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Clinicians working in accident and emergency (A&E) medicine will have little difficulty accepting the idea that health service resources are scarce. Increasing demands for health care and limited resources with which to meet them are a familiar part of the emergency environment. All clinicians will be aware of the need to make difficult choices in deciding which health care interventions to fund.
Health economics tackles this problem of scarcity of resources and the implicit requirement to make choices that will maximise the benefit accrued from their consumption. (1) It therefore entails far more than simply accounting or attempting to cut costs. Yet many of the concepts behind economic evaluation will be unfamiliar to practising clinicians. The aim of this article is to explain some of the basic ideas behind economic evaluation.
WHY DO WE NEED ECONOMIC EVALUATION?
Clinical trials measure health care outcomes to determine the efficacy or effectiveness of health care interventions. If resources are unlimited, this is the only information we require to decide which interventions to use. We simply choose the most effective option. However, because resources are limited we also need to know whether the intervention represents good value for money. In other words, is it cost effective?
WHAT IS AN ECONOMIC EVALUATION?
Simply measuring the costs of an intervention will not tell us whether it is cost effective. A cheap intervention may represent poor value for money if it has little effect on outcome. Economic evaluation is the process of measuring cost effectiveness.
An economic evaluation will measure two parameters--cost and outcome (effect). Because two parameters are measured, the results of an economic evaluation will not necessarily tell you which treatment option is "better" in the same way that a clinical trial might. If the cheapest option is also the most effective, it will clearly be the most cost effective. In this situation the most cost effective option is described as being dominant. However, if the cheapest option is not the most effective the decision of which intervention to choose is less clear. In this situation the results will typically take the form of an incremental cost effectiveness ratio, expressed as the additional cost incurred per additional unit of effect accrued.
When no intervention is dominant economic evaluation will tell you how much extra you will need to be prepared to pay to achieve an improved outcome. As such, health economics will inform decision making, rather than dictating a decision. The idea that economic evaluation is only about determining which is the cheapest option is a simplistic and mistaken idea. It is also a dangerous one as it risks losing the valuable insights that economics can provide.
The concept of opportunity cost is fundamental to health economics. (1 2) It is based upon the idea that scarcity of resources means that expending resources on one health care activity inevitably means sacrificing activity somewhere else. The opportunity cost of undertaking an activity is defined as the benefits that must be foregone by not allocating resources to the next best activity.
For example, you …