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Opportunity cost and social values in health care resource allocation Open Access


Other title
Opportunity cost
Social values
Resource allocation
Type of item
Degree grantor
University of Alberta
Author or creator
Paulden, Michael D
Supervisor and department
McCabe, Christopher (Emergency Medicine)
Beach, Jeremy (Medicine)
Examining committee member and department
Bubela, Tania (School of Public Health)
Culyer, Anthony J (Institute of Health Policy, Management & Evaluation, University of Toronto)
Miller, Fiona A (Institute of Health Policy, Management & Evaluation, University of Toronto)
Su, Xuejuan (Economics)
Coyle, Doug (School of Epidemiology, Public Health and Preventive Medicine, University of Ottawa)
Department of Medicine

Date accepted
Graduation date
2016-06:Fall 2016
Doctor of Philosophy
Degree level
Background: Health care budgets are limited and under pressure. Funding new health technologies has an opportunity cost – while some patients benefit, others lose out as resources are reallocated away from existing health care services. This has implications for social value considerations in the assessment of new technologies. Maintaining horizontal equity requires giving similar consideration to individuals with similar characteristics of ethical relevance. Vertical equity allows for differential consideration to be given to individuals with different characteristics of ethical relevance. For example, this might involve applying a greater value to health gains for individuals with more severe illness. Horizontal equity nevertheless requires that equal value be assigned to health gains for individuals with equally severe illnesses, regardless of whether they benefit from the new technology or bear the opportunity cost. Economic evaluations of health technologies conventionally assume a vertical equity position in which identical value is assigned to all health benefits. This has raised concerns that some patients may be denied access to effective but expensive treatments. In response, some decision makers have modified their methods to assign greater value to health benefits for some patients, implying an alternative vertical equity position. Objectives: The purpose of this thesis is to consider how social value considerations can be incorporated within the methods used for the economic evaluation of health technologies in a way that accounts for opportunity cost and respects the principles of horizontal and vertical equity. Methods: The thesis comprises four chapters. In Chapter 1, a conventional vertical equity position is adopted. Using a model of a hypothetical health care system, we derive ‘optimal’ cost-effectiveness thresholds that respect the principle of horizontal equity under a variety of alternative assumptions regarding the size of the health budget, the divisibility and marginal returns to scale of initial technologies, budget impact, and whether the new technology constitutes a net investment or net disinvestment. In Chapter 2, we build upon this work by modelling interactions between multiple decision makers with imperfect information and potentially conflicting objectives, deriving optimal thresholds under various scenarios regarding each decision maker’s information and authority. In Chapter 3, we consider the possibility that an alternative vertical equity position might be adopted, using orphan drugs as an exemplar. We scope the literature for social value arguments relating to the reimbursement of orphan drugs and develop a decision making framework that takes these into account while respecting the principles of horizontal and vertical equity. In Chapter 4, we critique some amendments that NICE has made to its methods for economic evaluation in order to reflect an alternative vertical equity position. Results: In Chapter 1, we find that optimal threshold curves are piecewise linear functions under divisibility and constant returns, concave functions under divisibility and diminishing returns, or step functions under non-divisibility. In Chapter 2, we find that optimal threshold curves may pass through all four quadrants of the cost-effectiveness (CE) plane, and there may be a ‘kink’ at the origin of the CE plane, implying different optimal thresholds for marginal net investments and net disinvestments. In Chapter 3, we identify 19 candidate decision factors in the orphan drugs literature, most of which can be characterized as “value-bearing” or “opportunity cost-determining”, and also a number of value propositions and pertinent sources of preference information. We synthesize these into a decision making framework that respects horizontal and vertical equity. In Chapter 4, we identify a number of inconsistencies in NICE’s methodology for the incorporation of social values into resource allocation decision making and offer suggestions for how these may be resolved. Conclusion: The standard exposition of the threshold is a special case that holds only under specific conditions. Under other conditions, optimal threshold curves may take a variety of different functional forms, with implications for which technologies ought to be considered cost-effective. Maintaining horizontal equity generally requires consideration of an alternative theoretical model to that underlying the conventional exposition. If an alternative vertical equity position is adopted, our proposed decision making framework allows social value considerations to be consistently applied to all affected individuals, respecting horizontal equity. Naïve modifications to methods for economic evaluation – without considering opportunity cost – can violate horizontal equity and result in an inconsistent realization of the decision maker’s vertical equity position.
This thesis is made available by the University of Alberta Libraries with permission of the copyright owner solely for the purpose of private, scholarly or scientific research. This thesis, or any portion thereof, may not otherwise be copied or reproduced without the written consent of the copyright owner, except to the extent permitted by Canadian copyright law.
Citation for previous publication
Paulden M, Stafinski T, Menon D, McCabe C. Value-based reimbursement decisions for orphan drugs: a scoping review and decision framework. Pharmacoeconomics. 2015;33(3):255–69Paulden M, O’Mahony JF, Culyer AJ, McCabe C. Some inconsistencies in NICE’s consideration of social values. Pharmacoeconomics. 2014;32(11):1043–53Paulden M, O’Mahony JF, Culyer AJ, McCabe C. Objectivity and equity: clarity required. A response to Hill and Olson. Pharmacoeconomics. 2014;32(12):1249–50

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