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The Role of Health Economics in Healthcare Decision-Making: Understanding the Value of Investments in Health

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In recent decades, the world’s health systems have faced a number of challenges related to limited resources and the need to ensure efficient allocation of funds. Informed health care decision-making is becoming an important factor in improving health outcomes. In this context, the role of health economics consulting is gaining in importance, providing the analytical tools and information necessary for effective and informed decision-making.

Health economics is based on research, analysis and the application of economic principles and methods to health care. Its goal is to determine the most efficient and effective health strategies based on limited resources and expected outcomes. Health economics helps to estimate the cost of health care services, organize health care financing, and develop policies that are based on cost-effectiveness and meet the needs of the population. Through economic analysis, it becomes possible to identify the best ways to pay for health care, develop insurance systems, and allocate resources, taking into account the cost-effectiveness and social value of health investments.

This article focuses on the important role of health economics in healthcare decision-making based on the valuation of health investments. It analyzes how the principles and methodology of health economics contribute to informed decision-making. The article discusses the key concepts of health economics, highlights the importance of cost-effectiveness analysis, and examines the broader implications of economic valuations in health care. In addition, the article explores emerging issues and potential solutions to maximize the value of health investments.

The concept of value in health economics

In high-income and upper-middle-income countries, the percentage of healthcare spending as a percentage of gross domestic product (GDP) is increasing annually, but there is a lag in improving healthcare outcomes. Meanwhile, according to a report released by the World Economic Forum in January 2018, global healthcare costs are rising about twice as fast as GDP, putting significant pressure on healthcare budgets. And the 2023 report said that global healthcare costs rose more than 40 percent between 2018 and 2022, reaching $12 trillion.

Because of this, the value of health care has increasingly become a priority for policymakers and researchers. For example, as a result of the Affordable Care Act (2010) and the Affordable Care Expansion Act (2021), several value-based payment programs have been implemented in the United States. The Medicare Shared Savings Program, for example, provides incentives for cost efficiency. In addition, the American Board of Internal Medicine has launched the Choosing Wisely initiative, which encourages providers to reduce the use of low-value services within their specialties. Similar initiatives have been implemented in other countries. As an example, one region of Australia, New South Wales, has launched a program aimed at improving healthcare value through shared responsibility for resource use and patient outcomes across several local health districts.

Improving value in health care requires a complete understanding of value itself and the components that make it up. At a basic level, value in health care can be defined as the relationship between achieving desired health outcomes and costs, but in practice this is supplemented by consideration of patient needs, quality of care provided, and access to care. It is a measure of health care effectiveness, where health outcomes and patient improvement are the goal and resources are limited and require judicious use.

Value in health care also takes into account economics, including determining the best strategies for allocating resources and paying for health care services. It helps determine the most efficient methods of treatment, delivery of care, and management of health care systems as a whole. Value in health care is thus a key concept related to achieving optimal health outcomes with limited resources, and it plays an important role in informing decision-making and improving health systems.

Economic assessments in health care

Assessing value in health care requires a comprehensive approach, which includes:

  • economic evaluations;
  • assessments of clinical outcomes;
  • patient’s quality of life;
  • patient satisfaction;
  • other socioeconomic factors.

Let’s consider below the main economic evaluations that allow us to determine the value of medical intervention.

Cost-effectiveness analysis (CEA)

Cost-effectiveness analysis is one of the tools for economic evaluation in health care. It is used to determine how effective a particular medical intervention or program is in achieving treatment outcomes compared to other alternatives.

CEA considers both costs and treatment outcomes to determine the relationship between cost and utility (effect). A variety of information can be used as a measure of utility, such as:

  • life expectancy;
  • number of lives saved through the intervention;
  • quality of life;
  • reduction of morbidity.

For CEA, comparative cost-benefit models are usually constructed for different interventions or programs. Costs may include the cost of:

  • drugs;
  • medical procedures;
  • hospitalizations;
  • other related costs.

CEA allows you to compare different interventions or programs and determine which one is most effective in terms of cost-utility ratio. It helps health care decision makers determine where resources should be directed to achieve the best results in a budget-constrained environment.

However, CEA has its limitations. It can be limited in its ability to account for all aspects of health and quality of life and to account for individual patient differences. In addition, CEA does not take into account ethical or social aspects of health care decision-making, which can also be important factors.

Cost of Illness Analysis (COI)

This is a technique that estimates the total cost of a particular disease or health condition. COI helps determine the economic burden associated with a particular disease, including direct medical costs, indirect costs (such as lost work capacity), and other related costs.

Cost-benefit analysis (CBA)

This is an economic valuation technique that estimates the monetary value of medical interventions or programs. In a CBA, the costs and outcomes of a medical intervention are expressed in monetary units to determine if the intervention is economically feasible. A CBA considers not only direct medical costs, but also other economic consequences, such as cost savings for future treatment and improved quality of life.

Cost-Utility Analysis (CUA)

CUA considers not only life expectancy, but also quality of life. Instead of using a simple measure of the proportion of life, CUA incorporates the concept of quality life years” (QALYs). QALYs take into account the impact of a disease or intervention on quality of life and present it numerically. CUA allows different interventions or programs to be compared in terms of their impact on patients’ quality of life.

