Guidelines for health economists not adding up

"There are fundamental errors here-both methodological and empirical," says Mike Paulden, assistant professor in the School of Public Health.

Nisa Drozdowski - 31 January 2017

A School of Public Health researcher is questioning the methods health economists may be using when measuring the value of a health-care investment.

For 20 years, policy makers and health economists have looked to guidelines from the Panel on Cost-Effectiveness in Health and Medicine to inform economic evaluations of health-care spending decisions, especially in the U.S. Recently, a second panel met to update these methods and new guidelines were published in the Journal of the American Medical Association in November 2016.

Mike Paulden, assistant professor in the School of Public Health, isn't putting as much confidence in this second panel's work, though. Specifically, the health economist takes issue with the panel's recommendations for how analysts should account for costs and health outcomes that are expected to arise in future years.

The panel recommends that future costs and health outcomes be "discounted" at an annual rate of 3 per cent, so that they receive relatively less weight in any decision. Discounting is accepted practice in economic evaluations of health-care interventions. However, Paulden is concerned about the justification provided by the panel for its recommended rate.

"This is not merely a difference of opinion," says Paulden. "There are fundamental errors here-both methodological and empirical."

Paulden argues that a 3 per cent discount rate is too high. "There is no evidence to support the use of such a high rate. The panel's basis for that rate isn't credible," he says. He further explains that this high discount rate undervalues future health benefits. As a result, decision makers may be swayed against making health-care investments with high up-front costs but long-term health benefits.

"Take vaccinations, for example. These programs can be expensive to administer to the population, but over time the investment can accrue great value when people who are immunized against a disease, such as measles, live many years more than they otherwise would have. An unjustifiably high discount rate makes vaccination programs appear less cost-effective than other uses of limited health-care dollars."

Paulden says the panel's guidelines are mainly intended for use by decision makers in the U.S., but they are considered a standard worldwide. Decision makers in other countries may reference the U.S. panel's recommendations when developing local guidelines.

The panel's recent publication has received a lot of attention, and that concerns Paulden. "This is going to be cited widely in the university classes taken by future health economists," he says, "even with its fundamental errors."

Paulden has co-authored a paper critiquing the panel's discounting recommendations, which is generating conversations amongst his peers. He hopes this will encourage the panel to make revisions to its guidelines in the future.

Discounting the Recommendations of the Second Panel on Cost-Effectiveness in Health and Medicine was authored by Mike Paulden, School of Public Health, University of Alberta; James F. O'Mahony, Centre for Health Policy and Management, School of Medicine, Trinity College Dublin, Ireland; and, Christopher McCabe, Department of Emergency Medicine, University of Alberta.