The Broader Opportunity Costs in the Broader Cost-Effectiveness Analysis Framework

Social Decision-Making Analysis: A General Approach to Inform Decisions on Resources in the Public Sector

OBJECTIVES

Public expenditure aims to achieve social objectives by improving a range of socially valuable attributes of benefit (arguments in a social welfare function). Public expenditure is typically allocated to public sector budgets, where budget holders are tasked with meeting a subset of social objectives.

METHODS

Decision makers require an evidence-based assessment of whether a proposed investment is likely to be worthwhile given existing levels of public expenditure. However, others also require some assessment of whether the overall level and allocation of public expenditure are appropriate. This article proposes a more general theoretical framework for economic evaluation that addresses both these questions.

RESULTS

Using a stylized example of the economic evaluation of a new intervention in a simplified UK context, we show that this more general framework can support decisions beyond the approval or rejection of single projects. It shows that broader considerations about the level and allocation of public expenditure are possible and necessary when evaluating specific investments, which requires evidence of the range of benefits offered by marginal changes in different types of public expenditure and normative choices of how the attributes of benefit gained and forgone are valued.

CONCLUSIONS

The proposed framework shows how to assess the value of a proposed investment and whether and how the overall level of public expenditure and its allocation across public sector budgets might be changed. It highlights that cost-benefit analysis and cost-effectiveness analysis can be viewed as special cases of this framework, identifying the weakness with each.

A Framework for the Fair Pricing of Medicines

As high-cost medicines put increasing pressure on public health care budgets, the need to identify 'fair' prices for medicines has never been greater. This paper proposes a framework, built upon fundamental economic principles, that allows for the consideration of 'fair' prices for medicines. The framework incorporates key considerations from conventional supply-side and demand-side approaches for specifying a cost-effectiveness 'threshold', including the health opportunity cost borne by other patients ([Formula: see text]) and society's willingness to pay for marginal improvements in population health ([Formula: see text]). The costs incurred by manufacturers in developing and supplying new medicines are also considered, as are the incentives for manufacturers to strategically price up to any common price per unit of benefit (cost-effectiveness 'threshold') specified by the payer. The framework finds that, at any 'fair' price, a medicine's dynamically calculated incremental cost-effectiveness ratio (ICER) lies below [Formula: see text]. When pricing medicines collectively, the framework finds that a common price below [Formula: see text] is required to maximize population health (consumer surplus) or to maximize total welfare (consumer and producer surplus). This framework has important policy implications for payers who wish to improve population health outcomes from constrained health care budgets. In particular, existing approaches to 'value-based pricing' should be reconsidered to ensure that patients receive a 'fair' share of the resulting economic surplus.