A028 Paper for discussion at the Health Economists’ Study Group, Glasgow Caledonian University
A028 Productivity at what cost? The case against including productivity losses in cost effectiveness
analysis
Name: James Shearer and Sarah Byford
Institution: Centre for the Economics of Mental and Physical Health, King's College London
Keywords: productivity, costs, cost effectiveness analysis
Abstract
Productivity losses occur when individuals’ capacity to work, whether paid or unpaid, is
impaired by illness, disability or death. There is debate about whether and how to include
productivity losses in economic evaluations in health care. In the UK, patient productivity
losses have not previously been considered when evaluating medications for reimbursement
under the National Health Service (NHS). This situation could have changed under
proposals for value based assessment of health technologies, however, draft public
consultation documents appear to have rejected consideration of societal costs such as lost
productivity. This paper focuses on the question of whether productivity losses should be
included in cost effectiveness analyses (CEAs) of health technologies. In particular, the
paper aims to summarise the theoretical, ethical and policy objections to the inclusion of
productivity losses. Taken together, it seems difficult to reconcile the implications of
including productivity losses in CEA to the objectives of a health care system dedicated to
providing universal health care without regard to patients’ ability to pay. Tax payer funded
health care systems may legitimately prioritise maximands other than health but these gains
will always be at the opportunity cost of less health. We consider whether these arguments
apply to other non-health costs and benefits such as the costs of crime, education costs and
environmental costs. We suggest that the arguments are specific to productivity losses due
to their potential for discrimination. We also consider economic questions in health where the
theoretical, ethical and policy objections may have less force such as public health, clinical
trials and social insurance systems.
Introduction
The chief executive of an international pharmaceutical company was recently quoted as
saying ‘We did not develop this medicine for Indians. We developed it for western patients
who can afford it”1. On the face of it, this statement may appear confronting and blunt but it
is hard to deny that profit maximising pharmaceutical firms only survive and prosper by
discovering and manufacturing medications that consumers can afford. Patients in Western
economies can afford new health technologies because the per capita value of production in
their economies is significantly higher than for patients living in most other parts of the
World. This is the reality of the unequal distribution of wealth and productive capacity
between nations.
Wealth and productive capacity are also unequally distributed within nations. However, in
countries with universal healthcare, such as the UK, patient productivity has not been taken
1
Bayer CEO Marijn Dekkers quoted in http://www.dailymail.co.uk/news/article-2545360/Pharmaceuticalchief-tries-stop-India-replicating-cancer-treatment.html
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A028 Paper for discussion at the Health Economists’ Study Group, Glasgow Caledonian University
into account when determining the value of a new health technology. Proposals for Value
Based Pricing (VBP) of medicines in the UK included additional payments to interventions
deemed to provide wider societal benefits beyond the health of a patient including
productivity (Raftery 2013). However, a draft public consultation document released by the
National Institute for Health and Care Excellence (NICE) on 22 January 20142 rejected the
wider societal benefit approach due to difficulties the working party had with equity
implications around including productivity losses and the underpinning theoretical economic
arguments.
The aim of this paper is summarise the theoretical, policy and methodological arguments
against the inclusion of productivity losses in health economic evaluations that might have
swayed the NICE working party. The focus will be on the case against inclusion due to the
NICE working group’s decision and also because the literature comprises mainly
methodological papers that are based on a presumption in favour of inclusion (i.e. (Zhang,
Bansback et al. 2011, Krol, Brouwer et al. 2013, Lensberg, Drummond et al. 2013, Krol and
Brouwer 2014)).
This paper also aims to make decision makers and patient groups aware of the unintended
and potentially undesirable consequences of acceding to calls to count productivity losses in
health technology assessment. Should patients with relatively more productive capacity be
favoured over those with less? In economic terms, are we prepared to sacrifice effective
treatments for the elderly and disabled for less effective interventions that target younger or
working patients based on productivity savings? What is the ultimate purpose of a national
health system – to maximise health or wealth?
What are productivity losses?
Patient productivity was defined by the UK Department of Health as the sum of paid
production (labour provided by patients in paid employment) plus unpaid production (unpaid
work done by patients but valued by others)3. Unpaid patient production includes domestic
work, child care, voluntary work and informal health care (Brouwer, Rutten et al. 2001). Paid
patient productivity is a function of time spent working. Lost working time due to illness can
take the form of absenteeism (long or short term), reduced working hours, early retirement
and/or presenteesim (reduced on-the-job productivity) (Brouwer, Rutten et al. 2001).
