Two economic aspects of chronic diseases in developing countries

Sovereignty of the consumer, market failures and cost-effectiveness

Von Marc Suhrcke

This article discusses two economic aspects in relation to chronic diseases in developing countries: first, the potential economic rationale for public policy intervention in this domain and second, the significant scope for more evidence on cost-effectiveness, especially with respect to non-clinical interventions.

Chronic disease undoubtedly represent a significant “cost” burden to individuals, health care systems and society at large, both in rich and increasingly in developing countries. However, the presence of economic costs, defined in different ways as briefly discussed above, does not necessarily mean that there is justification for government to act, from an economic perspective. A rationale for intervention to tackle NCDs based on the economic perspective differs markedly from a public health rationale, and while there is reason to believe that such an economic rationale exists, it is, of necessity, more nuanced.

The economic rationale for public policy to address chronic diseases

In principle, the economic rationale for intervention in health can be formulated on both efficiency and equity grounds. Public intervention is justified when private markets fail to function efficiently, or when the social objectives of equity in access or outcomes are unlikely to be attained. Efficiency is defined by economists in a very specific way: an allocation of resources is efficient if there is no way to increase benefits to an individual without making another individual worse off (this concept is known as Pareto efficiency). In what follows, we briefly discuss the efficiency-based rationale. (See Suhrcke et al (2006) for a more extensive treatment of the issue)

From a standard economic perspective, the sovereignty of the consumer – the overriding principle in standard economic textbooks – is a crucial element of free markets. In this world view, government intervention is but an afterthought. The inviolability of this view does, however hinge on certain assumptions, in particular that:
- this decision-making is based on accurate – or “perfect” – information about the consequences of the decision (for example, that we are all fully informed of the consequences of the decision to smoke);
- all the costs and benefits associated with a decision are carried by the person making the choice (for example, that an individual will pay all the costs of an unhealthy lifestyle – including health care for chronic illness), and
- people act “rationally” – that they will always (consciously or unconsciously) weigh the costs and benefits of each decision they are to undertake and then choose the course of action that maximises their expected net benefits (or “utility”);

If these assumptions hold, then there is no economic justification for government to prevent any individual from behaving in ways that could harm her health. The individual would be seen to have made the choice in favour of an un-healthful behaviour after an informed weighing of the acknowledged costs involved (in terms of health damage) against the benefits (in terms of “enjoyment” perhaps).

A traditional welfare economics’ perspective does, however, also acknowledge that there may be exceptions that occur if one or more of these assumptions are violated. In this case the “free market outcome” will likely be inferior to the “ideal” situation: the economists speak of “market failure”. Where markets have “failed”, people could in principle be made better off if government pulled the right levers. Government might then either step in and produce or deliver the relevant good or service, or – in less interventionist manner – it may incentivise others to do so. Which of the measures governments should opt for within that range depends on the nature of the market failure as well as the institutional capacity of the government (Jack 1999).

Sources of market failures

Related to each of the above critical assumptions, there are at least three potential sources of market failures for the risk factors that give rise to chronic diseases: insufficient and asymmetric information, externalities, and non-rational behaviour. We call those market failures the “standard” efficiency-based market failures because they have commonly been discussed in the traditional welfare economics literature in all sorts of public policy contexts.

• Imperfect Information: on the whole, government intervention in the form of the provision (and production) of NCD-related health information (e.g. on the health consequences of smoking) is in principle justifiable, as information is a public good and as such will generally be undersupplied compared to the social optimum. This includes the role for government to engage in research about the health consequences of unhealthy behaviour. The provision of information in itself though is unlikely to be a very effective driver of behaviour change.

• Externalities: There are obvious and substantial external costs resulting from second-hand smoke and from alcohol-induced traffic fatalities, but probably less so in the case of obesity. Those external costs are likely to be even higher (at least in the case of smoking) when intra-household effects are also considered as “external”. Besides, NCDs also impose costs on the social insurance system and hence on “third persons”, but these costs may be more than “compensated” by the premature death of the person with NCDs.

