Resolving the “Cost-Effective but Unaffordable” Paradox: Estimating the Health Opportunity Costs of Nonmarginal Budget Impacts

Abstract

Considering whether or not a proposed investment (an intervention, technology, or program of care) is affordable is really asking whether the benefits it offers are greater than its opportunity cost. To say that an investment is cost-effective but not affordable must mean that the (implicit or explicit) "threshold" used to judge cost-effectiveness does not reflect the scale and value of the opportunity costs. Existing empirical estimates of health opportunity costs are based on cross-sectional variation in expenditure and mortality outcomes by program budget categories (PBCs) and do not reflect the likely effect of nonmarginal budget impacts on health opportunity costs. The UK Department of Health regularly updates the needs-based target allocation of resources to local areas of the National Health Service (NHS), creating two subgroups of local areas (those under target allocation and those over). These data provide the opportunity to explore how the effects of changes in health care expenditure differ with available resources. We use 2008-2009 data to evaluate two econometric approaches to estimation and explore a range of criteria for accepting subgroup specific effects for differences in expenditure and outcome elasticities across the 23 PBCs. Our results indicate that health opportunity costs arising from an investment imposing net increases in expenditure are underestimated unless account is taken of likely nonmarginal effects. They also indicate the benefits (reduced health opportunity costs or increased value-based price of a technology) of being able to "smooth" these nonmarginal budget impacts by health care systems borrowing against future budgets or from manufacturers offering "mortgage" type arrangements.

Conducting Value for Money Analyses for Non-randomised Interventional Studies Including Service Evaluations: An Educational Review with Recommendations

“…These methods for estimating cost-effectiveness thresholds are based on the concept of health opportunity costs, i.e. the health benefits that could have been achieved had the resources been used elsewhere in the healthcare system [132]. These methods incorporate wider opportunity cost concerns within CEA, QALYs and even disability-adjusted life years for use in lowand middle-income countries [133].…”

“…Relatedly, Lomas [135] suggests a framework for incorporating affordability concerns alongside cost-effectiveness estimates highlighting an example that using a BIA alongside a CEA does not deal with such concerns. The "cost-effective but unaffordable paradox" [132] has been discussed in priority setting for global health programmes [136] but also in the context of high-income countries (e.g. UK and USA) [137,138], which has relevance for local and national decision makers with finite budgets.…”

The marginal benefits of healthcare spending in the Netherlands: Estimating cost‐effectiveness thresholds using a translog production function

“…This would still require policy discretion (Harris, 2016). In addition, for technologies with a non-marginal budget impact, the thresholds may underestimate the true opportunity costs (Lomas, Claxton, Martin, & Soares, 2018;Paulden, 2016).…”

Willingness to pay for new medicines: a step towards narrowing the gap between NICE and IQWiG

“…One may assume, in line with the authors' empirical work in assessing the threshold [7], that it is rather marginal care which is displaced under the NHS budget constraint. In this case, the threshold corresponds to the "marginal productivity" [8] or the marginal cost-effectiveness ratio of health care and may change with the budget impact of the new drug [9]. Yet, one may also question this assumption [10], (p. 24/25) and presume that services are displaced at random [11], in line with an 'uninformative' prior or an 'equiprobability' assumption assigning each service an equal probability of being displaced.…”