Health Economics

1. Prioritisation
   
   • QALYs
2. NICE - National Institute for Health and Care Excellence
3. Reasoning Styles
   
   • Explicit Reasoning
   • Implicit Reasoning
4. Key Terms for Health Economics
5. How to Compare Cost and Benefit
6. Quiz

• Prioritisation in healthcare is inevitable due to demand outstripping supply. This is carried out by NICE in the UK, who use QALYs.
• Explicit reasoning is where all decisions are explained; implicit reasoning is where reasoning is not explained.
• There are four examples of cost benefit analysis, which are used in different situations.

Prioritisation

It is important to set priorities for allocation of healthcare resources because demand for healthcare outstrips the available supply and resources. This raises difficult and complex ethical questions on who ‘deserves’ which resources.

In the UK NICE approves various treatments by using quality adjusted life years (QALYs):

1 year in perfect (100%) health = 1 QALY

10 years at 10% health = 1 QALY

Drugs are distributed in Britain by cost per QALY:

(Expected number of years the patient has left if they take the drug x cost per year) / QALYs gained = cost per QALY

NICE - National Institute for Health and Care Excellence

In the UK, NICE provides guidance on whether certain drugs should be funded on the NHS. This promotes equal access to these drugs across the country. However, its decisions can be controversial: if a potentially lifesaving drug is not funded by the NHS, it puts the responsibility on patients to fund it themselves if they wish to use it, and if a drug is approved by NICE, local NHS organisations must be able to provide it, meaning they may have to take budget away from other things to provide it.

NICE uses QALYs to justify its choices as a form of explicit reasoning.

Since April 2026, NICE’s standard technology-appraisal cost-effectiveness range has been £25,000–£35,000 per additional QALY gained. This compares the extra NHS cost with the extra health benefit over the relevant alternative. The range informs the appraisal committee’s judgement; it does not guarantee a recommendation or automatic funding. As the estimate rises within the range, the committee considers the justification more closely, including uncertainty in the evidence and the applicable appraisal methods. Above £35,000 per additional QALY, a stronger case is needed to support a recommendation. Different methods apply to highly specialised technologies.

Reasoning Styles

There are two main styles of reasoning when discussing resource allocation:

Explicit Reasoning - involves predetermined rules of entitlement and transparency.

• Advantages of explicit reasoning:
  
  • Debatable and accountable, meaning decisions can easily be questioned.
  • Evidence-based decisions are championed as those drawing up guidelines are held accountable.
• Disadvantages of explicit reasoning:
  
  • Rigid application of general criteria may overlook individual circumstances, preferences and differences in likely benefit or harm. Explicit reasoning can include these differences; it does not require identical outcomes for everyone.
  • Patients can feel distress if they perceive that they have been judged as ‘undeserving’ of treatment.

Implicit reasoning - involves making decisions without being clear about why those choices have been made.

• Advantages of implicit reasoning:
  
  • Quicker because the decision makers do not spend time justifying their choices.
• Disadvantages of implicit reasoning:
  
  • Can lead to inequality, favouritism, discrimination and abuse due to its closed nature.
  • Can be based on ‘social deservingness’.
  • Less accountable and egalitarian.