Contents Cover Title Page Copyright Dedication Preface Chapter 1: Introduction to Economic Analysis in Health Care 1.1 Life, Death and Big Business: Why Health Economics is Important 1.2 Health Care as an Economic Good 1.3 Health and Health Care 1.4 Wants, Demands and Needs 1.5 The Production of Health and Health Care 1.6 Deciding Who Gets What in Health Care 1.7 Is the Market for Health Care Special? 1.8 Describing Versus Evaluating the Use of Health Care Resources 1.9 Judging the Use of Health Care Resources Summary Chapter 2: The Demand for Health Care 2.1 Why Study Demand? Profits, Policy and Improving Health 2.2 Consumer Choice Theory 2.3 Demand Functions 2.4 Modelling Choices About Health 2.5 Needs, Wants and Demands 2.6 Asymmetry of Information and Imperfect Agency 2.7 Aggregate Demand for Health Care: Theory and Evidence Summary Chapter 3: The Production and Costs of Health Care 3.1 Introduction 3.2 The Theory of Production 3.3 Multi-Product Firms 3.4 Returns to Scale, Additivity and Fixed Factors 3.5 Costs Summary Chapter 4: The Supply of Health Care 4.1 Firms, Markets and Industries in the Health Care Sector of the Economy 4.2 Structure, Conduct and Performance in the Health Care Industry 4.3 Profit Maximisation Models 4.4 Goals Other than Profit Maximisation 4.5 Competition, Contestability and Industrial Policy Summary Chapter 5: Markets, Market Failure and the Role of Government in Health Care 5.1 Introduction 5.2 Using Perfectly Competitive Markets To Allocate Resources 5.3 Market Failure In Health Care 5.4 Government Intervention In Health Care 5.5 Government Failure Summary Chapter 6: Health Insurance and Health Care Financing 6.1 Uncertainty And Health Care Financing 6.2 Risk And The Demand For Health Insurance 6.3 The Market For Health Insurance And Market Failure 6.4 Reimbursement 6.5 Integration Between Third-Party Payers And Health Care Providers 6.6 Health Care Financing Systems Summary Chapter 7: Equity in Health Care 7.1 Introduction 7.2 Equity in the Finance of Health Care 7.3 Equity In Distribution Summary Chapter 8: Health Care Labour Markets 8.1 Labour as a Factor of Health Care Production 8.2 Supply of Health Care Labour 8.3 Demand for Health Care Labour 8.4 Wages and Employment in Perfect Labour Markets 8.5 Economic Rent and Transfer Earnings 8.6 Wage Determination and Employment In Imperfect Labour Markets 8.7 Health Care Labour Market Shortages Summary Chapter 9: Welfarist and Non-Welfarist Foundations of Economic Evaluation 9.1 The Normative Economics Foundations of Economic Evaluation 9.2 Welfare Economics 9.3 The Pareto Principle 9.4 Potential Pareto Improvements 9.5 Social Welfare Functions 9.6 Measurability and Comparability of Utility 9.7 The Application of Welfare Economics 9.8 Non-Welfarism 9.9 Is There A Link Between Welfarism and Non-Welfarism? Summary Chapter 10: Principles of Economic Evaluation in Health Care 10.1 What Is Economic Evaluation? 10.2 The Economics Foundations of Economic Evaluation 10.3 Economic Evaluation Applied to Health Care Programmes 10.4 Decision Rules for Cost–Benefit Analysis 10.5 Decision Rules for Cost-Effectiveness and Cost-Utility Analysis 10.6 Equity in Economic Evaluation Summary Chapter 11: Measuring and Valuing Health Care Output 11.1 Introduction 11.2 Monetary Valuations of Health Care Benefits 11.3 The Measurement of Health Outcomes 11.4 Making Health Status Indicators Fit for Purpose 11.5 The Measurement of Health Gain 11.6 Non-Monetary Valuation of Health States 11.7 Multi-Attribute Utility Measures 11.8 The Valuation of Health States: Willingness To Pay for Health Changes 11.9 The Value of Life Summary Chapter 12: Economic Evaluation Methods 12.1 Introduction 12.2 Selecting The Viewpoint 12.3 Estimating Costs 12.4 The Measurement of Health Gain 12.5 Discounting 12.6 Modelling-Based Economic Evaluation 12.7 Trial-Based Economic Evaluation 12.8 Dealing With Uncertainty: Sensitivity Analysis Summary Chapter 13: The Use of Economic Evaluation in Decision Making 13.1 The Decision-Making Context: Why is Economic Evaluation Used? 13.2 Who Buys Economic Evaluations? Does it Matter? 13.3 Is Economic Efficiency all that Matters? 13.4 How is Economic Evaluation used to Make Decisions in Practice? 