Opportunity cost in healthcare priority setting

Abstract

The resources available for the public provision of health care are not unlimited. Cost-effectiveness evidence on new healthcare interventions can help us prioritise in order to use scarce resources wisely, but to interpret cost-effectiveness evidence, it may appear as if we must make trade-offs between life and money. This is not so. If we are able to quantify the health improvements that resources would or could have generated in alternative use, a decision about providing or denying treatment can instead be framed as a trade-off between health gained and health forgone. In this thesis, I seek to provide a more robust basis for this way of reporting and interpreting cost-effectiveness evidence.In Chapter II, I discuss the definition of opportunity cost in economic evaluation. The opportunity cost of providing an intervention is what we must give up to provide it. More precisely, it is typically defined as the value of the best alternative forgone. In economic evaluation of health care, opportunity cost has been understood in terms of the least cost-effective, currently funded intervention, which should be displaced when funding new interventions subject to a fixed budget. I show that alternative uses forgone may be neither currently funded nor well-defined, which implies that we should not look to cost-effectiveness evidence on specific interventions for information on opportunity cost. Further, identifying a best alternative use assumes that priority setting is based on objectives that can be summarised into a single measure of value. If economic evaluation is used to inform trade-offs between one measure of value (e.g., quality-adjusted life years, QALYs) and other, unquantified objectives, I suggest that it would be more appropriate to define opportunity cost as value in expected alternative use.To quantify opportunity cost as health forgone, we need evidence on the health that resources would or could have generated in alternative use. In Chapter III, I use panel data on health spending and life expectancy in Swedish regions to estimate the marginal cost of producing a QALY. My findings imply that Swedish health care can produce health at a marginal cost of SEK 180,000 per QALY, which could be used as an expectation on how productive health spending would be in alternative use. I discuss methodological issues with this approach and identify some credibility problems with selection-on-observables strategies plaguing this and similar research to date. I address (some of) these problems by assessing coefficient stability and the causal mechanisms between healthcare resource use and health outcomes, using a second panel on hospital bed capacity and