Introduction to Resource Allocation

Resource Allocation

• The issue of resource allocation in health care is complex and requires input from a number of groups/disciplines

• The need to make decisions about resourced allocation arises from the fact that the demand for health care resources is virtually infinite; the supply is much less!

• We need to decide, then, how much of our resources should be used for health care and which health care needs to satisfy

• As health care becomes more successful and more technical, it also becomes more expensive

– New therapies, improved therapies

– Chronic diseases

– Aging population (contributes to increased demand)

– Economic factors

– Higher expectations (?)

McGregor (1989)

Until recently: “The principle cost involved in health services was for the comfort and support of the sick, and this cost was relatively low because patients either recovered or succumbed fairly rapidly. The interventions that medicine could make in the course of disease were so slight that a doctor could carry almost all equipment of importance around in a little black bag.”

What we’ll be focusing on:

• November 19, 21: Introduction, overview of issues & problems, the Romanow report

• November 26, 28: Macro-allocation – the case of IVF treatment

• December 3, 5: Micro-allocation – issues in organ transplantation

What are the issues?

• How much funding for health care?

• Who should fund what?

• What to treat/fund?

• How to decide what to treat/fund?

• Who should decide what to treat/fund?

• How to distribute available care among individuals

What must be considered?

• Ethical issues (e.g. distributive justice)

• Economic issues (e.g. cost control, efficiency)

• Medical issues (e.g. “medical necessity,” what is “health)

• Empirical issues (e.g. which treatments are effective? How effective are they?)

• Social issues (e.g. values of the population in question)

Rationing vs. Allocation

• “Historically, ‘to ration’ has meant ‘to distribute equitably,’ so a notion of fairness or justice has been intrinsic to the understanding of rationing.”

• More recently, the term has come to be associated with the idea of deciding which needs to meet

“In the United States, it has even been proposed that ‘rationing’ be used to mean ‘societal toleration of inequitable access (e.g. based on ability to pay) to services deemed necessary, as defined by reference to appropriate clinical guidelines’”

Hoffmaster, citing Hadorn & Brook, JAMA, 1991

“Levels” of resource allocation

• Macro allocation: at the level of the government. What proportion of a society’s budget will go to health care? (federal and provinicial) How will this money be distributed within the area of health care (e.g. diagnostic and therapeutic services, hospital budgets, drugs, physician salaries, preventive medicine, rehabilitation) (provinicial)

• Meso allocation: hospitals and other organizations providing health care services must decide how to distribute the budget they receive from the government across their various divisions and services

– The ethical issues arising at this level of resource allocation have been less studied than the other two levels

• Micro allocation: made in the case of individual patients, primarily by physicians: how extensive should diagnostic tests be? How aggressively to treat disease? When to discontinue rehabilitation.

• Much writing on micro allocation looks at situations in which resources are scarce: how to adjudicate between competing claims to limited resources

Rationing vs. allocation, again

• “Allocation” generally used to refer to higher level decisions that constrain the availability of resources

• “Rationing” generally used to refer to decisions about how resources that have been limited (through allocation decisions) should be used

Macro allocation:
What should be funded?
Who should decide?

Demarcation

• A principle of demarcation is a criterion that divides a group of things into two groups. In the case of resource allocation, such a principle would be used to determine what should and should not be funded.

• The question, then, is what kind of principle should be used…

1. Cost effectiveness

• What if we fund the most cost-effective treatments? This way, we can benefit the greatest number of people

• But, this would mean that it would be more important to fund tooth capping than appendectomies. We need to figure out a way to compare dissimilar treatments.

2. How beneficial is the treatment?

• We want to fund the things that will do the most good…i.e. that give the best net benefits

• But we also need to consider the starting point. What if we have two treatments that give equal net benefits, but one treatment is for a condition that is associated with poor functioning and the other with a condition that is associated with moderate functioning?

3. Medical Necessity

• A demarcation principle based on medical necessity says that we should fund only medically necessary treatments

• Freedman and Baylis: (a) this approach is intuitively plausible and in some cases is the only possible approach, but in other cases it “results in some obvious inequalities and distortions in government coverage practices”

• Freedman and Baylis: (b) We also need a concept of medical necessity. But it’s notoriously difficult to define health…

• WHO definition: “Health is a state of complete physical, mental and social well-being and not merely the absence of disease.”

• Callahan: On this definition, crime, poverty and other social problems are medical problems…the definition is too inclusive

Macro Allocation:
Health Care Funding
in Canada

Health Care Funding in Canada

• Provinces/territories responsible for most funding decisions; in many provinces, regional health authorities make specific funding decisions

• Canada Health Act (1984) sets conditions on health care funding – funding to provinces is reduced (dollar-for-dollar) if provinces or physicians charge user fees for certain services

• In practice, “five conditions” of the CHA have come to represent principles underlying Canadian Medicare policy: public administration, comprehensiveness, universality, portability, accessibility

Health care in Canada

• Who pays?