13.5 Cost-effectiveness League Tables 13.6 Programme Budgeting and Marginal Analysis 13.7 Cost-effectiveness Thresholds 13.8 Evaluating Economic Evaluation Summary References Author Index Subject Index This edition first published 2012 © 2012 John Wiley & Sons, Ltd Registered office John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom For details of our global editorial offices, for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at www.wiley.com The right of Stephen Morris, Nancy Devlin, David Parkin and Anne Spencer to be identified as the authors of this work has been asserted in accordance with the Copyright, Designs and Patents Act 1988 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher Wiley publishes in a variety of print and electronic formats and by print-on-demand Some material included with standard print versions of this book may not be included in e-books or in print-ondemand If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com For more information about Wiley products, visit www.wiley.com Designations used by companies to distinguish their products are often claimed as trademarks All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners The publisher is not associated with any product or vendor mentioned in this book This publication is designed to provide accurate and authoritative information in regard to the subject matter covered It is sold on the understanding that the publisher is not engaged in rendering professional services If professional advice or other expert assistance is required, the services of a competent professional should be sought Library of Congress Cataloging-in-Publication Data Economic analysis in health care / Stephen Morris [et al.].—2nd ed p ; cm Rev ed of: Economic analysis in health care / Stephen Morris, Nancy Devlin, David Parkin c2007 Includes bibliographical references and index ISBN 978-1-119-95149-0 (paper : alk paper) I Morris, S (Stephen), 1971- II Morris, S (Stephen), 1971- Economic analysis in health care [DNLM: Delivery of Health Care—economics Costs and Cost Analysis W 84.1] 338.4'1;73621—dc23 2012002906 A catalogue record for this book is available from the British Library health expenditure diminishing returns to health gain health insurance essential principles market failures market for premium health maintenance organisations (HMOs) defined performance types health net benefit (HNB) health production function health-related groups (HRGs) health-related quality of life (HRQOL) health service perspective health services research health status measures 15D Assessment of Quality of Life (AQOL) Asthma Quality of Life Questionnaire (AQLQ) EQ-5D Health Utilities Index (HUI) MS-QOL54 SF-6 SF-12 SF-36 Sickness Impact Profile healthy year equivalent (HYE) defined measurement of hedons Herceptin™ herd immunity Herfindahl–Hirschman Index (HHI) hit-and-run competition HM Treasury homogeneous production function homongenous products horizontal equity defined in health care finance in health care use horizontal inequity index hospital concentration hospital costs hospital formularies hospital ownership household production function HRQOL see health-related quality of life human capital human organs Huntington’s disease ICER see incremental cost-effectiveness ratio imperfect competition imperfect knowledge imperfect labour markets income effect of a wage increase income elasticity of demand incommensurable items incomplete coverage solutions to increasing returns to scale incremental cost-effectiveness ratio (ICER) indemnity plans indexes of health state indicative prescribing budgets indifference curve indirect utility function individualism indivisibilities industry components of defined inequalities in health inferior good information imperfections inputs insurance insurance premium intangibles interdependence of firms intergenerational equity international comparisons of the distribution of ill health of equity in financing internet pharmacies intransitivity inverse Mills ratio (IMR) investment appraisal investment benefit in vitro fertilisation (IVF) isocost line isoquant isoquant map iterative bidding job satisfaction joint production Kakwani’s progressivity index labour demand as factor of health care production supply labour markets economic rent and transfer earnings imperfect perfect shortages size law of demand law of diminishing marginal returns law of large numbers lexicographic preferences libertarianism life expectancy limited lists liposuction loading factor long-run defined equilibrium in Lorenz curve loss aversion luxury good macro-costing magnitude estimations majority voting paradox malaria managed care organisations (MCOs) types marginal analysis (MA) marginal cost of labour marginal efficiency of capital marginal external benefit (MEB) marginal external cost (MEC) marginal factor cost marginal product (MP) diminishing of labour