A process that can increase efficiency and output is which of the following in economic terminology?

This glossary aims to familiarise you with some of the terminology used in Health Technology Assessments (HTAs). HTAs evaluate new drugs and devices in relation to cost, efficacy, utilisation, etc., and their future impact on social, ethical, and legal systems. This is a growing field and is central to government policymaking for new technologies.

The glossary is adapted from glossaries provided online by the All Wales Medicines Strategy Group and the US National Library of Medicine.

Acquisition cost

The purchase cost of a drug to an agency, person, or institution.

Allocative efficiency

Occurs when, given the existing income distribution, resources cannot be reallocated so that they make one person better off (in terms of gaining greater satisfaction from the goods and services they consume) without making at least one other person worse off. This is also known as Pareto efficient.

Average cost

Total cost divided by the number of units of output.

B

Benefit

Anything that results that is of value.

C

Capital cost

The cost to purchase the major capital assets required by the programme (for example, equipment, buildings, and land).

Capitation

A fixed amount of payment per patient, per year, regardless of the volume or cost of services each patient requires.

Clinical effectiveness

The application of interventions which have been shown to be efficacious to appropriate patients in a timely fashion to improve patients' outcomes and value for the use of resources.[1]

Cost

The economic definition of cost (also known as opportunity cost) is the value of opportunity forgone, strictly the best opportunity forgone, as a result of engaging resources in an activity. Note that there can be a cost without the exchange of money. Also the economists' notion of cost extends beyond the cost falling on the health service alone (e.g., includes costs falling on other services and on patients themselves).

Cost benefit analysis (CBA)

Expresses all gains and sacrifices in common units (usually money), allowing a judgement to be made of whether, or to what extent, an objective should be pursued.

Cost consequences analysis (CCA)

A form of economic evaluation where the whole array of outputs are presented alongside the costs, without any attempt to aggregate the outputs.

Cost-effectiveness analysis (CEA)

Focuses on the best way of meeting a stated objective given that some means of pursuing it is going ahead. The objective of the programme is not being, and cannot be, questioned.

Cost-effectiveness plane

A matrix used to visually describe the differences in costs and health outcomes between two technologies. Each quadrant represents a combination of negative and positive differences. For example, if the ICER is said to be located in the north-east quadrant, then the intervention leads to a positive difference in health outcomes but is also more expensive  with respect to the comparator.

Cost minimisation analysis (CMA)

The consequences of competing interventions are identical, so comparison can be made on the basis of resource costs alone. The aim is to determine the lowest-cost way of achieving the same outcome.

Cost of illness study

Aims to identify and measure the total costs attributable to a particular disease. These are not a type of economic evaluation as they are not used to assess the costs and benefits of alternative interventions or programmes. They may provide useful information that can be used in the context of an economic evaluation of interventions related to the disease category, although care must be taken as not all costs included in a cost of illness study represent resource costs. Cost of illness studies may also be utilised in the estimation of the economic burden of disease.

Cost utility analysis (CUA)

A form of cost-effectiveness analysis where benefits are measured in terms of a utility measure such as the quality-adjusted life year (QALY).

D

Decision-analysis

Explicit quantitative approach for prescribing conditions under conditions of uncertainty.

Decision tree

A type of decision model which presents health outcomes as branches which patients can transition to depending on choices taken or interventions prescribed  at upstream nodes. Unlike Markov models, patients cannot cycle between health states but instead transition to one of the branching health states after a specific period of time.

Demand

The quantity of a good buyers wish to purchase at each conceivable price.

Direct costs

All resources that are consumed in the provision of a health promotion programme. These may be incurred by the health promotion service, community, or clients.

Discount rate

The rate chosen to express the strength of preference over the timing of costs and benefits (see ‘Discounting’ and ‘Time preference’).

Discounting

The most widely accepted method of incorporating time preference (see below) into the evaluation of a programme when the costs and benefits do not occur at the same point in time.

Discrete event simulation

A type of decision model which allows for the patient experience to be simulated over time. The events which transpire are tracked and summarised. Time to health state transition or event is not dictated by model cycle length but instead by time to event distributions.

E

Economic competition

The effort of two or more parties to secure the business of a third party by offering, usually under fair or equitable rules of business practice, the most favourable terms.

Economic evaluation (economic appraisal)

The comparison of alternative courses of action in terms of their costs and consequences, with a view to making a choice.

Effectiveness

The extent to which programmes achieve their objectives, in real-life settings.

Efficacy

The effect of an intervention under ideal conditions, with participants fully complying with the programme.

Efficiency

Maximising the benefit to any resource expenditure, or minimising the cost of any achieved benefit.

Equality

Equal shares of some good or service.

Equity

Fair distribution of resources or benefits among different individuals or groups.

G

Gross costing

Allocates a total budget to specific services according to rules.

Gross employment cost

The total cost of employing an individual (i.e., gross salary, plus National Insurance and Superannuation).

H

Health economics

The study of how scarce resources are allocated among alternative uses for the care of sickness and the promotion, maintenance, and improvement of health, including the study of how health care and health-related services, their costs and benefits, and health itself are distributed among individuals and groups in society.

