Economics: Beyond rationing in health economics and health policy

Beyond rationing in health economics and health policy

This article will provide some alternatives to the rationing of health services in the NHS (see part 3). For background to QALYs see Wikipedia.


The discussion will start with an example of how health rationing has been undertaken. It will briefly outline the concept of Quality Adjusted Life Years (QALYs) which was developed by Alan Williams, who was a United Kingdom health economist. QALYs help to measure the value of health outcomes after treatments, based on the length of extra life and the quality of additional life. It was devised as an attempt to combine the value of the two factors, quantity and quality of life, and turn them into an index number. An index number is a number which is often measured out of 100. One year of life, at ‘100 per cent health’, is one quality adjusted life year (QALY).

The aim of this discussion is to argue that health policy needs to move beyond QALYs and the economist’s belief in trade-offs. The debate over the allocation of national health service (NHS) resources, would be more useful if it considered wider political and philosophical concerns, rather than just how to ration healthcare. The work will consider three areas. First, the advantages and disadvantages of the QALY approach will be considered. Second, the political context for rationing will be discussed. Thirdly, solutions are provided to help deal with the need to ration NHS resources.

Part 1: Advantage and Disadvantages of QALYs

Advantages of QALYs

The QALY concept is useful to help analyse where scarce resources should be allocated. Scarcity, in this context, is where there is more demand for healthcare than resources are available. Health economists would argue that societies need to find out how to spend limited amounts of money, to achieve the most benefit to the public. QALYs allow comparisons to be made between different treatments. They help set priorities, as those treatments which offer the best value for money can be selected. An expensive treatment can have a low cost, per QALY, if it offers a significant benefit to a patient. A cheap therapy can have a high cost, per QALY, if the benefit to the individual is low. In this case, the expensive treatment, with the lower cost, per QALY, would be chosen.

It was argued that heart bypass operations were a cost-effective treatment. This is because the operation offered a greater benefit, in terms of QALYs, compared to alternative treatments. This cost-effectiveness approach has also been applied to other contexts. It was suggested that money devoted to new-born babies in intensive care could be a poor investment compared to many elderly patients who need cheaper hip replacements. One of the most useful applications, of QALYs, is where resources can be devoted to saving lives and money in the future. Cancer screening could be particularly useful in terms of a low cost per QALY. Screening offers a preventative health benefit, which could help save lives and reduce NHS treatment costs in the future. This is because the NHS would not incur a more expensive course of cancer treatment later.

Utilitarianism and QALYs

QALYs are based on the concept of utilitarianism where decisions are taken to deliver the greatest amount of benefit for the greatest number of people. The ‘greatest benefit for the greatest number’ can be understood by considering whether a patient (A) benefits more then another patient (B). By allocating health resources to the patient, who is likely to benefit the most, then, arguably, the greatest societal benefit has been achieved. A cost-effectiveness approach assumes a simple utilitarian model. However, there are concerns over the application of utilitarianism and so it may not be the best way of allocating scarce health resources.

The problem with utilitarianism, and the consequent use of QALYs, is that it assumes that all the health economist needs to do is maximise resources. An extreme example demonstrates that resource maximisation cannot be the sole objective of policymakers. A situation where one living individual’s organs are ‘harvested’ to save the lives of many patients, who need the vital organs, would ‘benefit the many’. However, such a situation breaks the rules of society, where trust in the populace is broken. It should be recognised that many areas of society do not operate according to the maximisation of economic resources. The legal system uses redistributive justice, and not the costs of a prison sentence, to make decisions. Legal rules can mean that society is made worse off economically to uphold the principle of redistributive justice. These criticisms of utilitarian philosophy lead into a criticism of QALYs and health economics rationing generally. Society can prioritise other objectives apart from economic efficiency, which can be defined as the greatest benefit for the greatest number of people.

Disadvantages of QALYS

The QALY model favours those with more treatable conditions and those with greater potential for health in terms of longevity and better quality of life. Arguably, resources are more valuable if given to the young. Indeed, Williams argued that health resources should be biased towards the young on a ‘fair innings principle’. In other words, people should be able to have a ‘normal span of health’ which was represented by a life expectancy of 70 years. However, this has led to criticism that QALYS are ageist as they discriminate against older people who are likely to die sooner. The accusation of ageism makes QALYs politically controversial. It is difficult to ration healthcare for the elderly as they are likely to have the greatest need for treatment. There is the criticism that QALYs lead to an undervaluation of life and the extension of it.

