.svg){kind=icon}
In this cluster, apart from the concept of ‘Cost-effectiveness’, we define two concepts from which the concept of cost-effectiveness evolved: ‘Productivity’ and ‘Efficiency’. In addition, we give the related definitions of ‘Opportunity cost’ and ‘Healthcare opportunity cost’.
Productivity:
Productivity relates the outputs of a service to the inputs:
Productivity = Outputs of a service/Inputs
Where inputs are defined as the resources used, such as the number of hospital beds, to produce an output, such as the number of patients admitted per bed per year.
Examples of productivity measures:
- Episodes of care/Cost
- Number of episodes of care/Number of beds
Source: Adapted from Gray, M (2009) Evidence-Based Healthcare and Public Health. How to make decisions about health services and public health. 3rd edition. Churchill Livingstone Elsevier. Page 214.
Example of the term in use:
… the main interest is on how output changes over time, using annual measures. It is then possible to assess change in productivity by dividing the time series for outputs by the time series for the volume of inputs – that is, spending deflated to adjust for changes such as NHS pay and price rises.
Efficiency:
Efficiency relates the outcomes of care to the inputs:
Efficiency = Outcomes/Inputs
Source: Gray, M (2009) Evidence-Based Healthcare and Public Health. How to make decisions about health services and public health. 3rd edition. Churchill Livingstone Elsevier. Page 215.
Example of the term in use:
… efficiency can be defined as maximising well-being at the least cost to society.
Cost-effectiveness:
Cost-effectiveness relates the outcomes of a service to the costs. When measuring cost-effectiveness both beneficial and harmful outcomes need to be included.
Cost-effectiveness = Beneficial outcomes – Harmful outcomes/Cost
Source: Adapted from Gray, M (2009) Evidence-Based Healthcare and Public Health. How to make decisions about health services and public health. 3rd edition. Churchill Livingstone Elsevier. Page 215.
Example of the term in use:
A reduction in the price of blood glucose test strips would improve the cost-effectiveness of SMBG [self-monitoring of blood glucose].
Opportunity cost:
When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you cannot spend the money on something else. If your next-best alternative to seeing the movie is reading the book, then the opportunity cost of seeing the movie is the money spent plus the pleasure you forgo by not reading the book.
The word “opportunity” in “opportunity cost” is actually redundant. The cost of using something is already the value of the highest-valued alternative use. But as contract lawyers and airplane pilots know, redundancy can be a virtue. In this case, its virtue is to remind us that the cost of using a resource arises from the value of what it could be used for instead.
Source: Henderson DR. Opportunity Cost. The Library of Economics and Liberty. https://www.econlib.org/library/Enc/OpportunityCost.html
Healthcare opportunity cost:
The concept of opportunity cost is fundamental to the economist’s view of costs. Since resources are scarce relative to needs, the use of resources in one way prevents their use in other ways. The opportunity cost of investing in a healthcare intervention is best measured by the health benefits (life years saved, quality adjusted life years (QALYs) gained) that could have been achieved had the money been spent on the next best alternative intervention or healthcare programme.
Opportunity cost can be assessed directly with cost effectiveness or cost utility studies. When two or more interventions are compared cost utility effectiveness analysis makes the opportunity cost of the alternative uses of resources explicit. Cost effectiveness ratios, that is the £/outcome of different interventions, enable opportunity costs of each intervention to be compared.
Source: Palmer S, Raftery J (1999) Opportunity cost. BMJ 1999; 318(7197): 1551-1552. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1115911/
Example of the term in use:
An assessment of the likely health opportunity costs in different health care systems means that evidence of the effectiveness and cost of an intervention can better inform decisions. Most importantly, it ensures that decisions improve rather than reduce health outcomes overall.
