Decisions, decisions…

So this is my first blog for CCHSR, and I guess it’s an opportunity to introduce myself and my subject. I’m a health economist which means, as the title suggests, that I apply the principles of economics to health and the health care sector. But what is economics I hear you ask? Isn’t it just what things cost? Well, I guess that is a part of it, but that rather misses the point.

Economics starts from the idea (or rather the fact!) that resources are finite or ‘scarce’ (I personally don’t like that word as it’s a bit emotionally loaded). What we as humans want to do is to maximise some concept of happiness, satisfaction or welfare subject to those resources. Because they are finite, there will never be enough to do everything that could possibly improve our welfare, so we have to make decisions. If we decide to do one thing it means we can’t do something else and we forego the benefit we would have realised had we done that other thing.

For example, you have decided to read this blog post. You could have done something else like go for a walk or feed the cat. The benefit foregone from these other activities is what we call the ‘opportunity cost’ and it’s a key concept we as economists are interested in.

Your decision to read this tells me that you are willing to forego the affection of your cat in order to learn about economics, and that in the grand scheme of things, you decided that reading this blog at this moment in time would lead to a greater total happiness in your life than feeding the cat. Perhaps you reasoned that you could feed the cat later, the cat would forget it pretty quickly and she would still curl up on the pillow with you tonight. That tells me that the opportunity cost to you of feeding the cat is less than the opportunity cost of reading this blog, or to turn it around, you get greater welfare from reading this blog than feeding the cat.

The point is that your decision reveals your preferences and therefore some measure of your relative valuation of different courses of action. So, economics then is really the study of the decisions we make, specifically over what to produce, how to produce it and who to produce it for.

Note I’ve not mentioned money at all yet: the cash value we attach to resources, whether goods, services, property or people (e.g. wage rates) is simply an expression of the relative value individuals or society as a whole place on one type of resource relative to another: if you are willing to pay twice as much for one brand of cat food compared with another that tells me that you value it twice as highly, and are willing to forego the equivalent of twice as much benefit you would have got from alternative uses of your finite funds.

Health economics then is the application of these ideas to health and the healthcare field. In the UK, you have only to pick up any newspaper to see that there will never be enough resources to satisfy every health need (or want or demand… these terms have specific meanings in economics). As an economist, I am interested in how those decisions are made, whether on a national level (“Should the latest expensive anti-cancer drug be available on the NHS?”) or individual level (“Should I as surgeon give the liver transplant to this patient or that patient?”).

If we want to squeeze as much ‘health’ as possible out of the NHS budget, what decisions do we need to make? What do we mean by ‘health’ in the first place? Are we interested only in saving lives or do we care about quality of life too? If so, how do we value the health gain from one treatment compared with another? If we want to provide the latest expensive cancer drug, what do we have to give up elsewhere in the system? Does the gain to those cancer patients outweigh the loss to those other patients? Do we care about who gets healthcare? For example do we value the gains to one group more highly than that same gain to another in order to address equity concerns? If so, what is the ‘exchange rate’ between those two groups? To put it bluntly, how much do we value the lives of one group of patients compared with another? Controversial stuff I know, and rather uncomfortable, but the decisions we make as a society reveal the preferences we have over different outcomes, patients and interventions. This is what makes the subject so fascinating.

The most important contribution economists can make to health care decision making is to make clear the opportunity costs and values implied in any decision, then to make sure those making the decisions (i.e. politicians) understand them so they can consider whether their choices are consistent with the values and preferences of the people they represent.

Want to find out more?

Information about the subject for students and teachers

Website of the International Health Economics Association

Website of the UK Health Economists’ Study Group

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