Health effects

These relate to specific outputs and outcomes resulting from a programme.

Health status index

An index that uses weights to compare different levels of health status and used in the derivation of quality-adjusted life years (QALYs; see below).

Health status measure

A single instrument that measures different aspects of health-related quality of life.

Health years equivalent (HYE)

The hypothetical number of years spent in perfect health that are considered comparable to the actual number of years spent in a particular state of health. These have been suggested as an alternative to quality-adjusted life years (QALYs; see below). The advantage of HYEs is that they fully represent individual preferences without imposing restrictive assumptions associated with QALYs. HYEs are measured using a two-stage gamble technique where the health state is described to the respondent, along with the duration of the state, and the respondent is asked how many years of life in full health would be equivalent to this scenario.

I

Incremental cost

The difference between the cost of a treatment and the cost of the comparison treatment.

Incremental cost-effectiveness ratio (ICER)

Obtained by dividing the difference between the costs of the two interventions by the difference in the outcomes (i.e., the extra cost per extra unit of effect).

Indirect costs

These relate to the losses to society incurred as a result of participating in the programme, such as the impact on production, domestic responsibilities, and social and leisure activities.

Intangible benefits

These relate to issues such as improvements in health and well-being and/or quality of life.

Intangible costs

These relate to issues such as anxieties and impact on quality of life resulting from participation in the programme. These are generally difficult to measure and value and are often not included in the construction of the cost profile of an economic evaluation.

M

Margin

The last unit of production or consumption, although often relates to change of more than one unit.

Marginal analysis

The evaluation of the change in costs and benefits produced by a change in production or consumption of one unit. Less formally it is often used to refer to the change in costs and benefits produced by the particular change in scale of production or consumption which is under consideration.

Marginal benefit

The extra benefit obtained when output is increased by one unit.

Marginal cost

The extra cost that results when output is increased by one unit.

Markov model

A particular type of decision analysis that allows for the transfer between different health states over a period of time.

Microcosting

An estimate is made for each element of resource use within the programme and a unit cost is derived for each.

Multiple technology appraisal (MTA)

A form of appraisal in which multiple health technologies are evaluated with respect to the current standard of care in the interest of evaluating clinical validity and relative cost-effectiveness.

N

Net monetary benefit

The value of the intervention in monetary terms. It is the product of the difference in health outcomes and a given willingness to pay threshold for a unit of benefit.

O

Opportunity cost

The cost of a unit of a resource is the benefit that would be derived from using it in its best alternative use.

Outcome

The results and value of the intervention ﹘ e.g., intermediate measures such as number of quitters, or long-term outcomes such as life-years saved.

Output

The activities that result from the use of resources in the programme ﹘ e.g., number and type of materials given, number of client-professional contacts, and their type.

P

Perspective

The point of view from which an analysis is carried out. The social welfare perspective considers costs and benefits from the point of view of society.

Present values

The value today of future costs or benefits (after adjusting by discounting).

Q

Quality-adjusted life years (QALYs)

Calculated by adjusting the estimated number of life-years an individual is expected to gain from an intervention for the expected quality of life in those years. The quality of life score will range between 0 for death, to 1 for perfect health, with negative scores being allowed for states considered worse than death.

R

Resources

Things that contribute to the production of output. Money gives a command over resources but is not a resource per se.

S

Scarcity

There will never be enough resources to satisfy human wants completely.

Sensitivity analysis

A process through which the robustness of an economic model is assessed by examining the changes in results of the analysis when key variables are varied over a specified range.

A type of analysis conducted to investigate the sensitivity of the results of a decision model to the uncertainty of the model parameters. In a one-way sensitivity analysis (OWSA) the model is stressed against the limits of each parameter while a  probabilistic sensitivity analysis (PSA) allows the parameters to fluctuate within their respective limits.

Single technology appraisal (STA)

A form of appraisal in which a single health technology is evaluated with respect to the current standard of care in the interest of evaluating clinical validity and relative cost-effectiveness.

Social efficiency

Refers to a situation where the benefits to those that gain from the reallocation of resources are greater than the losses incurred by those who are made worse off, such that the gainers could compensate the losers and still be better off.

Survival effects

These relate to changes in life expectancy that may result from the programme and measures such as life years saved and lives saved.

T

Technical efficiency

Assesses the best way of achieving a given objective. Output is maximised for a given cost, or the costs of producing a given output are minimised.

Time preference

Individuals are not indifferent to the timing of costs and benefits, preferring benefits sooner and costs later.

U

Utility

A measure of the 'satisfaction' (benefit) obtained from consuming goods and services.

Utility effects

In an attempt to generate measures which can be used to compare outcomes across all healthcare interventions, considerable effort has been invested in measures of health status and utility.

W

Willingness to pay

This technique asks people to state explicitly the maximum amount they would be willing to pay to receive a particular benefit. It is based on the premise that the maximum amount of money an individual is willing to pay for a commodity is an indicator of the value to them of that commodity.

References

1. Batstone G, Edwards M. Achieving clinical effectiveness: just another initiative or a real change in working practice? J Clin Effect 1996;1:19–21.

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