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BMJ. May 16, 1998; 316(7143): 1529–1530.
PMCID: PMC1113167
Economics notes

Perspectives in economic evaluation

Sarah Byford, research fellowa and James Raftery, professor of health economicsb

Before an economic evaluation begins, the perspective of the study should be determined, as it may have implications for trial design.1 Since economic evaluations are often used to assess the relative efficiency of alternative healthcare interventions, the perspective commonly taken is that of the health service.2 Because of its foundations in welfare economics, however, health economics is concerned with society’s welfare. It therefore argues that an economic evaluation should include the impact of an intervention on the welfare of the whole of society, not just on the individuals or organisations directly involved.

Central to economic theory is the question of how to get the most benefit from the scarce resources available to a society. An economic evaluation which confined itself to the NHS’s perspective could determine the mix of interventions that would maximise health outcomes within the limited NHS budget. However, this would not necessarily maximise the welfare of society within resources available (gross national product) for two main reasons.

Firstly, sectors other than the health service may incur costs or benefits as a result of healthcare interventions. Consider for example, the reduction of psychiatric hospital beds, which might seem cost effective from the perspective of the health service but less so from that of society as a whole, including patients’ or carers’ perspectives. A societal perspective helps detect cost shifting between sectors.

Advantages of a societal approach

Secondly, a narrow perspective takes no account of alternative uses for resources outside the healthcare sector, which may yield greater welfare to society. The concept of opportunity cost reflects this broad concern for society’s total welfare. Because the total economic output of society is limited, choosing to devote resources to health care necessarily implies forgoing the benefits (or opportunities) of using those resources in an alternative sector, such as education or social services, or indeed not raising them as taxes.

Since the NHS is a universally accessible service, funded by taxation, it can be argued that its decisions should be from the perspective of all those who use it and pay for it—the whole population. Epidemiology and economics share a concern with populations. Adopting a societal or population perspective facilitates policies aimed at maximising the welfare gains to society, or minimising the losses. Excluding particular groups could hinder this process and be less equitable than attempting to include the views of all.

The utilitarianism that underpins welfare economics has been characterised as a poor basis for a personal philosophy (uncaring, calculating, and consequentialist) but an appropriate basis for public policy.3 While a utilitarian, societal perspective can be justified in principle, its practice can be difficult. Ethical dilemmas can arise between individual and societal perspectives.4 When an individual is denied (even possibly ineffective) treatment the lack of a societal consensus can become stark. How individual preferences are to be aggregated to a societal preference remains a theoretical and practical challenge.

To certain organisations, a societal perspective may seem unnecessary. A clinical directorate faced with difficult decisions within a tight budget may take a directorate perspective, in turn requiring the wider organisation to act to prevent cost shifting or other undesirable effects. For-profit organisations, such as pharmaceutical companies, may well take a narrow financial perspective, in turn leading to regulation by the state to safeguard wider concerns. The emphasis in guidelines for pharmacoeconomic evaluations to include a societal perspective, however, is striking.

For policy purposes, study comparability is enhanced by adopting a societal perspective as a norm. A report for the US Public Health Service recommended a societal perspective, for which it saw welfare economics as providing the best theoretical framework, for use in reference case economic evaluations—those that aim to provide results that could be compared throughout the healthcare system.

In practice, it may not always be possible for all the relevant costs and benefits to be included in an economic evaluation because of funding or time constraints. A good case can be made for excluding particular effects if they are likely to have little impact on the overall results. Pretrial literature reviews and modelling can help prioritise items of importance. A “reduced list” method has been shown to capture most relevant costs in mental health service evaluations,5 with the five most costly services accounting for 94% of the total cost and the next five for only 4%. Such short cuts require further evaluation before they are more widely applied. A similar analysis on costing screening for colorectal cancer found reduced list costing to be less successful.6 As economic evaluation becomes more standardised it may be possible to justify such limited perspectives for costing particular diseases or services.

At the very least economic evaluations should be explicit about the perspective they adopt. The exclusion of items, whether for practical reasons or as a result of pretrial assessments, must be made explicit, explained, and discussed in terms of their likely influence on the final results. Studies with non-societal perspectives may result in suboptimal resource allocation decisions and a corresponding loss in the total welfare of society.

References

1. Gold MR, Siegel JE, Russell LB, Weinstein MC. Cost-effectiveness in health and medicine. New York: Oxford University Press; 1996.
2. Johannesson M. A note on the depreciation of the societal perspective in economic evaluation of health care. Health Policy. 1995;33:59–66. [PubMed]
3. Goodin RE. Utilitarianism as a public philosophy. Cambridge: Cambridge University Press; 1995.
4. Sackett D. The doctor’s (ethical and economic) dilemma. London: OHE; 1996.
5. Knapp M, Beecham J. Reduced list costings: examination of an informed short cut in mental health research. Health Economics. 1993;2:313–322. [PubMed]
6. Whynes DK, Walker AR. On approximations in treatment costing. Health Economics. 1995;4:31–39. [PubMed]

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