The Economics of Health

Since it is not unreasonable to suggest that the
NHS saved my life last year, I hold it in high regard. That does not mean that it should be any more immune to criticism than any other organisation where it is capable of being improved.

In particular it seems to me inappropriate to judge performance by the amount of money spent. Ring fencing public spending on the NHS when as a nation we are living beyond our means and having to implement an austerity programme is no more sensible than insulating any other part of society from real economics.

It is most unlikely to be the case that every pound spent on a particular good or service returns equal value. Elementary economic principles suggest that we logically buy the most important things first and the least important last. This means that some of the marginal purchases can be cut without a reduction in effectiveness anything like so large as the saving.

It is, of course, always controversial when someone is denied treatment on grounds of expense. Taken individually, all such cases arouse our sympathy and we feel that they deserve help. That emotion however is not a valid economic choice. There are always more effective treatments available to society than society can afford; choices always have to be made since we do not have unlimited spending power.

Health economists some time ago developed the concept of QUALY or quality adjusted life year. They use this to calculate the value to society of any health expenditure; how many additional years of good quality life will a particular treatment produce compared to alternative uses of the same money.

Suppose for example that the cost of an expensive cancer treatment could be used to purchase 10 relatively cheap hip replacements. The cancer treatment might give the patient another 15 good years but the hip replacements might give each patient another five good years. In simple terms the second option is a better use of public money unless, for example, there are exceptional circumstances such as the cancer treatment pioneering a new drug which may subsequently become much cheaper.

Even here however we are dealing with a choice between patients who are all ill. I may be wrong but in times of stringency I can see little public benefit from spending scarce NHS resources on fertility treatment or purely cosmetic surgery. I am not suggesting that these are not deserving cases. I would however argue that they are not deserving of diverting expenditure away from sick people.