How much of the total value of patients’ productivity losses should be included in a CEA
depends on the analytical perspective of the evaluation (Drummond, Sculpher et al. 2005).
Third party payers, such as private health insurers and national health systems, usually will
not consider any patient productivity losses since these costs do not fall on their budgets.
This is the present guidance for new health technologies in the UK (NICE 2013). However,
from the perspective of governments that fund national health systems, patient productivity
losses may be relevant because of lost tax revenue from reduced wages and increased
2
National Institute for Health and Care Excellence, Value Based Assessment of Health Technologies (Item 4)
draft proposals for public consultation
http://www.nice.org.uk/media/B00/0E/January2014PublicBoardMeetingAgendaAndPapers.pdf
3
Methodology for estimating “Wider Societal Benefits” as the net production impact of treatments
http://www.nice.org.uk/media/FE2/F0/DH_Documentation_for_Wider_Societal_Benefits.pdf
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A028 Paper for discussion at the Health Economists’ Study Group, Glasgow Caledonian University
welfare payments (Drummond, Sculpher et al. 2005). A societal perspective includes all the
costs and consequences of health care decisions, regardless of who pays or who benefits, in
order to provide a total assessment of efficiency (Sculpher 2001). It has been strongly
argued on this basis that all patient productivity losses should be included in CEA wherever
treatment may impact patients ability to work(Krol and Brouwer 2014) (Brouwer, Rutten et al.
2001, Sculpher 2001).
How is lost productivity valued?
There are two main methods used to value productivity losses (Zhang, Bansback et al. 2011,
Lensberg, Drummond et al. 2013). The human capital approach (HCA) treats patients as
assets that contribute production to the economy. The value to the economy of their lost
production is calculated by applying gross wages plus benefits to the time taken off work due
to illness. Gross wages are used as a proxy value of the marginal productivity labour
theoretically capturing the total value of an individual’s output to the economy (Brouwer,
Koopmanscahp et al. 1997, Herrero and Moreno-Ternero 2009).
The human capital approach has been criticised for overestimating the costs of lost
productivity because it fails to account for the possibility that sick or incapacitated workers
can be replaced thereby limiting the societal economic loss (Browuer, Koopmanschap et al.
1997).(Drummond, Sculpher et al. 2005).The friction cost approach focuses on the
replacement cost based on the time and expense of replacing an absent ill worker such as
training and advertising (Koopmanschap, Rutten et al. 1995). Essentially productivity losses
are limited due to the availability of other unemployed or underemployed workers. Friction
cost based estimates of productivity losses are often only a very small fraction of estimates
based on the human capital approach (Lensberg, Drummond et al. 2013). However, the
friction cost approach has several important limitations. It cannot be used to value nonmarket activity or presenteeism. It also requires detailed and specific information about
labour markets which is susceptible to change over time.
Arguments against inclusion of productivity losses in CEA
Double counting
The double counting argument holds that lost productivity is captured in the denominator
(effects) of a cost-effectiveness analysis and therefore counting it in the numerator (costs)
constitutes double counting (Gold, Siegel et al. 1996). The empirical evidence for this is
mixed. Reviews of health state valuation studies have found that respondents generally do
not consider income effects without prompting, and when they do, health state valuations are
not significantly different at the aggregate level (Tilling, Krol et al. 2010). While general
population respondents may not necessarily factor in income losses when valuing health
states, there is a well-established association between productive activity and quality of life
across diverse treatment groups such as cancer (Mellon, Northouse et al. 2006), the elderly
(McMunn, Nazroo et al. 2009), mental disorders (Daly, Trivedi et al. 2010, Priebe,
Reininghaus et al. 2010) and HIV (Rueda, Raboud et al. 2011). This impact is more likely to
be captured in patient ratings of health state domains such as usual activities, mobility,
social role or overall ratings of quality of life (Brouwer, Meerding et al. 2005). Thus, the risk
of double counting may not be through the income effect on the valuation of health states by
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A028 Paper for discussion at the Health Economists’ Study Group, Glasgow Caledonian University
the general public, but rather the health effects on health state ratings by patients, in other
words, the directly measurable health benefits of productive activity.
Equity
The equity argument is based on the concern that inclusion of the costs of lost productivity
discriminates between patients based on their capacity for work and income (Williams 1992,
Gold, Siegel et al. 1996). This could imply higher values for the health of professional
workers over manual workers, men over women, and for workers over non-workers. This
objection may be overcome by applying a general wage rate to lost working hours
(Lensberg, Drummond et al. 2013) although this further overstates actual productivity losses.
