Introduction to health economics for physicians

doi:10.1016/S0140-6736(01)06107-4

The Lancet

Volume 358, Issue 9286, 22 September 2001, Pages 993-998

https://doi.org/10.1016/S0140-6736(01)06107-4 Get rights and content

Summary

Since the 1960s, expenditure on health care in developed countries has risen faster than the general rate of inflation, thus making economic assessment of interventions an integral part of decision making in health services. This paper is the first in a series whose goal is to provide some basic principles of health economics that will allow practising physicians to understand better the economic relations between their practice of medicine, the health-care sector, and the national economy. Some of the most important principles described in this paper include opportunity costs, identifying the appropriate perspective, correctly categorising costs, and discounting costs and non-monetary benefits (eg, lives saved) over time. Economic analyses of medical interventions must also take into consideration the difference between efficacy and effectiveness. Efficacy is the maximum possible benefit, often achieved with carefully controlled trials, and effectiveness is the actual decrease in disease achieved when the intervention is applied over a large, non-homogeneous population. This introduction ends with three methods of assessing the costs and benefits of an intervention—namely, cost-benefit, cost-effectiveness, and cost-utility analyses.

Section snippets

Financial versus economic analyses

There are at least two methods that can be used to assess the economic effect of a health-care intervention, the financial and the economic. For example, a physician assessing the financial viability of adopting a new diagnostic test might use as part of the analysis his or her usual charge for an office visit eg, US$30. However, an economist looking at the same test will want to assess it in terms of opportunity costs, or what alternative investments could be made with the same health-care

Perspective

The benefits and the costs of using an intervention to prevent or treat a disease depend upon whose the perspective is. Differences due to perspective taken are one of the main reasons why there might be disagreements between patients, physicians, health-care payers, and policy makers with respect to the value of using a particular intervention. The differences on which costs are included and excluded with different perspectives are shown in panel 1. For example, for an insured patient who is

Categorisation of costs

In economic analyses, costs are typically categorised as “direct medical”, “direct non-medical”, and “indirect costs of lost productivity”. Examples are given in panel 1. In financial or accounting analyses, costs are classified differently, as “variable” or “fixed”. Variable costs, such as the physician's time and drugs administered, vary dependent on the numbers of cases treated, whereas fixed costs do not vary in the short-to- medium term and are unlikely to change with any fluctuations in

Efficacy versus effectiveness

For an intervention to eliminate a disease or to cure every patient with a medical condition is rare. The maximum possible reduction in a disease due to the use of an intervention is termed the “efficacy” of the intervention. Efficacy is often measured with randomised controlled trials (RCTs). Such trials achieve the maximum possible reduction because patients are often selected on the basis of who will comply with the protocol, and because trial participants are often free of other diseases or

Recognition of both benefits and harms

Although we often focus on the benefits of an intervention, the associated harms must also be recognised. The difficulty is that many harms, and the costs associated with them, might take some time to become apparent or be so rare that they do not show up in the initial trials and are thus excluded from the initial assessment of an intervention. For example, Guillain- Barré syndrome has been associated with viral, bacterial, and other infections, as well as vaccinations. Although this syndrome

Assessment of economic costs and benefits

The three main methods used to assess the economics of an intervention designed to control and prevent a disease are: cost-benefit analysis (CBA), cost- effectiveness analysis (CEA), and cost-utility analysis (CUA) (panel 3).

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