Why Not Real Economics?

Abstract

In his reflections in this journal on a long and fruitful career, George Torrance observed: ‘‘I have always been struck by the criticism that health economics, specifically health economic evaluation, is the only application of economics that does not use the discipline of economics. If it did, it would use cost-benefit analysis, not cost-effectiveness or cost-utility analysis, and it would measure health outcomes using a monetary amount, on the basis of techniques such as willingness to pay y’’ Why then, if cost-benefit analysis (CBA) is a standard tool of analysis in all other areas of applied economics, is it rarely used in health technology assessment (HTA)? Gold et al. offer the following justification for using cost-effectiveness analysis (CEA): ‘‘CBA presumes to put a dollar figure on the value of human life and uses controversial methods to do so. y [M ]onetizing the price of life in these ways introduces ethical concerns that are avoided by CEA. y Cost-benefit analysis’s primary valuation method is willingness to pay, an approach whose difficulty lies in its intrinsic favoring of the programs and diseases of the affluent over those of the poor.’’ Thus, health economists do not use the most general and widely accepted method for identifying socially efficient allocations of scarce healthcare resources because of equity concerns. Conventional economists have been aware of equity concerns since Pareto first laid the foundations for CBA over 100 years ago. The usefulness of CBA is that it facilitates making tradeoffs between efficiency and equity objectives transparent. CEA, on the other hand, obscures such tradeoffs by confounding equity and efficiency criteria for evaluating new health technologies. The role of economists is to quantify the relative gains and losses associated with decision options and to advocate for efficiency in decision making. Economists have no special training or expertise in evaluating questions of fairness. Their job is to help decision makers identify efficient alternatives and to understand the costs to society of applying any particular rule of equity. In general, attempting to change the way the economic pie is sliced nearly always shrinks the overall size of the pie for everyone. While there may be a consensus that society is better off with a smaller pie that is sliced more fairly, economists are responsible for ensuring that decision makers and the public are aware of equity-efficiency tradeoffs. To the extent that current HTA practice obscures these tradeoffs, health economists’ acceptance of CEA instead of CBA is a form of professional misfeasance.