Monetisation of the health impact

In document New Horizons (Page 145-149)

In order for the health impacts to be taken into account into an economic evaluation, they have to be expressed in a unit comparable to the costs of the intervention. The objective of this session is to review the main methods available to monetise health impacts. Table 5.1 summarises the main conversion methods. Monetary values offer significant advantages over in- kind outcome measures. They can summarise multi-dimensional outcomes (including non-health outcomes) into a single metric, which is the same metric used to assess costs in the economic evaluation.

Table 5.1 Summary of main monetisation methods

Health economic technique

Description Pros and cons

Unit costs This approach values each

unit of health outcomes, for example healthcare

resources affected, the number of new morbidity or mortality cases.

It costs individually each aspect, yet not all the unit costs are always available (e.g. the cost of treating all the diseases affected by pollution such as the cost of depression)

Willingness-to- pay (WTP)

Maximum monetary value that individuals are prepared to pay for something such as the removal of pollution exposure, or noise from traffic. This measure is typically extracted from surveys.

It provides a holistic figure that cover the direct and indirect costs as perceived by the payer.

However, it is context specific and lacks clarity on what is and is not

accounted for. It also depends on the individuals’ ability to pay and it may not be representative of the overall population. Value of a Statistical Life (VSL) It is the total WTP of a population to save one statistical life, or in other words, the risk of death.

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From an economic perspective, health outcomes can be valued along multiple dimensions. These include the health care costs involved, the productivity losses incurred, and also intangible costs such as the pain and suffering associated with a disease. A simple health valuation can be the costing of each health units affected by interventions. For example, if pollution is affecting the number of asthma cases, this health impact can be translated into the healthcare cost of treating these additional cases. Yet, this approach is limited when it comes to the costs of intangible direct and indirect health impacts such as mortality and loss in productivity. The literature values premature morbidity to about 30,000£ to 60,000£ a year.

The willingness-to-pay (WTP) addresses some of these limitations and is often used to have a price of non-market goods such as pollution. The WTP is the maximum price that an individual is willing to pay, typically here to avoid the consequences of pollution exposure. Although this measure is abstract and varies by participant (e.g. as a function of income, or the nature of health risks), it has the benefit of capturing some of the less tangible costs and indirect impacts, such as the value placed on a cleaner home.15 The main empirical approaches for the elicitation of such values are contingent

valuation, revealed preferences, and human-capital valuation. The contingent valuation method requires the participants to state their willingness to pay contingent on the hypothetical provision or removal of a good or service. It is captured through appropriately designed surveys. The revealed preferences method requires observational data on price responses, or preferences can be elicited by offering survey participants different trade-offs (e.g. wage/risk trade-offs in the labour market). The main limitation of these methods is that they do not capture unknown risks to the individuals. For example, if

individuals do not know or understand that pollution is harmful, their WTP will be low. Finally, the human capital evaluations proxy the value of health improvements as the difference between the decreased consumption of health care and the increased production, typically based on earning.16 Aggregate WTP can be used to derive the value of a statistical life (VSL), which represents the sum of what a population would pay to remove a specific risk. A number of reviews have been undertaken of monetary values reported for a statistical life or for particular health risk reductions (e.g. Viscusi, 1992). These have consistently shown large ranges of variation, but also some clearly identifiable patterns (by valuation approach, individual characteristics, or characteristics of health risks). The problem of identifying a monetary value for a statistical life can be viewed as the derivation of a demand curve for health, in which different levels of willingness to pay are linked to specific health risk reductions. The use of WTP values in international comparisons means that estimates of the cost associated with pollution tend to be higher in

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high-income countries, but smaller as a proportion of income compared to low- and middle-income countries.17

In a world with limited resources, and where choices must be made on where priorities should be, welfare economics offers a systematic approach based on a simple logic. Welfare economics is concerned with formulating and justifying propositions by which alternatives may be ranked.18 The starting point of welfare economics is individual utilities (or wellbeing), and the final aim is achieving a social maximum welfare derived from individual desires and preferences.19 Prioritising effective interventions in welfare economics is made easier by comparing the net benefits of interventions. The algebraic difference between the benefits and costs is the net value of the intervention, and a positive net present value implies an efficient use of resources from an economic perspective. However, applying this logic does not leave much room for judgements on the distributional implications of alternative allocations generally, although the use of equity weights is possible. The ranking of alternatives can be achieved using cost-effectiveness or cost- benefit analysis.

The health economic evaluation literature in health care settings often relies on Cost-Effectivenessanalysis(CEA). CEA takes the perspective of an identified decision maker, typically a health care provider, and adopts a narrow view on the direct benefits and costs of health care interventions. Benefits are measured in natural units (e.g. survival rates, life expectancy, life years gained, etc.). The normative nature of CEA remains confined to the maximisation of a specified objective function (e.g. aggregate quality adjusted life expectancyxx) within a budget constraint. CEA ratios for a comprehensive series of (non-mutually exclusive) interventions that compete for the same pool of resources and then compared in a CE league table. Interventions with the lowest CE ratios are in principle selected as efficient uses of existing resources.

Supporting policy makers who have to ultimately choose interventions across a range of options with different health outcome benefits is made easier by comparing the benefits and costs translated into monetary units. Cost-Benefit analysis (CBA) has its theoretical basis in welfare economics, whereas CE analysis retains a weaker link with economic theory. A simple CBA compares the direct cost of the intervention, and translates the health impact into a monetary value. This method is appropriate if most of the benefits are

expected to be captured by health outcomes. However, if there could be large


The pharmaeconomy literature would refer to cost-utility analysis when the quality of

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indirect impact, the true costs and benefits are likely to be much larger once the indirect impacts are accounted for.

A few authors are referring to “extended Cost-Benefit” analysis to include hidden and external costs not normally account for in decision making.20 But due to the lack of data, this is rather a narrative than a summary figure.

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In document New Horizons (Page 145-149)