Can authorities continue to invest in healthcare
while cutting budgets?

We asked Prof. Dr. Lieven Annemans, expert-trainer of C.E.L.forpharma’s Health Economics for Non-Health-Economists course, what his advise is to health authorities with regard to managing healthcare budgets in the current economic climate.

In the current economic situation, the voices pushing for budget cuts in healthcare are louder than ever before. However, Keynesian economics teaches in simple terms that only investment and belief in the future can re-launch economies. Hence, according to these voices, governments – and in particular, health authorities – should invest even more in healthcare.

So, what should health authorities do: invest or try to save money?

Lieven Annemans’ advise to health authorities is simple: They should do both – and as much as possible!

What authorities really should aim to do, first of all, is find the best possible way to spend the available financial resources. In order to apply economic thinking to healthcare, one should view the health sector as a productive sector whose aim is to produce health by ensuring that people live longer and more healthily. And since "productive" goes hand in hand with "productivity", society must try to gain as much health as possible with the available means. Therefore, priority must be given to those healthcare interventions which result in the greatest amount of return, health-wise, for the money that is invested. In other words, authorities should invest in cost-effective care. The top five goals to achieve this would include:

1. Cost-effective new technologies and pharmaceutical drugs
2. Prevention programmes for lifestyle improvement (healthy nutrition, physical activity, stopping tobacco use, etc.)
3. Better coordination of care
4. Evidence-based medicine
5. Better access to care for all

These five goals require investing money, but they are necessary to improve the health of our populations.

Let’s take the first goal. If we want to produce more health with the available financial resources, then we must allocate the money to those interventions and programs that produce most health per invested euro or pound or … ; that is, to the programs that are most productive and efficient. Money can only be spent once, and if we don’t spend it wisely we miss the chance to do better things with that money. This means choosing new technologies that may require a strong investment but proportionally lead to an important health gain.

• The UK presents a good example with NICE, the National Institute for Clinical Excellence, which assesses and appraises new technologies using criteria such as added therapeutic value and cost-effectiveness. The use of new technologies and pharmaceutical drugs is encouraged, even if they do not lead to savings, if their cost can be justified by the amount of health that is gained through their use – this is mostly expressed in QALYs (quality-adjusted life years). More and more studies are available providing information on the ratio between the costs and QALYs of health technologies (see figure), and increasing numbers of decision-makers are aligned with these concepts.

However, NICE’s approach is also subject to criticism. Those who think that NICE is too strict argue that the full societal value of new technologies (e.g. avoiding absenteeism) is not accounted for, and that elements such as medical need are not taken into account either. Others argue that NICE is too tolerant of new and expensive technologies, but these are – not surprisingly – the same people that tend to forget about the goals of healthcare.

• In Germany, the goal of an economic evaluation is to address the ceiling price at which a superior health technology in a given therapeutic area should continue to be reimbursed. To answer this question, the German Institute for Quality and Efficiency in Healthcare (IQWIG) has developed the efficiency frontier concept. The efficiency frontier plot is a graph of the value of health effects (on the vertical axis) provided by available interventions in a given therapeutic area against the net costs (on the horizontal axis) of providing these. The efficiency frontier line itself connects interventions on that plot in such a way that none of the points on the line indicates worse efficiency than any other point on the frontier. In other words, this approach does not look for costs per se, but rather for optimal cost-effectiveness ratios within a given disease area. How much should be spent on a given disease area should be established by societal values and medical need. The latter is, however, not yet worked out clearly in the German context.

With regard to lifestyle interventions, more and more studies show that such interventions are very cost-effective. Hence, they require greater investments as well. As for equal access, international bodies such as the Organization for Economic Cooperation and Development (OECD) also emphasize that an effective health policy must not only aim to be efficient but should also guarantee equity, i.e. everyone who has the same health needs should be able to obtain the same care. Even non-altruists should understand that inequity leads to enormous societal losses from which the entire population suffers, themselves included.

Now consider this: If all of the above requires additional investments, where will we obtain the money to do this? Most of all, by avoiding waste. Too often, drugs are used, surgeries are done, and diagnostic tests are carried out in patients who do not need them. The main reasons for this waste are the inability of some healthcare providers to do what is scientifically justified, as well as the predominant payment system – the so-called “fee for service” system – whereby the more physicians do, the more they get paid. Regarding the first reason, there is since many years a trend towards applying evidence-based medicine, i.e. only accept treatments and diagnostic tools in those circumstances where they have been proven to be effective and cost effective.

Of course, scientific evidence cannot be the only criterion for use. Contextual aspects also need to be taken into account, and exceptions to strict medical guidance must be allowed for. Nevertheless, the introduction of the evidence-based approach should lead to less waste, if the right payment systems are applied. Therefore, we need to reduce the use of the ”fee for service” system. The alternative, now practiced in many countries, is the prospective payment system, whereby a fixed payment is used to treat a given type of patient. Here again, however, we risk that there will be an underuse of care (since the payment is fixed, there could be a financial interest to make minimal effort).

A way out might be a “pay for quality” (P4Q) system. In this approach, now already practiced a lot in the UK and in some US initiatives, those who deliver cost-effective care receive bonuses; the others not. A great amount of scientific literature related to this concept is emerging. The increasing use of its principles, taking into account the available evidence regarding this approach, together with penalizing waste, can help governments find the necessary money to invest in cost-effective programs and treatments that are really needed.