PURPOSE:

To help choose among ways to establish proper Willingness-to-pay (WTP) cost-effectiveness cutoffs (K) and to assess choices when technologies funded using that cutoff exceed available health system budgets.

DESCRIPTION:

SECTION 1: Two primary approaches exist to choose maximum WTP cutoffs (K). Welfare economics-based approaches say to use population-based preferences. We will compare various approaches to such methods—league tables, wage premiums for risky occupations, and method based on economic utility theory. Each approach uses different observed economic parameters to estimate optimal cutoffs.

Alternative approaches use health system budgets to infer implicit optimal cutoffs, stating that these "supply side" cutoffs are the relevant measure by which health technologies should be measured. This “opportunity cost” school argues that applying larger cutoffs than implied by budgets will consume resources inefficiently, thus harming population health. We will summarize methods used to estimate this cutoff.

We will also discuss an apparent “regularity”—that single-payer systems commonly adopt budgets with a low cutoffs vis-a-vis demand-side models, while competitive systems (e.g. USA) have few restrictions on technology, potentially stressing operating budgets and/or increasing premiums or taxes.

SECTION 2: We will use economic concepts of short-run and long run equilibria (in relation to what is variable) to illuminate these issues and help determine both both short and long-run operational methods for evaluating health technologies using cost-effectiveness frameworks. This discussion will separate two relevant questions – how to choose the optimal cutoff and what to do when choices implied by the cutoff are unaffordable.

We will assess whether (and if so, how) WTP methods can inform single-payer system choices, and discuss other key decisions affecting optimal cutoffs, including whether or not out-of-system “supplementation” is allowed and whether K is determined by popular vote (median-voter model), constrained welfare-maximizing models of some sort, or other alternatives.