Why economic evaluation of health and healthcare is different from traditional goods and services?

We raise the question of difference between economic evaluation of health and traditional goods and services because healthcare market is conceptually different, thus requires different approach to evaluation.

This issue has been catching attention of many economists for the past decades. One of the most notable among them is 1963 Nobel Prize winner Kenneth Arrow[1] and his work “Uncertainty and the welfare economics of medical care”. Despite the fact that more than forty years passed since the publication – it still remains actual and of current interest.

Main question throughout Arrow’s work is: which special peculiarities and features of health care influence its’ economic analysis and evaluation. As a benchmark he traditionally used the perfectly competitive market model and distinguished two main factors: uncertainty (in the incidence of disease) and asymmetry of information. Uncertainty includes two components: the incidence of disease (diagnosis and prognosis) and the likelihood of recovery (the effectiveness of care). Information asymmetry is explained by the assumption that doctors are always better informed about the benefits and consequences of health care for the patient, thus leading to a delegation of choice from the patient to the doctor.

It is also important to consider the nature of health care demand and supply. The following features of demand are usually distinguished:

The following features of supply are different from traditional goods and services:

Health care market also includes a few more features not inherent for the traditional market:

 

References:

Arrow KJ. Uncertainty and the welfare economics of medical care. 1963. Bull World Health Organ. 2004 Feb;82(2):141-9. Epub 2004 Mar 16.

Oleksandr Topachevskyi

Oleksandr Topachevskyi

FOUNDER / HEALTH ECONOMIST

Oleksandr is a health economist with a strong background in economic evaluations of healthcare programmed and health economics modelling, epidemiology, statistics, patient reported outcomes data collection and software solutions development. From 2009 to 2014 he worked at in GlaxoSmithKline Vaccines HQ at a position of a global health economics manager.

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