Cost-Consequence Analysis (CCA)

This type of analysis broadens the scope to consider broader consequences that go beyond simple clinical outcomes. CCA includes an assessment of various aspects such as social, economic, and ethical implications. It helps assess the full range of consequences of a medical intervention or program in order to make a more informed decision.

Efficient Resource Effectiveness Analysis (EFA)

This is a methodology that examines the optimal use of limited resources in health care to achieve the best possible outcomes. EFA helps determine how to maximize efficiency in the use of resources by considering various alternatives and constraints.

These economic evaluations are important tools for health care decision-making and help determine the most effective strategies and interventions based on cost-benefit analysis.

The challenges of health economics

Health economics faces many challenges, the major ones being:

  1. Inequities in access to health care, both globally and nationally. Some populations have limited access to quality health care because of financial, geographic, or sociocultural reasons. Resource allocation can also be inefficient, with some areas or groups benefiting more from investments in health care than others.
  2. Inconsistency and inconsistency between different systems and levels of health care. In many countries, health care systems are complex and composed of many actors, including public and private organizations, insurance companies, health care providers, and patients. Inconsistencies and inconsistencies between these systems can lead to duplication of services, wasted resources, and suboptimal use of funds.
  3. Inadequacies in payment systems. Payment models in health care may be imperfect and may not incentivize the best health outcomes. For example, payment for volume of services may encourage unnecessary medical activity, while payment for quality and outcomes may be insufficient or difficult to implement. This can hinder the efficient use of resources and maximize the value of health care investments.
  4. Data limitations and uncertainty in economic estimates. Obtaining accurate data on the costs, outcomes, and costs of health care interventions can be challenging. Lack of data and uncertainty in economic estimates can make it difficult to make informed decisions. Better and more reliable research, data collection, and the development of evaluation methodologies can help address this problem.
  5. Consideration of patient preferences and viewpoints. In health economics, it is important to consider patients’ preferences and viewpoints when making economic decisions. However, sometimes patient preferences may conflict with public interest or financial constraints. Developing methodologies that allow for patient preferences, while respecting fairness and efficiency, is a challenge for health economics.
  6. Ethical considerations in economic decision making. Economic decision making in health care has an ethical dimension, as it decides the allocation of resources, access to health care services, and priorities for treatment. Ethical principles, such as fairness, equity, and consideration of the special needs of vulnerable populations, must be considered in the development and making of economic decisions.

Future Directions and Opportunities

In January 2023, the Global Strategic Health Outlook, a document developed by the World Economic Forum in collaboration with L.E.K. Consulting. It provides an analysis of progress and priorities for global health. According to the document, the long-term vision for 2035 identifies the following strategic directions:

  • equal access and outcomes;
  • health systems transformation;
  • technology and innovation;
  • environmental sustainability.

While the vision presents a long-term vision, it also identifies immediate and medium-term goals to inspire and drive change now. Future directions and opportunities in the health economy include:

  1. Significant growth in healthcare investment. Along with rising global spending, investment in healthcare technology hit a record high in 2022, and will continue to grow in 2023. Areas of focus include gene immunotherapies and new mRNA vaccines against diseases such as Zika and malaria.
  2. Progress in scientific advances in disease treatment and diagnosis. The use of precision medicine using biomarkers is becoming more common, and advances in liquid biopsies are changing the way cancer is detected.
  3. Digital innovation and artificial intelligence. The pandemic has led to rapid digitalization in the health sector, with digital investment in the field nearly doubling in 2021, with a particular focus on telemedicine and mental health. Tech companies are increasingly interested in health care, and digital health startups are growing strongly. Data is becoming more important, with more efficient aggregation and analysis, enabling more informed information and disease modelling.
  4. Alternative models of care delivery. The importance of providing health care outside of hospitals, at home, and in the community is increasingly being recognized. Health care and home care costs are expected to outpace health care costs in other areas. Investments are directed, for example, toward the development of home diagnostics, home delivery systems for medications, and patient monitoring devices.
  5. The pandemic has highlighted growing inequalities in access to health care, particularly among women, children and adolescents. Low- and middle-income countries faced challenges in providing essential health services. To address global health inequities, the Global Health Equity Network and its Forum partners made a historic Commitment called Health Gap Zero. This is the world’s first global multisectoral agreement aimed at health equity.


Health economics plays a key role in healthcare decision-making by providing a framework for analyzing and evaluating the efficiency, cost, and allocation of resources in the healthcare system. It evaluates and compares different medical technologies, programs, and strategies with respect to their impact on population health, quality of life, and cost-effectiveness.

One of the main objectives of health economics is to address disparities in healthcare access and resource allocation to ensure equal access to quality and effective healthcare services for all members of society.

By understanding the importance of health economics in healthcare decision-making, stakeholders can consciously choose the best solutions that combine improved population health with efficient resource allocation. Adopting the principles of health economics ensures that investments in health maximize the benefits and contribute to the overall well-being of individuals and society.