• Non-rational behaviour: children and adolescents tend not to take the future consequences of their choices into account, irrespective of whether they are informed of future consequences. They act ‘myopically’ and, hence, non-rationally. Their choices may well conflict with their long-term best interests. This provides – in principle – a justification for government intervention: to prevent them from harming themselves when they do not fully appreciate the consequences.

Beyond the standard welfare economic view, a very different view has recently emerged, drawing on increasingly popular research in behavioural economics. According to this view, there are situations in which people act on the basis of what has been called “bounded rationality”: because people may not at all times be able to (nor be willing to) undertake all the necessary calculations to find the choice that maximises their lifetime utility, they may find ways to simplify choices. Or individuals’ preferences might not follow the shape posited by standard welfare economic theory. As a result of any of these imperfections the actions may then well differ from what would have been the perfect rational choice, but the way in which they differ may be predictable. In particular, time inconsistent preferences, the idea that in some situations, individuals accept instant gratification at the expense of their long-term best interests (even beyond the usual discount rate people apply to future effects), and would be better off if actively stimulated to act differently, receives some initial support in the case of smoking. This could offer an opportunity for governments to target those predictable “failures” in decision-making and to help people take those decisions that they would have chosen, had they been in a position to do so.

The presence of market failures by itself is in fact only one part of the full economic rationale for public policy intervention. If a market failure exists, but no intervention can remedy the failure or do anything about it at a cost lower than the resulting benefits, then society is better off remaining in the status quo situation. The following section very briefly discusses the evidence on “value for money” of interventions to address chronic disease in the developing world.

Cost-effectiveness evidence to prevent and control chronic disease in developing countries

From an economic perspective, the first and foremost relevant criterion is that the existing, limited resources should be invested where they bring the greatest “benefit”. Cost-effectiveness is a widely used measure to determine “value for money” and to allow policymakers and others to decide among possible interventions to improve public health. Cost-effectiveness analysis (CEA) compares the costs of the intervention to the resulting change in health. Properly done, CEA does allow for comparisons among interventions because it provides a basis for ranking them. Cost-effectiveness is of course far from the sole criterion that may be relevant in policy decision-making.

Many interventions have been proposed for preventing or reducing the incidence of chronic diseases, yet few of them have been analysed to determine how much health improvement can be gained per dollar spent, especially in developing countries. Such has been the conclusion of a systematic review on CEA evidence to address NCDs in low and middle income countries (Mulligan et al. 2006). Since then more efforts have been undertaken both to review the available evidence and to build new evidence, partly through modelling approaches (rather than evidence from actual interventions). In particular, the Disease Control Priorities Project II (DCP2) in its encompassing effort to determine cost-effectiveness of interventions in all sorts of diseases and conditions in LMICs has among others identified a number of cost-effective interventions to address specifically CVD and tobacco addictions. In 2007 the World Bank published a report on NCDs, including in its appendix a comprehensive review of the evidence base on (cost-)effective interventions. In parallel, the WHO has developed its approach on generalised cost-effectiveness analysis (GCEA) via the WHO’s CHOICE project (See CHOICE reports results for 14 sub-regions. Building on both DCP2 and CHOICE work, the 2007 Lancet series on Chronic Disease has calculated the cost-effectiveness for both selected population based interventions (Asaria, Chisholm et al. 2007) as well as for drug-based reduction of individual susceptibility to CVD among high risk individuals (Lim, Gaziano et al. 2007).

Overall though, what exists in terms of evidence on cost-effectiveness of (preventive) chronic disease interventions in low and middle income countries is valuable but scarce when compared to developed countries (Schwappach et al 2007). In a recent exercise we reviewed the evidence base on economic evaluations of interventions located in those countries that address cardiovascular diseases (Suhrcke et al 2009). No more than 30 studies met our selection criteria. Somewhat encouragingly, we find a growing research interest, in particular in most recent years, if from a very low base. The majority of the interventions fall under the category case management, as opposed to primary or secondary prevention. Across the spectrum of interventions, pharmaceutical strategies have been the predominant focus, and, taken at face value, there is significant economic evidence in its favour, at least when compared to the counterfactual of no interventions. Only a small minority of studies have considered non-clinical interventions at population level.

