Health Economic Evaluation: A Primer for Healthcare Professionals

Abstract

Fundamental Concepts Costs, benefits, supply and demandIn any non-utopic society, resources (or goods) are finite (hence scarce) and they are constantly distributed to individuals to satisfy their needs (wants and preferences). Resources have to be produced (by sellers) to replenish consumption by individuals(consumers), who willingly let go of other resources (money) to accrue the resource(s) of their preference (consumer choice). Such transaction (bought and sold) between a consumer and seller is a re-allocation of resources (supplier's good versus consumer's money) at a mutually agreed price, where consumers' willingness to pay meets sellers 'willingness to accept. Here, consumers enjoy a benefit from the good/service by paying sellers the costs of the goods. In any market free from monopoly or regulation, this transaction price indicates equilibrium between supply and demand ( Figure 1).However, when more than one individual consume the same set of resources, competition will arise: as the net resources decrease the equilibrium price will shift, so that only the individual(s) who can now pay a higher price will continue to consume the decreasing resources. On the contrary, when resources become more available than needed, an excess will be left around and hence the demand falls and pulls down the equilibrium price. John Locke, an English philosopher and physician, first described this inverse supply-demand relationship in his writings in 1691, but the actual term "supply and demand" was not coined until 1767 by Denham-Steuart and Adam Smith, in his famous work of "the Wealth of Nations" [1,2]. By definition, supply and demand for any resource or commodity are susceptible to external constraints like weather (under-or over-production) and disasters that will compromise human viability (under-demand of luxurious items and over-demand of basic commodities) (Figure 2). Scenarios when supply and demand curves shift. For a commodity X in a society, there exists an equilibrium where supply curve S1 intersects demand curve D1, at the agreedutility(price) of U3 for a Q4 quantity of X. An epidemic came killing 15% of population and sent the economy to recession, shifting the demand curve for X to the left to D2 (now less people in total and less money earned). If the supply remained the same S1, it will be relatively in excess and hence the agreed utility (price) will fall to U4 for a lesser quantity of X (Q3). Now, if the production of X also fell, the supply curve will be shifted up to S2(harder to produce the same unit of good/service), leading to a higher agreed utility/price of U2 for a much less quantity of X.(Q1). AbstractIn its broadest term, economic evaluation (EE) is a comparative analysis of the input (costs) and the output (consequences, outcomes) of two or more alternatives to see if they are economically beneficial or feasible. The earliest form of economic evaluation took place in mid-19th century and since then; three main forms of EE have evolved which are employed in various settings: cost-benefit ...

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