In a previous essay, we argued that nonclinical primary prevention included interventions in any of the nonclinical determinants of health; that is, all determinants except medical care. We began with the standard classification of the determinants of health and then restructured them to identify the direct determinants (whose impact on health is proximate and readily apparent), and the upstream determinants (whose impact on health is through their effect on one of more of the direct determinants). The chart below illustrates this structure and places it within the context of a primary prevention intervention whose value is to be assessed by one or more stakeholders. For practical purposes, the most important perspective may be that of the stakeholder called on to make the investment decision. However, in this blog, we focus on the societal perspective. In theory, if an investment has high societal value, there should be a way to reward the investor adequately and still leave society better off.
Defining "Societal Value"
In economics, an investment is often evaluated according to the percentage financial return on investment (ROI). High ROI means high value. But, for the investments we are considering, the outcome of greatest concern is improved health and longevity. To compute an ROI, it becomes necessary to place a dollar value on health and years of life. While this has been done in the cost - benefit literature, many health economists prefer an alternative approach that does not require monetizing health and life-years gained. Using cost-effectiveness analysis, value is summarized in terms of cost per quality-adjusted life-year (QALY) gained. In this framework, high value corresponds to low cost per QALY.
We favor cost per QALY as the primary indicator of value, but we also believe it should be combined with supporting information on other outcomes of interest that are difficult to monetize and are not captured within the QALY (for example, social capital). In addition, we note that investments that improve health tend to produce significant potential cost offsets that should be factored into the numerator of the cost per QALY calculation. Finally, to assess societal value, costs must be viewed from a societal perspective.
Assessing the Societal Value of Investments in Early Childhood Education: An Illustration
Consider a one-time investment in early childhood education--an upstream determinant of health as shown in the above diagram--that is focused on a single cohort of children. Imagine we follow this cohort of children over their full lifespan and compare outcomes, each year, with what would have occurred absent the intervention. This flow of altered outcomes over the lifespan represents what is accomplished by the investment. Research suggests that these accomplishments will include, on average, higher educational achievement, increased earnings, and better health.
Impact on Health
During the year of the intervention, interactions between educators and parents would lead to improvements in the home environment (eg. greater safety, less stress) and, therefore, reduced illness and injury. In subsequent years, this cohort would go on to achieve greater levels of education and better jobs with higher earnings. This, in turn, would lead to better living conditions (fewer harmful environmental exposures), decreases in behavioral risk factors (e.g., poor diet, impaired access to exercise facilities), a reduction in stress, and improved access to health care--all of which would lead, on average, to longer and healthier lives.
By this argument, in each year of the cohort's lifespan, we would expect the intervention to result in a greater number of persons who survive and a greater number in good health. This means more quality-adjusted life years (QALYs) accrued in each year of the lifespan. Eventually, this cohort will produce its own children and grandchildren, whose socioeconomic status and health will, on average, be better than it would have been without the intervention. (A complete analysis would include the extra QALYs associated with these future generations, but we will not consider these here.)
Cost per QALY Prior to Consideration of Other Costs and Cost Offsets
Given what was spent on the intervention, and the resulting flow of increased QALYs over the lifespan, one might compute an initial estimate of the cost per QALY associated with the early childhood educational intervention. This could then be compared with the cost per QALY of alternative investments in health to determine its relative value. However, stopping the analysis at this point would be mistaken, because it ignores potentially significant offsets to the investment costs.
Potential Cost Offsets
There are two main mechanisms by which an investment that improves health can help pay for itself at the societal level. First, a healthier population tends to be economically more productive, thereby increasing the nation's ability to pay back the investment. Second, a healthier population creates the opportunity to pay back the investment by shifting resources away from health care (i.e., reducing health care spending). The first mechanism contributes to financing by increasing total available resources--that is, adding to gross domestic product--while the second does so by freeing existing resources.
1. Growth in gross domestic product (GDP) as an investment cost offset.
The investment in early childhood education should result in higher levels of gross domestic product (GDP) in future years for two distinct reasons. First, as already mentioned, the resulting improvements in health should enhance economic productivity. Second, early childhood education leads to greater subsequent levels of educational achievement, boosting both cognitive and non-cognitive skills, and this has an independent effect on productivity. From a societal perspective, all of this "extra" GDP could be viewed as an investment payback since it could be set aside without causing a reduction in GDP available for other uses. More precisely, the present value of the GDP dividend would be subtracted from the cost of the investment to obtain a net cost. Recall that this analysis adopts a societal perspective, thus there is no guarantee that the stakeholder making the investment would be the beneficiary of the extra GDP. This distributional issue is best addressed when considering stakeholder perspectives.
2. Freed resources as an investment cost offset: The example of health care costs.
The second mechanism for offsetting investment costs is a reduction in resources needed for other purposes. These freed resources are "extra" in the sense that they could be set aside for investment pay-back while leaving society no worse off overall. The most obvious example is health care, since a healthier population will use less care, holding access and quality constant. The health care cost savings are an offset to the cost of the investment.
3. Other potential costs and cost offsets.
Interventions into non-clinical determinants of health will often have additional costs and cost offsets that must be considered from a societal perspective. For example, improved early childhood education has been shown to reduce crime. This creates a cost offset by reducing resources needed for law enforcement and incarceration. On the other hand, society will have to increase resources devoted to education as the cohort, on average, goes on to more years of formal education. This would be considered an additional societal cost.
Demonstrating Societal Value is Not Enough
An investment might have great societal value and yet fail to be implemented if the value to funders and decision-makers has not been established. As a practical matter, value must also be seen through the eyes of those stakeholders who control the purse strings. When the funder is the government, politicians are the decision-makers, and perceived value often turns on whether a "business case" can be made; that is, will it help reduce the future deficit? Politicians also respond to the interests of their home constituencies and to special interests that contribute to campaigns and generate votes. Demonstrating value to these interests, by extension, can be critical to government investment decisions. Value from a societal perspective is an important backdrop but does not obviate specific stakeholder assessments.
Republished with permission of the Altarum Institute.