– We do: health services in Canada are funded by tax revenue, by private insurance (often through employers) and by out-of-pocket spending

– The publicly-funded part (~70%) is funded through transfer payments from the federal government to the provinces, which make decisions about how to spend the money (within the terms stipulated by the federal Canada Health Act)

– Private funding (~30%) comes from out-of-pocket payments by individuals or by private insurance

What things are publicly funded?

• Primarily in-hospital care and physician services, dental surgery (in hospitals) and nursing homes

– These seem to be the core of what we value…

• Some provinces also cover some aspects of prescription drugs, home care, long-term care, rehabilitation/physiotherapy

– These things are “negotiable” – e.g. annual eye examinations in Ontario

Private insurance/out-of-pocket spending

• Dental care

• Vision care

• Prescription drugs

• Physiotherapy/massage/chiropractic

• CAM therapies and medicines

The Romanow Report

• Report of the Royal Commission on the Future of Health Care in Canada (headed by Roy Romanow) – released in 2002

• Found that, in general, Canadians value a universally accessible, publicly-funded health care system

• But they also worry about “sustainability”

• The Commission noted that “sustainability” requires more than a focus on money: need to ensure that sufficient resources are available (including health care providers, facilities, technologies, resources for research)

• Should guarantee timely access, quality of service, flexibility to suit changing needs

What’s good about this…

• Guaranteed level of basic care for everyone

• The system is flexible enough to consider cases in which people have “extra” needs, e.g. prescription coverage for seniors

What’s not good…

• Health care needs (and our technical ability to fulfill those needs) are changing faster than our health care system

– High tech medicine

– Prescription drugs

The BIG issue: Private, for-profit service delivery

• Hospitals are generally non-profit

• Most physician services are delivered through what are “effectively owner-operated small businesses” (but what these businesses can charge is regulated)

• Large, for-profit organizations deliver some services, e.g. laboratory testing, long-term care

• Should we increase the amount of private, for-profit service delivery?

• What services should be candidates for privatization?

A distinction:

• Direct health care services: medical, diagnostic, surgical care

• Ancillary services: e.g. laundry, cleaning, food preparation

– In general, people find it more acceptable for these services to be privatized: this is because (1) there are alternatives in terms of choosing who should provide these services and (2) it’s easier to judge the quality of these services

• There are currently some companies/individuals providing private, for-profit direct health care:

– Approximately 300 clinics delivering services formerly provided (only) in hospitals: abortions, endoscopic surgery, physiotherapy, in vitro fertilization, laser eye surgery

• Some clinics/hospitals provide more complex surgeries (requiring overnight stays)

Hurley: Ethical and Economic Issues in Health Care Funding

• Is there an ethical rationale for publicly-funded health insurance?

– A number of different arguments, rooted in different ethical frameworks

– All arguments have a similar structure:

• Ultimate purpose of human life/society

• Role of health and its distribution in advancing this purpose

• Role of access to/use of health care in maintaining or improving the health of members of society

• Role of public financing in ensuring (ethically justified) access to/use of health care

Ethics and Economics…

• “economic analysis is a necessary ingredient” in discussion of the ethical rationale for public funding, since we need to show that the ethical distribution of health care resources cannot be achieved through private financing alone

– Conceptual issues à what goals should we have?

– Empirical (incl. economic) issues à does a specific system allow us to meet these goals?

Hurley’s paper

• Organizes paper around 4 questions described above (esp. #3 and #4)

• Uses three ethical frameworks to illustrate key points:

– Classical utilitarianism

– Extra-welfarism

– Contractrianism (Rawls)

Ethical frameworks

• Classical utilitarianism: actions/policies should promote happiness (utility)

• Extra-welfarism: policies should ensure that people have specific capabilities/ functionings

• Rawls’s contractarianism: inequalities should be tolerated only when they improve the circumstances of the worst-off

The Purpose of Life…

• Different political theories give different accounts of the purpose of life (e.g. happiness/utility, satisfaction of rational desires (rational plan of life)

• Health is seen as an instrumental good; that is, it is good because it allows us to achieve these ultimate goals of life (and also intermediate goals…)

Health and Society

• What does our ethical analysis of choice demand regarding the just distribution of health in society?

– Health is only one means that leads us to our desired ends

– Health cannot be directly redistributed

The distribution of health

• What should we demand in terms of health distribution?

– That all have equal health?

– That average health is maximized?

– That all have a guaranteed minimum level of health?

