Cost-Effectiveness and Priority Setting
The principal analytic tool throughout this volume is CEA, which compares the cost of an activity, called an intervention, with the known or expected health gain. The result is summarized in a cost-effectiveness ratio (CER), as explained more fully below. This ratio corresponds to the concept of (health) value for money. Favoring activities that are more cost-effective over those that are less so is consistent with the ethical view that "limited resources for health should be allocated to maximize the health benefits for the population served" (chapter 14).
Cost-effectiveness provides the clearest simple way to promote value for money in health: hence, the emphasis on it here. CEA allows comparisons throughout the health sector and not only for the same health outcome. It does not allow comparison to nonhealth outcomes unless these outcomes can be incorporated into costs, and the calculation of the CER by itself makes no pretense of monetizing the intrinsic value of health. To use CERs for choosing what to buy and what not to, decision makers must determine a maximum willingness to pay for units of health gain, unless other criteria are considered to justify buying something with relatively poor cost-effectiveness.
For risk factors, CEA requires estimating the gain in health consequent on introducing an intervention to reduce the risk of acquiring or transmitting a condition. For packages of interventions or elements of the health system, such as hospitals, effectiveness is estimated by judging how much mortality and morbidity would be reduced by providing the whole package or set of services or by operating the facility. With some exceptions, the analyses may describe but do not quantify the non-health benefits of an intervention. Apart from the difficulty of obtaining enough data, such quantification requires attaching values to nonhealth outcomes, which is problematic when comparisons are made over large cultural and income differences.
All comparisons are relative, with no absolute distinction between being and not being cost-effective. In assigning priorities among interventions for public funding or for other policy actions, one must also consider the magnitude of health problems to which interventions apply because that affects what is affordable. Calculations of the effect of spending US$1 million or the total cost and health gain in a population of 1 million people offer ways of looking at such choices. Equity, poverty, and risk of impoverishment from ill health may also influence priorities; so do the budgets available—and the decisions of how much to make available—for buying interventions. Finally, the effectiveness of an intervention and, therefore, the degree to which it deserves priority depend on how far it is culturally appropriate or acceptable for the population it is intended to benefit. The identical intervention, technically speaking, may lead to different degrees of use or compliance in different population groups, and information and incentives may be needed to achieve the full potential outcomes.
Cost-effectiveness is only one of at least nine criteria relevant for priority setting in health if the object is to decide how to spend public funds (Musgrove 1999). Cost matters by itself, as do the capacities of potential beneficiaries to pay for an intervention. The other criteria that may affect priorities include horizontal equity (equal treatment for people in equal circumstances); vertical equity (priority for people with worse problems); adequacy of demand; and public attitudes and wants. Two criteria—whether an intervention is a public good and whether it yields substantial externalities—are classic justifications for public intervention, because private markets could not supply them efficiently, just as in other sectors. As noted in chapter 1, the interventions analyzed in this volume are not limited to public or semipublic goods. The emphasis is on value for money—that is, whether an intervention is worth buying, not who pays for it. Nonetheless, when one is choosing which public goods to buy, several criteria become irrelevant, and cost-effectiveness can be used as the chief or even the only consideration. Cost-effectiveness can similarly determine what to include in a mandatory universal public package of health care alongside competitive voluntary insurance (Smith 2005).
Cost-effectiveness can conflict with both kinds of equity—that is, the more cost-effective of two interventions may also lead to a less equitable distribution of health benefits. Equity and cost-effectiveness are compatible when a cost-effective intervention is provided to only part of the population that would benefit from it because everyone in the group suffers from the same problem. Then expanding coverage will generally also promote horizontal equity. These equity effects are reinforced when those who are better off already benefit while the poorer and sicker population does not. Choices about vertical equity—doing more for those in greatest need—are more complicated. Doing very little for people with severe health problems—because the available interventions for those problems are not very effective at reducing their suffering—is not necessarily preferable to doing more for people with less severe problems that are more amenable to intervention. When an intervention is reaching only part of a potential beneficiary population and those not benefiting tend to have more severe illness, then expanding coverage can improve both horizontal and vertical equity. Where possible, chapters consider the equity effects of expanding or changing interventions.
Cost-Effectiveness and Disease Burden
Cost-effectiveness and disease burden are related because effectiveness is the reduction in burden caused by an intervention. This relationship holds true at the individual level. The magnitude of a health problem—the total burden in the population—is irrelevant for marginal changes in resource allocation. However, it matters for large changes from the status quo. Health interventions demand managerial capacity as well as financial and physical resources, and managerial ability may be stretched thin if it has to deal with a large number of interventions. In consequence, it may be efficient to concentrate on relatively few and somewhat less cost-effective interventions, provided they attack substantial burdens, rather than many other interventions that are more cost-effective but affect only small burdens. Moreover, even for a cost-effective intervention, high prevalence or incidence may make the cost of covering the whole potential beneficiary population prohibitive. The authors of chapter 21 indicate how expensive it would be to protect all at-risk African children from malaria with bednets, even though bednets are highly cost-effective. Conversely, an intervention that costs more per health gain may be affordable and given priority if it treats a manageable burden of disease and corresponds to a small beneficiary group. Priority turns on the available budget relative to the cost of a program; on how divisible a program is (that is, how easily it can be operated at different scales, as a technical or political matter); and on whether interventions are mutually exclusive (Karlsson and Johannesson 1996).
Because of the interaction between cost-effectiveness, disease burden, and available funds, no single threshold of maximum cost per health gain exists below which an intervention is "cost-effective." A rule of thumb, such as that any intervention is worthwhile if it costs less than two or three times income per capita, ignores this interaction and is an inadequate guide to priority setting. However, even an intervention that is considered justified by cost-effectiveness may be infeasible to deliver, for example, if the costs are monetary and come from the public budget but the benefits are nonmonetary and diffused over the population. Economic theory would suggest removing the current budget constraint by raising more revenue until the marginal social cost of the interventions plus the cost of obtaining the revenue equals the marginal social benefit. Although theoretically attractive, this escape from resource limitation may not be possible because of political reasons or because the economic cost of raising extra taxes is prohibitive.
Because so many criteria can affect priority setting and because evidence on cost-effectiveness in low- and middle-income countries is so scarce, health system policies and budgets seldom derive purely from considerations of cost versus outcomes. Even in high-income countries, where more such analyses are available, their effect has been limited, although it is growing (Gabbay and le May 2004; Glick, Polsky, and Schulman 2001; Hoffmann and others 2002; McDaid, Cookson, and ASTEC Group 2003; Sheldon and others 2004; Taylor and NICE 2002). Cost-effectiveness studies are now required by, for example, the U.S. Food and Drug Administration for labeling claims, the National Institute for Clinical Excellence before advising national policy on treatments and care in England, and the Ministry of Health in the Netherlands for new drugs (iMTA 2005).
