Differential discounting in the economic evaluation of healthcare programs
Abstract Background The question of appropriate discount rates in health economic evaluations has been a point of continuous scientific debate. Today, it is widely accepted that, under certain conditions regarding the social objective of the healthcare decision maker and the fixity of the budget for...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
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BMC
2019-12-01
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| Series: | Cost Effectiveness and Resource Allocation |
| Subjects: | |
| Online Access: | https://doi.org/10.1186/s12962-019-0196-1 |
| _version_ | 1818643713315831808 |
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| author | Jürgen John Florian Koerber Mareike Schad |
| author_facet | Jürgen John Florian Koerber Mareike Schad |
| author_sort | Jürgen John |
| collection | DOAJ |
| description | Abstract Background The question of appropriate discount rates in health economic evaluations has been a point of continuous scientific debate. Today, it is widely accepted that, under certain conditions regarding the social objective of the healthcare decision maker and the fixity of the budget for healthcare, a lower discount rate for health gains than for costs is justified if the consumption value of health is increasing over time. To date, however, there is neither empirical evidence nor a strong theoretical a priori supporting this assumption. Given this lack of evidence, we offer an additional approach to check the appropriateness of differential discounting. Methods Our approach is based on a two-goods extension of Ramsey’s optimal growth model which allows accounting for changing relative values of goods explicitly. Assuming a constant elasticity of substitution (CES) utility function, the growth rate of the consumption value of health depends on three variables: the growth rate of consumption, the growth rate of health, and the income elasticity of the willingness to pay for health. Based on a review of the empirical literature on the monetary value of health, we apply the approach to obtain an empirical value of the growth rate of the consumption value of health in Germany. Results The empirical literature suggests that the income elasticity of the willingness to pay for health is probably not larger but rather smaller than 1 and probably not smaller but rather larger than 0.2. Combining this finding with reasonable values of the annual growth rates in consumption (1.5–1.6%) and health (0.1%) suggests, for Germany, an annual growth rate of the consumption value of health between 0.3 and 1.5%. Conclusion In the light of a two-goods extension of Ramsey’s optimal growth model, the available empirical evidence makes the case for a growing consumption value of health. Therefore, the current German practice of applying the same discount rate to costs and health gains introduces a systematic bias against healthcare technologies with upfront costs and long-term health effects. Differential discounting with a lower rate for health effects appears to be a more appropriate discounting model. |
| first_indexed | 2024-12-17T00:03:20Z |
| format | Article |
| id | doaj.art-b8902df208244bdea7b01ab2b9daf673 |
| institution | Directory Open Access Journal |
| issn | 1478-7547 |
| language | English |
| last_indexed | 2024-12-17T00:03:20Z |
| publishDate | 2019-12-01 |
| publisher | BMC |
| record_format | Article |
| series | Cost Effectiveness and Resource Allocation |
| spelling | doaj.art-b8902df208244bdea7b01ab2b9daf6732022-12-21T22:11:02ZengBMCCost Effectiveness and Resource Allocation1478-75472019-12-0117111110.1186/s12962-019-0196-1Differential discounting in the economic evaluation of healthcare programsJürgen John0Florian Koerber1Mareike Schad2Institute for Health Economics and Health Care Management, Helmholtz Zentrum München, German Research Center for Environmental Health (GmbH)GSKIndependent ResearcherAbstract Background The question of appropriate discount rates in health economic evaluations has been a point of continuous scientific debate. Today, it is widely accepted that, under certain conditions regarding the social objective of the healthcare decision maker and the fixity of the budget for healthcare, a lower discount rate for health gains than for costs is justified if the consumption value of health is increasing over time. To date, however, there is neither empirical evidence nor a strong theoretical a priori supporting this assumption. Given this lack of evidence, we offer an additional approach to check the appropriateness of differential discounting. Methods Our approach is based on a two-goods extension of Ramsey’s optimal growth model which allows accounting for changing relative values of goods explicitly. Assuming a constant elasticity of substitution (CES) utility function, the growth rate of the consumption value of health depends on three variables: the growth rate of consumption, the growth rate of health, and the income elasticity of the willingness to pay for health. Based on a review of the empirical literature on the monetary value of health, we apply the approach to obtain an empirical value of the growth rate of the consumption value of health in Germany. Results The empirical literature suggests that the income elasticity of the willingness to pay for health is probably not larger but rather smaller than 1 and probably not smaller but rather larger than 0.2. Combining this finding with reasonable values of the annual growth rates in consumption (1.5–1.6%) and health (0.1%) suggests, for Germany, an annual growth rate of the consumption value of health between 0.3 and 1.5%. Conclusion In the light of a two-goods extension of Ramsey’s optimal growth model, the available empirical evidence makes the case for a growing consumption value of health. Therefore, the current German practice of applying the same discount rate to costs and health gains introduces a systematic bias against healthcare technologies with upfront costs and long-term health effects. Differential discounting with a lower rate for health effects appears to be a more appropriate discounting model.https://doi.org/10.1186/s12962-019-0196-1Economic evaluationHealthcareSocial discount rateDifferential discountingRamsey’s optimal growth model |
| spellingShingle | Jürgen John Florian Koerber Mareike Schad Differential discounting in the economic evaluation of healthcare programs Cost Effectiveness and Resource Allocation Economic evaluation Healthcare Social discount rate Differential discounting Ramsey’s optimal growth model |
| title | Differential discounting in the economic evaluation of healthcare programs |
| title_full | Differential discounting in the economic evaluation of healthcare programs |
| title_fullStr | Differential discounting in the economic evaluation of healthcare programs |
| title_full_unstemmed | Differential discounting in the economic evaluation of healthcare programs |
| title_short | Differential discounting in the economic evaluation of healthcare programs |
| title_sort | differential discounting in the economic evaluation of healthcare programs |
| topic | Economic evaluation Healthcare Social discount rate Differential discounting Ramsey’s optimal growth model |
| url | https://doi.org/10.1186/s12962-019-0196-1 |
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