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Non-linearity in the cost-effectiveness frontier

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Author Info

  • Joanne Lord

    (National Institute for Health and Clinical Excellence (NICE), London, UK)

  • George Laking

    (Cancer Research-UK PET Oncology Group, Manchester Molecular Imaging Centre, Christie Hospital, UK)

  • Alastair Fischer

    (Department of Community Health Sciences, St. George's University of London, London, UK)

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    Abstract

    Conventional cost-effectiveness decision rules rely on the assumptions that all health care programmes are divisible and exhibit constant returns to scale for a homogeneous population; hence, the path between adjacent programmes on a cost-effectiveness frontier must be linear. In this paper we build a framework to analyse non-linear 'expansion' paths. We model the impact of two key sources of non-linearity: economies of scale or scope in the production of health care; and prioritisation of patients who are most likely to benefit from more expensive and more effective treatments. We conclude that the expansion path might be linear, convex or concave, depending on the situation. The path might also exhibit vertical discontinuity due to fixed costs or horizontal discontinuity due to indivisibility. The efficiency of resource allocation might be improved by empirical estimation of expansion paths. We discuss the advantages and disadvantages of this approach compared with a standard stratified analysis. Copyright © 2006 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/hec.1083
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

    Volume (Year): 15 (2006)
    Issue (Month): 6 ()
    Pages: 565-577

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    Handle: RePEc:wly:hlthec:v:15:y:2006:i:6:p:565-577

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    Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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    Cited by:
    1. Mathias Kifmann, 2010. "Indikationsspezifische Kosten-Nutzen-Bewertung auf Grundlage eines sozialen Gesundheitsindexes," Discussion Paper Series 310, Universitaet Augsburg, Institute for Economics.
    2. Timothy Gunning & Robin Sickles, 2011. "A multi-product cost function for physician private practices," Journal of Productivity Analysis, Springer, vol. 35(2), pages 119-128, April.

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