– That the least advantaged are benefited?

Distributing health care

• Health care = “those goods, services and activities the primary purpose of which is the maintenance or improvement of health”

• The ethically-justified distribution of health care is the one that leads to the appropriate level and distribution of health

Access and need

• We also need to distinguish between access to health care resources and need of those resources

• Both concepts can be defined differently and there is disagreement about the appropriate definitions

• What is important is that people have access to needed services

• The issue of effectiveness is also important (this may include cost-effectiveness) à we only want to fund health care that makes a (sufficiently large) difference to people’s health

• Different ethical frameworks have different views on the relationship between access and need, but all of the ones we’ve discussed accept that access should be associated with need, rather than ability to pay

The role of public financing

• Public financing is necessary to generate the ethically justified distribution of access and use OR

• Public financing does this better than other financing arrangements

• Showing that one of these claims is true requires comparing alternative financing arrangements (Hurley discusses four…)

1. Fully private insurance

• Market regulates the provision of health care

• The unpredictability of health care needs means that few people can be sure that they will be able to pay out-of-pocket for health expenses

• Therefore, there is an important role for health insurance (pooling risk)

• But a fully private insurance scheme cannot guarantee broad access

• Markets allocate goods and services based on the ability to pay

• Low-income members of a society may not be able to pay for adequate health insurance (especially since insurance premiums will reflect an assessment of the individual’s level of risk…)

2. Public subsidies of private insurance

• We could have public funds pay insurance premiums for those who can’t afford to pay them themselves

• OR we could provide publicly-funded insurance some of the population (e.g. U.S. Medicare/Medicaid)

• This approach relies on health markets being “otherwise well-functioning”

• “Well-functioning” here means efficient; in economics, a situation is efficient when we cannot increase one beneficial activity without decreasing another

• But health care markets are not efficient

– Fixed cost to insurers of providing insurance (e.g. calculating premiums) and administrative costs

• But health care markets are not efficient

– Fixed cost to insurers of providing insurance (e.g. calculating premiums) and administrative costs

– Difficult to ensure that insurance “use” reflects risk

– Asymmetry of information between patients and health care providers means that health care providers can recommend use of health resources in a way that is not efficient

Key messages

• It is more costly to produce insurance through private markets

• Private markets will lead to incomplete coverage

• “Cost sharing” will not occur in an appropriate way in private health insurance

3. Public/private mix

• Some countries allow individuals to purchase private insurance for publicly-funded services

– Benefits to individuals: wider range of treatment choices, queue jumping

– System benefits: Advocates say that this type of system will remove demand from the public system by removing demand

Effects of private insurance

• This type of system is not directly contradictory to many ethical systems (only to those ethical systems that demand equal access, or that want to ensure equal maximum possible consumption of health care)

• It could be compatible with ethical frameworks that demand maximized average health, guaranteed minimum health, benefit to least advantaged

• But this is just “possible” (“in principle”) compatibility – we also need to show that, in practice, a mixed system like this one is compatible with these ethical demands

• Hurley cites evidence that they are not:

– Can drain resources (esp. “human resources” from the public system)

– Can erode public support for the public system à less money available so less services (wait times)

– Can increase overall health costs, esp. by increasing use of services that generate smaller health gains

• Advocates of this type of system: parallel private system would reduce demand on public system by providing an additional new source of supply

• Hurley: this supply would not merely be an “add-on” – “Complex interactions occur that affect the viability of the publicly financed system”

• Resources will be taken from the public system in a way that’s incompatible with the ethical principles we described above

No Public Funding?

Libertarianism

• The ethical systems that Hurley considers all agree that some restrictions on individual rights should occur to benefit society as a whole and/or those members of a society that are least advantaged (financially, in terms of health, etc.)

• Libertarians value individual freedom of choice – restriction on individual freedom is rarely/never justified

• Public funding of health care is bad because it:

– Reduces people’s free choice about how to seek and use health care/insurance

– Forces people to contribute financially to a publicly-funded system (via taxes)

• We can describe this view as valuing autonomy over all other ethical principles (particularly distributive justice)

• Few people would take the view that there should be no provision of health care for those who are not able to pay for their own care or insurance

• But there are disagreements about how much the public provision of this care should be allowed to restrict individual choices

• Hurley’s arguments: effects of individual choices reduce ability of public system to provide care. Libertarian response – this is a problem with the public system, not with private insurance (clash between “ultimate” values shifts burden of proof…”

The distribution of health

• What should we demand in terms of health distribution?

– That all have equal health?

– That average health is maximized?

– That all have a guaranteed minimum level of health?

– That the least advantaged are benefited?

– That people be free to pursue their individual health goals (and all other goals)