to changing constantly. As such, health care in an important determinant of health but the demand for it is often unpredictable (timing, frequency, intensity, costs) and therefore, expensive.

Markets favour consumers with purchasing power. The food industry is a free market, dictated by consumer choice and demand, the emergence of new suppliers and the exit of under performing suppliers. Within the food market, elasticity is driven by the premise of consumer sovereignty, in which consumers have information about every product, therefore can choose an enormous range of options and exactly how much of any given thing we want to purchase. In a free market, no one producer can manipulate the market price of a product. Producers are incentivised to satisfy consumer wants and produce efficiently to gain maximum profit. Economic theory suggests that under certain circumstances a free market promotes the optimal outcome for consumers and providers. As such, equilibrium in price and quantity are eventually met. While markets may be efficient, the allocation of resources by markets may not result in equity

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Do we have purchasing power as consumers in health care? In simple terms, we can predict when we will be hungry but we cannot predict when we are going to be ill and we know how to treat hunger but not all the eventualities of ill health. It is likely that without a national insurance system like the NHS an oligopolistic market would exist as there would be a few dominant sellers capable of influencing the overall market price of a commodity due to great market power.The universal NHS exists to meet this variable demand and ensure equity by providing a comprehensive, high quality service available on the basis of clinical need and not ability to pay; ensuring individuals aren’t victims of the market forces that could be derived from a market in which access to services is driven by the law of demand. It exists under a command market with no competition ensuring ‘horizontal’ equity in distribution. In health care, consumers don’t have the necessary information for driving a perfect market. To have perfect information they would need to know their current health status, prospective health status, available treatments and the cost of treatments. We rely upon doctors acting as agents (principal-agent relationship) or ‘gatekeepers’ to assist in our decision making and to purchase healthcare based on their knowledge. In the Grossman Model based on a human capital approach to health (Grossman 1972; Grossman 2000) demand for health care is derived from the demand for health. In this model, it is recognised that consumers have imperfect information about their health and therefore may be subject to adverse selection problems. For a perfect market to exist within Health Care Services there is a need for prefect competition. For perfect competition to exist, asymmetry of information between consumers and producers should not exist, there should be uniformity in product and producers should be able to freely enter and exit the market. Rational purchasing decisions are often difficult if not impossible to the non-medical population. Consumers are often unable to make an informed decision regarding whether treatment is required and, if so, which therapies are most effective. Markets in health care are not efficient, mainly because consumers do not have good information.

In making resource decisions, allocation efficiency is also important. The concept of allocative efficiency takes account the efficiency with which outcomes are distributed among the community.

Question 2

What are the disadvantages and advantages of using quality adjusted life years (QALYs) in economic evaluation? (800 words maximum)

Within the National Health Service, according to Morris, Devlin and Parkin (2007), economic evaluation is used for the following reasons:

• To maximise the benefits from health care spending.
• To overcome regional variations in access.
• To contain costs and manage demand.
• To provide bargaining power with suppliers of health care products.

QALYs are a type of health status index, based on population-level information that measure health gain (Spencer, 2003 p.1) to allow for economic evaluation of different health interventions. A single QALY is the arithmetic product of life expectancy, weighted by a measure of the quality (utility) of the remaining life-years to reach a single index value (Prieto and Sacristán, 2003). The utility value is 0 for ‘dead’ and values one year of perfect-health life expectancy to be equal to one. These values are derived from scales, namely, the rating scale; time trade-off; or standard gamble. Each is subject to forms of bias. The QALY model offers consistency and limits budgetary waste, allowing for the greatest good to be achieved for the greatest number, so called ‘distributive justice.’ It also allows for direct comparison of interventions in a common currency regardless of clinical discipline. This is because the cost per QALY does not confer the price of treatment but the price of the outcome that results, may that be in years or quality gained or lost. Phillips and Thompson (2001) summarise this as an expensive treatment may have a low cost per QALY if it brings significant benefit to patients; likewise, a cheaper treatment may have a high cost per QALY if the degree of benefit is relatively low.

There are however specific criticisms held as to the generalisability of this model, the lack of consideration for baseline health status and whether QALYs perpetuates the issue of health inequalities (Wagstaff, 2002). The use of QALYs implicitly assumes that there are no other objectives to health care than health maximization. QALYs are considerably crude measurements, leaving vulnerable the question what exactly constituted the ‘quality’ for which life years are adjusted. The utility measurement instruments each hold inherent bias as they are subjective aggregation of values. Individuals do not place the same value on each year of life. As such, the QALY model is inherently flawed as a health state utility of 0.6 is the same as three extra years of life at a health state utility of 0.2. As such, concerns have been expressed about the appropriateness of using QALYs calculations to inform resource allocation decisions (Dolan et al, 2008) as they are attempting to make subjective concepts explicit numerically when there really is no consensus, leaving ambiguity in assessing overall improvement or detriment in health. Criticism has been expressed about the discriminatory aspects of the QALY model. The model favours those with more “treatable conditions and those with greater potentials for health- be it in terms of functioning or longevity” (Nord et al, 2009).