Apart from age inequality there are also financial inequalities. There are disparities which are not addressed by QALYs. Illnesses which are more expensive to treat and have a high cost per QALY are not prioritised. It is unfair that some patients will be denied treatment because they suffer from illnesses which are expensive to treat. Other patients, whose suffering is no greater, could be cured because their care is cheaper. A decision on which patient to treat, based on cost-effectiveness, will favour patients whose illness offers them the prospect of longer and better quality of life. QALYs are used to maximise economic efficiency and can overlook social considerations such as income distribution in health care. QALY analysis may not be helpful when one patient is much poorer than another. QALYs can perpetuate existing health inequalities.

One of the main criticisms of QALYs is that different numerical values are given to similar durations of lives. This is the case, when different quality of life is compared, and a judgment is made about the value or quality of someone’s life. The problem is that a disabled person who may not benefit much, from treatment, may value their life as much as an able-bodied person who would gain more from healthcare. The danger is that a QALY analysis could be used to discriminate against someone with a disability. QALYs can put values on people’s lives without taking into consideration an individual’s personal circumstances. Policy needs to consider a patient’s needs and rights and consider an individual’s health status such as a disability.

The problem is that QALYs attempt to express subjective trade-offs in numerical terms. There is little consensus on how to make such biased trade-offs. To summarise, there is enough evidence to suggest that QALYs are not a panacea which solves the problem of how to ration health resources. It may not be better than other methods which make health care decisions. Some health economists have argued that Program Budgeting and Marginal Analysis, an approach that uses scientific evidence, expert opinion and stakeholder input is an appropriate tool for making choices over health care investment.

Another approach is a medical board of experts to decide how resources should be allocated. This method could be criticised for being anti-democratic. However, replacing a medical framework with another economic and technocratic approach, such as QALYs, does not necessarily offer an improvement. An evaluation, using QALYs, may appear to make decision-making easier, but some patients will still be denied treatment. Finally, the philosophy of QALYs is against the NHS belief of treating patients according to need. It is argued that a more equitable system of rationing health care would be based on need, need being assessed by the degree of suffering, with prolongation of life having overriding priority. The next section will explain why QALYs became a popular method for rationing NHS resources despite the varied criticisms of them.

Part 2: The Politics of Health Economics

The discussion now looks at how politics is influential in determining which economic concepts become popular. An analysis of the Phillips Curve suggests that political thinking led it to become a widespread economic theory. The Phillips Curve demonstrates a statistical relationship between unemployment and inflation. The political implication, of the Philips curve, is that it made it defensible for policymakers to allow the unemployment rate to increase. Higher unemployment could be used to put downward pressure on the inflation rate. If more people are unemployed then they should be willing to accept a lower wage to make themselves more employable. The Phillips Curve was politically useful as a government minister stated that rising unemployment and the recession have been the price that we've had to pay to get inflation down.

The application of QALYs, to decision-making, is like the Phillips Curve’s usefulness for policy. QALYs, like other types of economic evidence, have been used to support polices which have already been chosen. The concept of QALYs became popular under the Conservative administrations of the 1980s. They helped to support the Thatcher government’s policies to ration expenditure on the NHS. QALYs are a product of their time. New types of health rationing were part of the politics that emerged after the economic crisis of the 1970’s. Conservative thinking opposed increased taxation to pay for the NHS. Also, proposals to introduce further payments, such as additional prescription charges, were politically dangerous. Therefore, there was an interest in the further rationing of NHS resources and QALYs helped to achieve this objective.

In the 1980’s political attention focussed on NHS costs and health economists, such as Williams, were willing to provide solutions which conformed to government thinking. To state that old people have had a ‘fair-innings’ provided a justification to limit health expenditure on the elderly. It helped make the political point that the NHS has limited resources. There was a movement in political decision-making to stop funding the health service based on demand. Instead, financial limits were set within which choices were made by management. The QALYs tool helped health service managers to simplify decision-making when making rationing choices. Technical procedures, such as QALYs, are not politically neutral as they serve a political interest. Those who support QALYs need to recognise that it works within existing budgets and can help reinforce the argument for rationing.

The case for rationing can be made but there is little value in continually pursuing different approaches to managing expenditure. The problem with various methods of rationing is that there are always scarce resources. Once a rationing exercise has been completed, then there is little further work to do, as the following example illustrates. Let us say, a foot operation (A), a knee operation (B), and a hip operation (C), are needed. Let us say, that any of these operations costs £1. An any 2 from 3, permutations, or combinations, is available as explained below.

