Institutional Pluralism and Public Opinion in Healthcare Resource Allocation

• In Event: Political Institutions, Policies, and Public Health

Abstract

Public healthcare resource allocation -- the government allocation of limited budgets among competing medical treatments -- involves a deep tension between two competing values or motivations: (1) rescue and (2) efficiency. Rescue refers to the motivation to provide treatment to an identifiable patient in need, regardless of whether treating the patient is cost-effective. Efficiency refers to the motivation to prioritize treatments that are cost-effective, i.e., that preserve large numbers of quality-adjusted life-years (QALYs) at low cost. A large body of psychological and public opinion research indicates that citizens in Western countries strongly value rescue. Thus, democratic governments cannot pursue efficiency to the exclusion of rescue, at least not without endangering their legitimacy.

The tension between rescue and efficiency in public healthcare resource allocation is well known. However, scholars have not undertaken comparative studies of how different public healthcare systems manage this tension. This paper attempts such a study. I identify how three public healthcare systems -- Australia, England, and Germany -- use unique institutional designs to balance rescue and efficiency in the allocation of medical resources. My analysis shows that, although these three countries manage the tension between rescue and efficiency in different ways, each country has developed unique institutional mechanisms for responding to the same political problem: how to allocate limited resources cost-effectively while accommodating public pressure to provide treatments for patients with high-cost diseases.

(1) Australia uses cost-effectiveness analysis as a default rule in determining which treatments to fund. However, Australia explicitly exempts certain costly treatments from cost-effectiveness analysis under an ad hoc “rule of rescue” exemption.

(2) England determines which treatments to fund by using a cost-effectiveness threshold of about £25,000 per QALY. However, England doubles this threshold (to about £50,000 per QALY) for certain costly treatments, especially end-stage cancer treatments.

(3) In contrast to Australia and England, Germany does not openly use cost-effectiveness analysis in determining which treatments to fund. (Interviews with German policymakers suggest that the German reticence openly to use a cost-effectiveness threshold has to do with the political history of Germany during the twentieth century.) Instead, Germany uses a proprietary decision procedure called “efficiency frontier analysis.” As I demonstrate, the practical upshot of the German approach is to water down cost-effectiveness analysis so as to fund treatments that would not survive conventional cost-effectiveness.

This comparison of Australia’s, England’s, and Germany’s strategies for balancing rescue and efficiency has notable implications for U.S. political scientists. First, the analysis shows that the tension between rescue and efficiency is effectively unavoidable; any modern large-scale government that aims to maximize population health while honoring the motivation to rescue must adopt one or another strategy for balancing rescue and efficiency. Second, the analysis suggests that there is no “correct” or “default” way to balance rescue and efficiency; government policy-makers can choose from a plurality of institutional designs in this regard, as the cases of Australia, England, and Germany show. Third, the analysis shows that even governments that purport not to ration healthcare -- such as the United States -- in fact use implicit strategies for balancing rescue and efficiency. The final section of the paper discusses lessons for the U.S. healthcare system. It details how, despite congressional insistence that cost-effectiveness analysis not be used in programs such as Medicare and Medicaid, implicit cost-effectiveness thresholds do operate in these programs.

Author

• Philip Petrov, Stanford University