marginal rate of substitution (MRS) marginal rate of technical substitution (MRTS) marginal revenue marginal revenue product of labour marginal social benefit see social marginal benefit (SMB) marginal social cost see social marginal cost (SMC) marginal social utility of income marginal utility of income diminishing market concentration market definition market failure causes in health care defined market forces market power employers and workers with market(s) defined labour see labour markets market structure alternatives defining Markov models maximax maximin Rawlsian SWF maximisation of social welfare maximum endurable time Medicaid Medicare mental illness mergers merit goods micro-costing minimum efficient scale MMR vaccine modelling uncertainty monetary net benefit (MNB) monopolistic competition long- run equilibrium short-run equilibrium monopoly equilibrium main features monopsony Monte Carlo simulations moral hazard causes defined solutions types multi-attribute utility measures multiple data sources, using multiple technology appraisals (MTAs) multi-product cost function multi-product firms multi-way sensitivity analysis MVH study Nash equilibrium Nash solution Nash SWF National Childbirth Trust National Health Service (NHS) National Institute for Health and Clinical Excellence (NICE) nationalisation natural history data necessity need capacity to benefit needs-based labour market shortages needs-based priority setting need variables net benefits net income per physician net present value NHS see National Health Service NICE see National Institute for Health and Clinical Excellence no-claims bonuses non-excludability non-marketed goods non-maximisingbehaviour, labour market non-need variables non-price competition causes effects non-rivalry non-welfarism defined vs welfarism normal good normative analysis normative economics Norway nurses nursing home care obesity occupational immobility oligopoly collusive vs non-collusive formal vs informal collusion main features oligopsony one-way sensitivity analysis ophelimity opportunity cost optimum optimorum Oregon experiment Oregon Health Plan Oregon Health Services Commission output defined measuring in health care ownership hospital impact on firms’ objectives importance of separation from management paired comparisons paralysing paradox parameter uncertainty Paretian approach Pareto, V Pareto criterion Pareto efficiency Pareto improvement potential strong weak Pareto indifference Pareto non-comparability Pareto optimality Pareto principle paroxysmal nocturnal haemoglobinuria (PNH) partial cost–benefit analyses patents pathways to health model Patient Centered Outcomes Research Institute (PCORI) patient choice Patient Related Outcome Measures (PROMs) patient shifting payment by results (PbR) payoff matrix perfect competition labour markets long-run equilibrium main features short-run equilibrium person trade-off perspective health service making explicit Rawlsian societal welfarist Pfizer Pharmaceutical Benefits Advisory Committee (PBAC) Pharmaceutical Management Agency Company (PHARMAC) physician-induced demand physician productivity, measurement of physiotherapy point of service (POS) plans pollution positive analysis positive economics positive time preference postcode prescribing defined welfare loss from potential Pareto improvements pragmatic trials preferences preferred provider organisations (PPOs) defined premium fair insurance risk total prescription charges present value price discrimination price elasticity of demand price maker price taker principal–agent problem prisoner’s dilemma private efficiency defined privately efficient level of consumption privately efficient level of production private marginal benefit private marginal cost privatisation probabilistic analysis probabilistic sensitivity analysis process of care product development production allocative efficiency production frontier production function production possibility curve production theory product promotion products product transformation curve professional associations profiles of health profit normal supernormal total profit maximisation conditions for models in the pharmaceutical industry reasons for goals other than profit satisficers programme budgeting programme budgeting and marginal analysis (PBMA) progressive financing system progressivity defined progressivity indices relationship with health care financing system propensity to work proportional financing system prospective reimbursement incentives types prospectively set costs per case