Monash University
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Why Economic Costs May Not Be Of Interest In A National Health Scheme; Or, Costs Fairness And Reverse Order Analysis

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journal contribution
posted on 2017-06-06, 00:54 authored by Richardson, Jeff
Economic theory suggests that the criterion for including health services in a national health scheme (NHS) should be that, subject to considerations of fairness, health benefits should exceed net resource costs. It is argued here that this criterion may be wrong or, at best, misleading. Likewise, theory suggests that achieving economic efficiency is a self evidently desirable objective. This implies that health outcomes should be achieved at the lowest possible cost. In contrast, it is argued that this objective may also be inappropriate in a national health system in which the primary objective-the sine-qua-non for the regulation and financing of health services-is the achievement of fairness. In all its forms, fairness involves a comparison of each person's situation with the situation of others. By contrast, the achievement of efficiency takes no account of the relative health or financial status of patients and for this reason it may be in direct conflict with the achievement of social justice defined according to a variety of ethical theories. In principle, this conclusion is neither surprising nor problematical. It calls for a trade-off to be made between efficiency and equity. Unlike the trade-off normally envisaged, however, the analysis here suggests that certain costs may need to be ignored or discounted, other costs included at face value and some transfer payments included in the decision algorithm. The need for a trade-off between equity and efficiency is not the primary theme of the present article. Rather, it is argued that the unbalanced emphasis upon efficiency has resulted in a particular orientation of the analytical framework which might now be described as an `efficiency first' methodology or paradigm, in which the requirements of efficiency are met first and considerations of fairness added on as an analytical afterthought. It is argued that the result of this approach is a different perspective and interpretation of evidence than would emerge from a `reverse order' or `fairness first' analysis or paradigm in which fairness-the primary reason for creating an NHS-was the initial objective to be considered. These assertions are supported by reversing the usual order of analysis, commencing with issues involving fairness and contrasting conclusions with the more usual conclusions implied by an efficiency-first analysis. For simplicity, fairness is equated with only one dimension of fairness, namely, the distribution of costs and benefits. The inclusion of different theories of social justice in the analysis might, of course, lead to a third set of results. The second conclusion from this discussion - is that a reverse order-fairness first-analysis may refocus-alter the apparent significance of some empirical observations and theoretical issues. This is illustrated by a re-examination of (i) the importance of transfer payments; (ii) the `conceptual problem' concerning the inclusion and exclusion of unrelated costs in an economic evaluation; and (iii) moral hazard and the alleged dead weight loss arising from health insurance. The article concludes that the `fairness first' paradigm may correspond more closely with social values than the perspective and framework adopted by economists.


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Centre for Health Program Evaluation

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