Question 3

Outline the main methods to remunerate general practitioners (GPs) in the United Kingdom. (300 words maximum)

GPs are self-employed providers, which under the 2004 GMC negotiated contract are paid by mixed payment remuneration, consisting of salary based on weighted capitation, fixed allowances, QOF and fee for service. Individual GP practices are allotted a practice income under the contract, from which expenses and staffing costs are funded. This payment, representing the largest part of their income, is a capitation fee per enrolled patient adjusted for age, gender, morbidity and mortality, with additional fixed allowances for maintaining particular services. GPs working in underserved geographic areas receive additional payments. Distribution to individual GPs within a practice is dependent upon seniority, practice efficiency and maintenance of operational costs through cost containment. GPs can also receive additional payments based on the quality of services provided in designated areas such as child health, maternity, family planning, and chronic diseases as part of a quality enhancing framework (DH, 2004). The Quality and Outcomes Framework (QOF) is a voluntary, evidence-based framework spanning four domains: clinical, organisational, patient experience and additional services (DH, 2003). GPs are challenge to meet a range of evidence-based indicators within these domains from which they can accumulate points based on the breadth and depth of quality. As a result, payments are awarded according to the level of achievement. Practices receive about £125 per point for an average sized practice with a maximum of 1000 points available to them. QOF is often revised to reflect changing population priorities, clinical advancements and best evidence to remain a pragmatic funding model. Thirdly, practices can enter into so called Enhanced Service agreements, based on the ‘fee for service’ model. In Enhanced Service agreements, payments are awarded for meeting targeted requirements, such as flu and childhood immunisations and providing other specific services.

ii) Compare and contrast 2 of these methods outlining advantages and disadvantages of each. (300 words maximum)

Different financial incentives given to GPs might affect their behaviour and treatments plans for individual patients. “Fees for service” compensation is awarded based on a service being given to an individual patient. Care is clearly linked to payment and each service that is delivered has a specific payment rate. It has been argued that such a system of compensation induces GPs to put quantity, over quality of care in a bid to get increasing numbers of patients through their practice door and allows for unnecessary, potentially more lucrative, treatments to be performed at a financial benefit to the GP.

This compares quite dramatically to the capitation system, which remunerates practices based on the population demography, regardless of the health status of the population. This means GPs have better budgeting capabilities, as each payment is fixed regardless of case mix meaning it is an equitable system for all patients. Capitation removes the need for GPs to see a high volume of patients within an allotted time frame but places incentives upon general practioners to enrol large numbers within their practice. As such, Capitation comes with the added risk of the potential to have a difficult case-mix due to increased numbers and allows for ‘cream skimming’ to take place in which GPs exercise the potential to choose patients that are easier to care for, leading to health inequalities in certain demographics, i.e. the elderly.

Outline the equity implication of patient co-payments for primary care services. (300 words maximum)

Concern with equity implies the availability of some goods, including health care, should not be based, or based solely, on willingness to pay. Indeed, equity is an ethical concept built on the principle of distributive justice. In health, it is considered to be “the absence of systematic disparities in health between groups with different levels of underlying social advantage/ disadvantage” (Braveman, 2003, p1). Co-payments are flat fees or means tested payments, based on the willingness to pay model that a patient pays for a named health care service, such as a GP visit, dental treatment or prescription. Basing health care treatments on being able to pay is contentious. Co-payments have the potential to widen the equality gap by discouraging or restricting people from seeking important treatments or forcing individuals from lower socio-economic groups into making decisions about their health care based on price not their need. Equity assumes equal utilisation (use) for equal need.

References

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Department of Health (2003) Investing in General Practice; The New General Medical Services Contract, Department of Health, London

Department of Health (2004) Updated version of the QOF guidance and evidence base, Department of Health: London; 2004.

Dolan, P (2008). Developing methods that really do value the ‘Q’ in the QALY. Health Economics, Policy & Law;3 pp.69-77.

Dolan P. & Kahneman D. (2008). Interpretations of utility and their implications for the valuation of health. Economic Journal; 118 pp. 215-234

Frank, R (1994): Microeconomics and Behavior. New York: W.W. Norton & Company

Goddard M. & Smith p (2003) Equity of access to health care services: Theory and evidence from the UK, Social Science & Medicine 53 (9) pp. 1149-1162

Grossman, Michael (1972a), The Demand for Health-A theoretical and Empirical Investigation. New York: National Bureau of Economic Research.

Grossman, M. (1972b), On the Concept of Health Capital and the Demand for Health, The Journal of Political Economy, 80 (2) pp. 223-255.

Grossman, Michael. (2000), “The Human Capital Model”, in Handbook of Health Economics, 1, pp. 347-408

Lockwood, M. (1988). Quality of Life and Resource Allocation. Royal Institute of Philosophy Supplement, 23, pp 33-55

Morris S, Devlin N, Parkin D. (2007) Economic analysis in health care. John Wiley & Sons, Ltd.

Pinto-Prades, JL. Loomes, G. & Brey, R. (2009)Trying to estimate a monetary value for the QALY ,Journal of Health Economics, 28 (3) pp. 553-562

Phillips, C. & Thompson, G. (2001) “What is a QALY?” [online] at: http://www.evidence-based-medicine.co.uk/ebmfiles/WhatisaQALY.pdf

Prieto, L & Sacristán, J.A. (2003) Problems and solutions in calculating quality-adjusted life years (QALYs) Health Quality Life Outcomes; 1 pp. 80

Ringel, J ( 2002) The elasticity of demand for health care: a review of the literature and its application to the military health system, United States. Department of Defense, National Defense Research Institute (U.S.)

Schafermeyer KW (2000) Health Economics I: Basic Economic Principles, Journal of Managed Care Pharmacy 43-50

Spencer, A. (2003) A test of the QALY model when health varies over time, Social Science & Medicine; 57, (9) pp. 1697-1706

Wagstaff, A (2002) Inequality aversion, health inequalities and health achievement, Journal of Health Economics, 21(4) 627-641