1) A foot and a knee operation = £2 (A+B)

2) A foot and a hip operation = £2 (A+C)

3) A knee and a hip operation = £2 (B+C)

If we assume that only £2 is available, then we can have any 2 out of the 3 combinations. This simple example makes a useful point, as regardless of the choice that is made, there is still rationing. Only £2 is available, so one of the operations cannot be chosen.

Political Economy

At the national level, of the NHS, there is a fundamental problem which cannot be fully solved through QALYs. If you take some resources away from a group of patients (Group A) and give them to another group (Group B), then group A is worse off. Dealing with ‘making people worse off’ is invariably a problem in political economy. There is one main question in political economy. If elected, which group’s welfare do you plan to cut, to solve the problem of allocating limited scarce resources. A group will have to pay a cost, to disproportionately benefit another group, for the overall benefit of society. Williams’ stated that ‘the elderly’ as a group should generally lose out, but previous evidence has shown that this approach is not a panacea. The QALY procedure is also of limited usefulness in comparing hospital health care versus preventive health care. It does not provide sufficient criteria for comparing the value of resources, spent on health services, with the value of resources devoted to preventative health, such as repairing damp housing.

The fundamental problem is that QALY analysis does not facilitate a discussion of the overall health budget. Consultation exercises, which ask the public how they would like to ration NHS resources, do not provide any additional money for the NHS. This presents a challenge for health economists undertaking research on the value of QALYS to the public. It is not credible for researchers to claim that resources are scarce, and that rationing must take place. It is difficult to argue that rationing health resources is essential when money has been freely available for spending on military interventions. With apparently unconstrained military expenditure then it is less significant how NHS resources are allocated. The concern is that rationing NHS resources, using QALYs, can be a way of avoiding debate on spending money on war. There are many examples of the public being asked for their willingness to pay, to ration, health programmes. However, the public were not asked if they were willing to pay for the 2003 Iraq War. The public were not allowed to ration a military intervention. The public were not consulted over the Iraq War so there could be a reluctance to engage on the allocation of resources within the NHS. The public may be disillusioned with how money is allocated because tools such as QALYs are limited. QALYs do not consider how money will be spent e.g. on the private finance initiative (PFI). Also, QALYs do not consider the population pressures on the NHS.

Part 3: Solutions to the ‘challenge of rationing’

The debate over NHS resources would be more useful if it considered wider concerns rather than just how to ration healthcare. Health resources do not have to be fixed at the current level as UK health expenditure is lower than elsewhere in Europe. An increase in the total resources available, to the NHS, would simplify the decisions about how money should be spent. Health economists have devoted time to consider how limited resources could be distributed. They would have made a more useful contribution by arguing for more resources being provided to the NHS. The demand for a hip replacement may not be fully met. However, the demand for hip operations could be satisfied, to a greater extent, with a small increase in resources. To help solve the problem of rationing then the NHS needs more money.

Another solution is to try and avoid dichotomous choices where there is a selection between a ‘Patient A’ and a ‘Patient B’. There needs to be an ‘abundance mentality’ where both patients can be treated if possible. An example of ‘abundance mentality’ is where there are substantial benefits from preventative health. Patients need to go to the doctors at an early stage (general practitioners or GP’s) and be referred to hospital at an early stage. A patient can be admitted to hospital and treated in hospital at an earlier stage of illness. They will also undergo a shorter stay which should lead to a lower cost to the NHS and a financial saving for the service. The patient could also enjoy a better health outcome when they leave hospital as they have been treated at an earlier stage of illness. Let us say that a ‘Patient A’ benefits and the NHS gains from prompt treatment too. The financial advantages which have been accumulated in this situation could be given to a ‘Patient B’. There is now a situation where two patients can gain which avoids the economist’s concept of the necessity of a dichotomous choice.

Finally, it could be particularly useful for men to visit hospitals. Prospective patients need to visit ill people in hospital to appreciate the need to stay healthy. They need to understand the need to maintain health with appropriate diet, exercise and sleeping patterns to maintain health. If health is preserved, then there are more resources to be distributed for the benefit of patients in society. This is the case, as there should be fewer hospital admissions and more money could be spent per patient.


The concept of a QALY is useful as it can be used to provide guidance on which treatments are the most cost effective. However, it is invariably problematic to choose between different patients. Regardless of how the rationing is undertaken, rationing still takes place. Therefore, continual attempts to achieve better rationing techniques are going to be of limited value. Public consultation over how to undertake rationing, does not provide the NHS with extra resources. Generally, if society wants more health then it is going to have pay more money. However, a preventative health approach could offer a patient, a better health outcome and reduce NHS costs given that the length of the hospital stay is reduced.