Oxford Healthcare Value Briefing – No. 4

This online monthly briefing from Better Value Healthcare, in Oxford, will provide the latest information on value. Including podcasts, book reviews and word of the month.

Radio Value – SoundCloud

Book of the Month:  ‘Social choice and individual values’  Arrow, K. (1977) Yale University Press.

Distilled message: 

“In a capitalist democracy there are essentially two methods by which social

choices can be made:  voting, typically used to make ‘political’ decisions, and the

market mechanism, typically used to make ‘economic’ decisions.”

Source:  Arrow, K..J. (1963) Social Choice and Individual Values (2nd edition).   Cowles Foundation for Research in Economics at Yale University (originally published by John Wiley & Sons). (p.1)

Why is this book important?

Ken Arrow was one of the most highly respected economists; the health economists’ economist – a title for which he competed with Thomas Rice. This is not an easy read but you need to understand how he thought. Try also Ken Arrow et al (1996) Benefit-cost analyses in environmental, health, and safety regulation: A statement of principles (American enterprise institute).

If you have read this book, how does this commentary relate to the impact the book made on you?

Word of the Month: Opportunity Cost

The value of the next best alternative forgone as a result of the decision made

Source:  Wonderling, D.,  Gruen, R.,  Black, N. (2005) Introduction to Health Economics.  Understanding Public Health. Open University Press, (p.7).


Imagine that a new drug comes along for the management of asthma. The key question is not the cost per quality-adjusted life year of that drug, although that is obviously important information. Instead the question to ask is: will this new drug give more value to people with asthma than some of the existing services provided for that group of patients?

While purchasers may seek to use optimal allocative efficiency as a marker of value, for the patient, value is derived from both the outcome of care and the way in which it is delivered. When deciding whether to fund a new drug from the existing budget, it is therefore also important to know not only what alternative services could, or do, achieve with the same amount of money (opportunity costs) but specifically the value of those services to local patients (which we refer to as opportunity value).) For example, the opportunity costs may be that a community asthma nurse could no longer be funded and the opportunity value of the popular nurse-led service increases their social exposure and reduces morbidity. This extra value would be lost if the new drug were funded instead, even if the new treatment was deemed cost-effective. Example of how the term is used;

Extract from the Better Value Healthcare 21stCentury Glossary:

The key issue for the 21st century is whether or not the innovation is the best value development for the programme of care to which it will contribute. The issue is not only the cost per QALY but also the opportunity cost of the innovation.

Source: Gray, JAM (2011) How To Get Better Value Healthcare. Offox Press.

Will this change the way you use this term or try to influence the way it is used in your organisation?