Unpaid working hours involved in volunteer work, domestic work and informal care can be
similarly valued, or by applying the unit cost of replacement labour (Biasutti, Dufour et al.
2012).
These approaches only partially overcome the inherent discrimination against treatments for
conditions predominantly affecting retired patients or those whose physical or mental
condition limit their workforce participation whether paid or unpaid. Such conditions might
include those affecting the elderly such as Alzheimer’s and Parkinson’s disease; chronic,
relapsing mental health problems such as severe depression (Smith and Wright 1996) and
drug addiction; lifelong conditions such as autism and physical and mental handicaps;
healthcare for prisoners; or life extending treatments for the terminally ill. Claxton and
colleagues examined the impact of including non-health costs and benefits such as
productivity losses on net consumption costs (the difference between an individual’s
production and consumption) using previous NICE appraisals. They found that age had a
significant positive effect on net consumption costs, favouring treatments for younger over
older people (Claxton, Walker et al. 2010).
Ethics
The ethical argument is based concerns about placing a monetary value on human life and
suffering. Ethical concerns surrounding the monetary valuation of human life were among
the founding arguments in support of cost-effectiveness as the preferred evaluative
framework for health care interventions in place of cost-benefit analysis which is used in
almost every other field of applied economics (Gold, Siegel et al. 1996). In essence, the
argument is that we cannot ethically (or even rationally) put a monetary value on human life
let alone our own lives or those of our loved ones. Productivity losses based on the
productive capacity of patients indirectly places a monetary value on human life and
wellbeing.
However, monetary values are routinely used in cost benefit analysis in other areas of
applied microeconomics to value the potential human costs of public investment decisions.
In cost benefit analysis, the social value of preventing a death can be estimated as the value
of a statistical life (VSL). The VSL is calculated by dividing the average population
willingness-to-pay for a small reduction in the certain risk of death from a specific cause such
as traffic accidents, pollution or ill health (Mason, Jones-Lee et al. 2009). The VSL is not a
valuation of a human life per se but rather it is the aggregated value of very small reductions
in the risk of death. The life that is saved is statistical which is neither identifiable nor
inherently discriminatory unless adjusted for age or productivity. In healthcare, however, the
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A028 Paper for discussion at the Health Economists’ Study Group, Glasgow Caledonian University
lives at risk are identifiable and the risks are not small or certain limiting the transferability of
VSL values and techniques.
Efficiency
The theoretical basis of cost effectiveness analysis is extra-welfarism, a variant of welfare
economics that views health care as a social good with health-related metrics of efficiency
rather than individual utility (Brouwer, Culyer et al. 2008). The extra-welfarist theoretical
position rejects the notion that societal welfare is a function of individual decisions to
maximise utility thereby allowing economic evaluations to be conducted using viewpoints
and outcomes other than individual utility such as population health (Brouwer, Culyer et al.
2008).
It has been argued that the use of health related outcomes removes the logic of using non
health care costs in cost effectiveness analysis because the opportunity cost of health care
resource use is foregone health (Gerard and Mooney 1993). Productivity losses under this
scenario would be limited to the proportion of general taxation needed to fund national
health systems, employment based insurance contributions needed to support social and
private insurance systems, and productivity losses due to sickness among health and social
care workers (Olsen and Richardson 1999).
Policy
Priority setting based on the relative productive capacity of patients may also be inconsistent
with the stated policy objectives of government funded health care services. It is legitimate
for policy makers to prioritise employment, national defence, the environment, industry,
trade, or even national happiness using health sector resources but the attendant sacrifice of
health should not be ignored (Walker, Griffin et al. 2012). The founding principles of the
National Health Service were to provide a comprehensive and free health service for the
improvement of the physical and mental health of the people of England and Wales without
regard to ‘whether they can pay for them, or on any other factor irrelevant to the real need –
the real need being to bring the country’s full resources to bear upon reducing ill-health and
promoting good health in all its citizens’ (National Health Service 1944 White Paper, as
quoted in (Klein 2013)).
The mission of the UK NHS to provide universal health care free at the point of delivery
without regard to patients’ ability to pay has enormous political and cultural potency in the
UK. However, this is not the case in countries with traditions of either private health
insurance or social health insurance. Social insurance systems are recognised as highly
efficient at delivering acute care but less successful at treating chronic illnesses and
providing preventative care (Gottret and Schieber 2006). A competitive private health
system will limit insurance coverage for those on low incomes and high service users such
as the elderly and the chronically ill (Donaldson and Gerard 2005). Thus both private and
social insurance systems accept a degree of unequal access and equity-based arguments
will have less force.
