Allocating Scarce Resources — Tools for Priority Setting

An Introduction to the Main Types of Economic Evaluations Used for Informing Priority Setting and Resource Allocation in Healthcare: Key Features, Uses, and Limitations

“…In functioning markets, social welfare based on individuals' preferences can be revealed through the market. However, due to market failures in health care, individuals' preferences must be elicited to value the consequences of implementing health care interventions ( 20 , 21 ). These individual preferences are reflected by what the individuals are willing to pay (or give up) for the outcomes of the healthcare intervention in question; the higher their willingness to pay, the more the individuals prefer the consumption of these healthcare goods/services over alternative goods ( 22 , 23 ).…”

“…Under this approach, each individual is considered to be the best judge of their own welfare ( 23 , 24 ) and social welfare is typically considered to only be a function of these individual preferences. Improvements in social welfare are judged in terms of a “potential Pareto improvement,” wherein a given change will be a potential Pareto improvement if individuals benefiting can compensate those made worse off whilst remaining better off (known as the Kaldor–Hicks criterion) ( 20 , 25 ). However, this criterion is almost always applied hypothetically (i.e., no compensation actually needs to be paid) and hence some people do inevitably “win” while others “lose” ( 20 ).…”

“…Improvements in social welfare are judged in terms of a “potential Pareto improvement,” wherein a given change will be a potential Pareto improvement if individuals benefiting can compensate those made worse off whilst remaining better off (known as the Kaldor–Hicks criterion) ( 20 , 25 ). However, this criterion is almost always applied hypothetically (i.e., no compensation actually needs to be paid) and hence some people do inevitably “win” while others “lose” ( 20 ). Here, health is often only taken into account insofar as it enables welfare to be derived from the consumption of healthcare goods/services ( 24 ) that is, only based on individual preferences.…”

“…Furthermore, multicriteria decision analysis (MCDA) is also used to assist policymakers in choosing between options where there are two or more relevant criteria ( 29 ) and can extend economic evaluation methods to consider other aspects such as acceptability, ethics and equity. Ochalek et al ( 20 ) provide a summary of the methods/tools available for priority setting focusing on LMICs.…”

“…For functioning markets, social welfare based on individuals' preferences can be revealed through the market ( 21 ). However, due to market failures in health care, individuals' preferences must often be elicited using other methods ( 20 ). In practise, various methods are used to quantify the health consequences in monetary terms, including willingness to pay ( Box 2 ) and valuing productivity gains ( Box 3 ).…”