psychometrics public goods defined vs publicly provided goods quality-adjusted life year (QALY) area under the curve (AUC) defined measurement of quality of life quality–quantity frontier RAND Health Insurance Experiment random utility theory rate of product transformation rating scales rational addiction rationality defined Rawlsianism defined maximin SWF reduced list method regional variations in access regressive financing system regulation reimbursement prospective retrospective types reliability responsiveness retrospective reimbursement incentives returns to a fixed factor returns to scale constant decreasing increasing revealed preference revenue average marginal total rheumatoid arthritis risk attitudes to defined risk aversion risk loving risk neutral risk pooling risk premium rule of rescue salaries and wages economic rent and transfer earnings in imperfect labour markets in perfect labour markets scale efficiency scarcity second best selection bias in nursing labour supply studies selective contracting selfish externalities sensitivity analysis multi-way one-way probabilistic shadow pricing short-run defined short-run equilibrium simple dominance simulated markets single technology appraisals (STAs) social determinants of health social efficiency social health insurance contributions fund social marginal benefit (SMB) social marginal cost (SMC) social opportunity cost social time preference Social Value of a QALY (SVQ) project social welfare function (SWF) social welfare ordering (SWO) societal perspective special interest groups spillover effects standard gamble stated preference statistically-based sensitivity analysis statistical value of life stochastic cost-effectiveness analysis stock of health strict utilitarianism defined SWF stroke rehabilitation structure–conduct–performance paradigm stylised facts sub-additivity subsidies substitutability of inputs of outputs substitutes substitution effect of a wage increase sunk costs super-additivity supernormal profits supplier-induced demand see physician-induced demand supply of labour Sweden SWF see social welfare function swine flu SWO see social welfare ordering takeovers Tanzania tattoo removal taxes as a method of paying for health care types technical efficiency technology appraisals appraisal consultation document multiple technology appraisals (MTAs) single technology appraisals (STAs) tele-endoscopy clinics, cost–benefit analysis test–retest reliability Thailand theory of second best theory of the firm behavioural theories of the firm defined third party payer threshold analysis time preference time trade-off top-down costing total premium tradeability of health trade unions training of health care professionals transfer earnings transition matrix transition probability transplantation travel time trial data ultra-orphan drug uncertainty defined in economic evaluation in health care uninsured, the unit cost unmet need user charges US health care system multiple data sources, using utilitarianism utility utility function utility maximisation conditions for defined utility possibilities frontier (UPF) ‘utils’ vaccination validity Value Based Pricing (VBP) value judgements variations in medical practice veil of ignorance vertical equity defined in health care finance in health care use vertical integration Viagra™ viewpoint see perspective visual analogue scales vonNeumann–Morgenstern (vNM) utility wage discrimination wage elasticity of supply wage makers wages economic rent and transfer earnings in imperfect labour markets in perfect labour markets wage taker waiting lists waiting times wants weighted utilitarianism defined SWF welfare economics welfare weight welfarism defined limitations of vs extra-welfarism vs non-welfarism welfarist Wennberg variations willingness to accept (WTA) willingness to pay (WTP) World Bank (WB) World Health Organisation (WHO) WTA see willingness to accept WTP see willingness to pay ... Cataloging -in- Publication Data Economic analysis in health care / Stephen Morris [et al.]. 2nd ed p ; cm Rev ed of: Economic analysis in health care / Stephen Morris, Nancy Devlin, David Parkin c2007 Includes bibliographical... health care sector, but no training in economics Whatever background you bring to it, we are confident that you will find the study of health economics fascinating Learning to look at health and... profits, reducing incentives to invest and creating incentives to cut costs, including labour contributions costs, or results in increased prices where taxes can be ‘passed on’ to consumers Increase