Do these arguments extend to other non-health costs and benefits?
Other non-health costs and benefits may also be susceptible the same arguments used here
against including patient productivity losses in CEA. Examples include criminal justice costs
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A028 Paper for discussion at the Health Economists’ Study Group, Glasgow Caledonian University
in drug and alcohol addiction, education costs in child and adolescent behaviour disorders,
and more recently the environmental costs of delivering health care. Decision makers must
understand that including non-health costs means less health, in the same way that
including productivity losses means that more effective interventions for less productive
patients may be displaced by less effective interventions for more productive patients. The
health trade-offs will be similar for other non-health outcomes. But there are important
differences. For example, the criminal justice costs of drug and alcohol addiction should, like
traffic accidents, be non-discriminatory and will also have a direct health impact on
perpetrators and victims. Furthermore, once identified, quantified and valued, there is
potential for the health budget to be compensated from the criminal justice budget for
savings arising from health care intervention thus avoiding the sacrifice of health (Byford,
Barrett et al. 2013). This goes some way to overcome the argument that narrow
perspectives such as the NHS simply represent arbitrary budgetary divisions that might
encourage inefficient practices such as cost shifting (Brouwer, Rutten et al. 2001).
When is productivity relevant to the economic evaluation of health care?
Productivity losses remain relevant to the valuation of informal health care provided by
patient’s friends, families and volunteers although valuation using appropriate replacement
costs may be a more equitable approach. Productivity losses will also remain a central
element in cost of illness studies (COIs) which aim to measure the economic burden of an
illness to society, although COIs have very limited value in decision making (Shiell, Gerard et
al. 1987). In clinical trials, differences in productivity losses will also remain relevant to
between group differences in economic outcomes subject to problems in reliably observing
differences within the typical timeframe of an RCT (Shearer & Byford, 2014). However, such
changes should not contribute to the ICER if productivity losses are not included in
willingness-to-pay thresholds. In such cases, differences in productivity could be reported
separately in non-monetary terms such as work days or hours gained (Lensberg, Drummond
et al. 2013). Longer term changes in productivity losses are best captured through decision
analytic modelling although the same caveats would apply regarding the inclusion of these
cost differences in ICERs. Productivity losses will remain relevant in the evaluation of public
health interventions because the benefits should be largely non-discriminatory (or positively
discriminate in favour of disadvantaged groups) and also where the relevant comparators
are in other sectors such as education, housing or environmental services. But even here
there have been arguments to extend the QALY decision framework outside the health
sector (Brouwer, Culyer et al. 2008) Productivity losses may be more relevant in social
insurance systems where entitlement depends on employment status or in tax payer funded
systems that do not explicitly reject service provision based on ability to pay.
Conclusion
The nature of market for health care makes the inclusion of non-health care costs such as
patient productivity losses problematic from the ethical, theoretical and policy standpoints. Ill
health discriminates on the basis of age, socio-economic background, genetics, minority
status, gender, race, and just plain bad luck. While a degree of discrimination is
unavoidable, such as the greater potential gain in QALYs between the young and the old, or
lower potential for those with terminal illness, these factors are unavoidable. Discrimination
on the basis of productive capacity magnifies all of these disadvantages but is itself entirely
avoidable.
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A028 Paper for discussion at the Health Economists’ Study Group, Glasgow Caledonian University
Health care has been described as a special good because of the uncertainty about the
incidence of ill health and the uncertainty about the effectiveness of treatment (Arrow 1963).
The consumers of health care generally do not have the information, certainty, or choice
necessary to be rational maximisers of utility. Cost effectiveness analysis has evolved to
inform the efficient allocation of health care resources in the absence of these conditions
critical to a free market. An extra-welfarist evaluative framework with health as its stated
maximand cannot include non-health costs or benefits without some form of compensatory
mechanism. Furthermore, the size of productivity gains attached to clinical improvements
could mean that many more interventions will be assessed as cost saving (Pritchard and
Sculpher 2000) potentially making cost effectiveness analysis and cost effectiveness
thresholds redundant as decision making tools. Under this conceptualisation of the health
care market, the benefits of including productivity losses in cost effectiveness analyses are
overstated, inequitable and come at the opportunity cost of less population health. We
conclude that productivity considerations are generally incompatible with the objective of
health maximisation and are specifically inconsistent with the objectives of a national health
system to provide comprehensive health care without regard to patients’ ability to pay.
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