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Economics notes Definitions of efficiency

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									Education and debate


                         Economics notes
                         Definitions of efficiency
                         Stephen Palmer, David J Torgerson


This is the third        Decision makers are increasingly faced with the             programme. In health care, productive efficiency
in a series of           challenge of reconciling growing demand for health          enables assessment of the relative value for money of
occasional notes         care services with available funds.1 Economists argue       interventions with directly comparable outcomes. It
on economics             that the achievement of (greater) efficiency from scarce    cannot address the impact of reallocating resources at
                         resources should be a major criterion for priority          a broader level—for example, from geriatric care to
Centre for Health
                         setting. This note examines three concepts of               mental illness—because the health outcomes are
Economics,               efficiency: technical, productive, and allocative.          incommensurate.
University of York,           Efficiency measures whether healthcare resources
York YO1 5DD                                                                              Allocative efficiency—To inform resource allocation
Stephen Palmer,
                         are being used to get the best value for money.1 Health     decisions in this broader context a global measure of
research fellow          care can be seen an intermediate product, in the sense      efficiency is required. The concept of allocative
National Primary         of being a means to the end of improved health.             efficiency takes account not only of the productive effi-
Care Research and        Efficiency is concerned with the relation between           ciency with which healthcare resources are used to
Development              resource inputs (costs, in the form of labour, capital,
Centre, Centre for                                                                   produce health outcomes but also the efficiency with
Health Economics         or equipment) and either intermediate outputs
                                                                                     which these outcomes are distributed among the com-
David J Torgerson,       (numbers treated, waiting time, etc) or final health
senior research fellow
                                                                                     munity.6 Such a societal perspective is rooted in welfare
                         outcomes (lives saved, life years gained, quality
                                                                                     economics and has implications for the definition of
Correspondence to:       adjusted life years (QALYs)). Although many evalua-
Mr Palmer                                                                            opportunity costs. In theory, the efficient pattern of
                         tions use intermediate outputs as a measure of
                                                                                     resource use is such that any alternative pattern makes
These notes are          effectiveness, this can lead to suboptimal recommen-
edited by James                                                                      at least one person worse off. In practice, strict
Raftery
                         dations.2 Ideally economic evaluations should focus
                         on final health outcomes.                                   adherence to this criterion has proved impossible. Fur-
J.P.RAFTERY@
bham.ac.uk                    Adopting the criterion of economic efficiency          ther, this criterion would eliminate as inefficient
                         implies that society makes choices which maximise the       changes that resulted in many people becoming much
BMJ 1999;318:1136
                         health outcomes gained from the resources allocated         better off at the expense of a few being made slightly
                         to healthcare.3 Inefficiency exists when resources could    worse off. Consequently, the following decision rule
                         be reallocated in a way which would increase the health     has been adapted: allocative efficiency is achieved
                         outcomes produced.                                          when resources are allocated so as to maximise the
                              Technical efficiency refers to the physical relation   welfare of the community.6
                         between resources (capital and labour) and health                Thus technical efficiency addresses the issue of
                         outcome. A technically efficient position is achieved       using given resources to maximum advantage; produc-
                         when the maximum possible improvement in outcome            tive efficiency of choosing different combinations of
                         is obtained from a set of resource inputs. An inter-        resources to achieve the maximum health benefit for a
                         vention is technically inefficient if the same (or          given cost; and allocative efficiency of achieving the
                         greater) outcome could be produced with less of one         right mixture of healthcare programmes to maximise
                         type of input. Consider treatment of osteoporosis           the health of society. Although productive efficiency
                         using alendronate. A recent randomised trial                implies technical efficiency and allocative efficiency
                         showed that a 10 mg daily dose was as effective as a        implies productive efficiency, none of the converse
                         20 mg dose.4 The lower dose is technically more             implications necessarily hold. Faced with limited
                         efficient.                                                  resources, the concept of productive efficiency will
                              Productive efficiency—Technical efficiency cannot,     eliminate as “inefficient” some technically efficient
                         however, directly compare alternative interventions,        resource input combinations, and the concept of
                         where one intervention produces the same (or better)        allocative efficiency will eliminate some productively
                         health outcome with less (or more) of one resource          efficient resource allocations.
                         and more of another. Consider, for example, a policy of
                         changing from maternal age screening to biochemical
                         screening for Down’s syndrome. Biochemical screen-          1   Williams A. Priority setting in public and private health care. A guide
                                                                                         through the ideological jungle. Journal of Health Economics 1988;7:173-83.
                         ing uses fewer amniocenteses but it requires the use of     2   Mooney G, Russell EM, Weir RD. Choices for health care: a practical introduc-
                         another resource—biochemical testing.5 Since different          tion to the economics of health care provision. London: Macmillian, 1986.
                                                                                     3   Weinstein M, Stason W. Foundations of cost-effectiveness analysis for
                         combinations of inputs are being used, the choice               health and medical practices. N Engl J Med 1977;296:716-21.
                         between interventions is based on the relative costs of     4   Liberman UA, Weiss SR, Broll J, Minne HW, Quan H, Bell NH, et al. Effect
                         these different inputs. The concept of productive               of oral alendronate on bone mineral density and the incidence of
                                                                                         fractures in postmenopausal osteoporosis. N Engl J Med 1995;333:
                         efficiency refers to the maximisation of health outcome         1437-43.
                         for a given cost, or the minimisation of cost for a given   5   Torgerson DJ. Cost effectiveness of screening for Down’s syndrome. In:
                                                                                         Grudzinkas JG, Ward RHT, eds. Screening for Down syndrome in the first tri-
                         outcome. If the sum of the costs of the new biochemi-
                                                                                         mester. Proceedings of the thirty second study group of the Royal College of Obste-
                         cal screening programme is smaller than or the same             tricians and Gynaecologists. London: RCOG, 1997.
                         as the maternal age programme and outcomes are              6   Drummond M. Output measurement for resource-allocation decisions in
                                                                                         health care. In: McGuire A, Fenn P, Mayhew K, eds. Providing health care.
                         equal or better, then the biochemical programme is              The economics of alternative systems of finance and delivery. Oxford: Oxford
                         productively efficient in relation to the maternal age          University Press, 1991.



1136                                                                                                      BMJ VOLUME 318             24 APRIL 1999         www.bmj.com

								
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