Context, normative positions and the key quantities required Karl Claxton 14/9/2017
Additional health care cost ( Δ c h ) $300 Cost = C 2 $30mn per DALY Additional health ( Δ h ) 100 DALYs averted (,000)
Additional health care cost ( Δ c h ) Health opportunity cost ( k ) $400 per DALY $300 $30mn per DALY Additional health ( Δ h ) 75 100 DALYs averted (,000) Net health benefits 25,000 net DALYs averted
Additional health care cost ( Δ c h ) Health opportunity cost ( k ) $400 per DALY $40mn Net value to HCS = $10mn $300 $30mn per DALY Additional health ( Δ h ) 75 100 DALYs averted (,000) Net health benefits 25,000 net DALYs averted
Additional health care cost ( Δ c h ) $300 Cost = C 2 $30mn per DALY Additional health ( Δ h ) 100 DALYs averted (,000)
Additional health care cost ( Δ c h ) Health opportunity cost ( k ) $100 per DALY $300 $30mn per DALY Net cost to HCS = $10mn $20mn Additional 100 150 health ( Δ h ) DALYs averted Net health costs (,000) 50,000 net DALYs gained
Other effects (private consumption) Attributes Investment Opportunity costs Net effects ( Δ c h = $30mn ) Health (,000 100 DALYs) Consumption $40mn benefits (- Δ c h )
Other effects (private consumption) Attributes Investment Opportunity costs Net effects ( Δ c h = $30mn ) Health (,000 100 k h 150 -50 DALYs) $200 per DALY Consumption $40mn benefits (- Δ c h )
Other effects (private consumption) Attributes Investment Opportunity costs Net effects ( Δ c h = $30mn ) Health (,000 100 k h 150 -50 DALYs) $200 per DALY Consumption $40mn k c = 1 $30mn $10mn HC$ per consumption$ benefits (- Δ c h ) • Is failing to avert 50,000 DALYs worth $10mn of additional private consumption? – How much consumption are people willing to give up to gain a unit of health ( v h ) – This project is only worth while if v h is less than $200 per DALY
More generally and formally Health Health care resources consumption Ignore other c c effects k . h c 0 h h h 0 v . h v . 0 h h h h k k h h Ignore health c c v . h c c 0 opportunity h c k h c c h 0 . 0 h h c costs h h c k h Ignore other opportunity c c c costs c h c k . h c k 0 h 0 v . h c c 0 h h h h h c v k v h h h Account for all effects c c c k c c k c and . . h h c c h c c h v h c k . c 0 h 0 k . h c k 0 opportunity h c c h h h h k v v k h h h h costs
Other types effects and costs Attributes Investment Opportunity costs Net effects ( Δ c h = $30mn ) Health (,000 DALYs) v h 100 k h 150 -50 $200 per DALY Consumption $1 $40mn k c = 1 $30mn $10mn HC$ per consumption$ benefits (- Δ c h )
Other types effects and costs Attributes Investment Opportunity costs Net effects ( Δ c h = $30mn ) Health (,000 DALYs) v h 100 k h 150 -50 $200 per DALY Consumption $1 $40mn k c = 1 $30mn $10mn HC$ per consumption$ benefits (- Δ c h ) Equity? v eq ? k eq ? ? (health, income, income related health) Educational outcomes v ed ? k ed ? ? Environmental capital v en ? k en ? ? Social solidarity ? ? ? ? ? • Costs falling on other types of public expenditure ( Δ c x )? – Δ x, k x and v x are not explicitly specified so can not be estimated – Allocation of public finance implicitly reveals k x /v x through observed k h /v h
Time streams of costs and benefits ( Δ h t , Δ c ht , Δ c ct ) • Project costs $30m now and averts 100,000 DALYS in year 10 • Ministry faces saving/borrowing real rate of r s = 5% 0 1 2 3 10 $30mn 100,000 $48.87mn Cost per DALY averted = $489 100,000 DALYs $30mn Cost per DALY averted = $489 61,390 DALYs • Social choices trade health (and other attributes) over time – HCS turn public resources into health – If reasonable to discount HCS costs must also discount health
Time streams of costs and benefits ( Δ h t , Δ c ht , Δ c ct ) Options? • Express ( Δ h t ) as a time stream of equivalent health care resources ( k ht ) – Discount at rate that reflects opportunity cost of financing health care (r st ) • Express ( Δ c ht ) as a time stream of health gains and losses ( k ht ) – Discount at a rate that reflects opportunity cost of public finance ( r st ) and any growth in the ‘value of health’ relative to health care resources ( gk h ) • Express everything as a time stream of equivalent consumption gains and losses ( k ht , v ht , k xt , v xt ) – Discount at a rate that reflects social time preferences for consumption ( r ct ) which will reflect expectations about real growth in consumption opportunities
Questions of value • Inform and add to the accountability of social choices – Social objective of legitimate decision makers and values implied by current arrangements • Prescribe social choice – A view of what social welfare is ought to be – Commonly restricted individual preferences revealed in markets and their surrogates • Distinction is important but the differences between well conducted CEA and BCA is more apparent than real – What should count? – How should be measure it? – How should we value it? • All require an assessment of – Time streams of effects – Opportunity costs associated with current constraints – Value of different types of gains and losses in a common numeraire
Common questions of fact • All require an assessment of – Time streams of effects – Opportunity costs associated with current constraints – Value different type of gains and losses in a common numeraire • Specify value based a a view of social welfare • Make explicit and inform the trade offs – Implied values from current arrangements/policies – Evidence of how others are willing to trade • Discounting time streams of cost and benefit – Embedding these question in discount policy is unlikely to contribute to explicit, transparent and accountable social choices • Improving the reporting of CEA and BCA – Over reliance on unhelpful summary measures (ICERs, NPV, ROI, CBR) • Time streams of effects • How converted into health (and other) opportunity costs • How converted into equivalent consumption streams • Consistent assessment of core issues (eg expectations of consumption growth ) –
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