Prevention vs. cure

While there will probably always remain a certain tension in the debate between prevention vs. cure, also in the context of chronic disease, few experts would disagree that a comprehensive approach that is balanced across all levels and facets of intervention is the only appropriate way to tackle the problem. Most studies though have looked at a single intervention at a time, rather than at varying combinations of interventions.

One exception is the study of Murray, Lauer et al. (2003). It has made an effort to evaluate different combinations of various levels of interventions, primary through a modelling approach. They examined 17 non-personal and personal health-service interventions or combinations of the two, for 14 WHO sub-regions. Non-personal health interventions included health education through the mass media (focusing on blood pressure, cholesterol concentration, and body mass), and either legislation or voluntary agreements on salt content to ensure appropriate labelling and stepwise decreases in the salt content of processed foods. Personal health-service interventions included detection and treatment of people with high concentrations of cholesterol for two thresholds; treatment of individuals with high systolic blood pressure with two thresholds; treatment of individuals for both these risk factors; and treatment of individuals based on their absolute risk of a cardiovascular event in the next 10 years with four thresholds. According to Murray et al. the optimum overall strategy is a combination of the population-wide and individual-based interventions. Interestingly, they find that if resources are extremely scarce, the non-personal interventions should be chosen first.

Whether the pharmaceutical approach is the “right” one, considering the costs of scaling up screening for risk factors and supplying drugs for persons identified, remains the subject of debate. In addition, factors such as the risk of adverse events in such a large population and access to care, and limited patient and system compliance need to be addressed. A potential call for more attention to a broader, population-based approach might receive support in light of the situation in high-income countries. During the last decades successful strategies were established to “treat” the risk factors and reduce the burden of disease. Despite this effort, the group of persons at high risk for CVD is increasing and the provision of medication for all of them is stretching health care budgets of many nations – as the example of hypertension shows (Chobanian 2009).

Another relevant finding from our review concerns the most neglected regions of the world. Even though countries such as Armenia and Kazakhstan or Tunisia and Egypt have high burden of non-communicable diseases (around 60% to 80% of years of life lost (YLLs, Calculations based on WHO Statistical Information System (WHOSIS) data, 2002[33]), those regions are usually not the target of economic evaluations. To increase the research in those regions should be part of an international global health strategy on CVD risks, and chronic disease more generally (Suhrcke et al 2009).

The issue of data generation and collection in developing countries also represents a critical challenge. The methods used in the economic evaluations vary broadly and there is only very limited adherence to existing guidelines. This is the main reason why a hierarchical listing of the study results is not feasible. A more in depth assessment of the methodological quality used in the studies included in Suhrcke et al (2009) would certainly help identify those studies and interventions whose evidence base is more secure than for others. A large share of the studies included in our review used modelling as a technique for economic evaluation. On one hand the scientific community ought to consider more explicitly how to handle the uncertainty associated with modelling when the source of efficacy is based on a different geographic region – in particular developed countries. On the other hand there may be a need to identify affordable research designs as alternatives to either modelling with data from randomized controlled trials conducted in developed countries or directly conducting randomized controlled trials in developing regions. While RCTs provide a "gold standard" in the sense that they provide solid evidence of efficacy under carefully controlled conditions, they are carried out using selected populations under idealized conditions. In addition, they are expensive to conduct and therefore in particular less feasible in developing countries. Other sources of data can contribute in important ways to the evidence base (e.g., demonstrating how a drug works in populations or under conditions usually not studied in the trial). This kind of data has been coined “Real-World data (RWD)” (see Garrison et al 2007 for more details). Such data can be derived from “Large simple trials”, “Registry entries” or “Health data surveys”, even if the quality assurance of the data can sometimes become a challenge. Nevertheless, it is a potentially useful thought in the search for more relevant primary data, which needs further development in the near future.

*Marc Suhrcke (1968) is a Professor and Chair in Public Health Economics with the University of East Anglia in Norwich (UK) since 2008. He is also the health economics lead in the new UKCRC funded centre of excellence in public health research, the Centre for Diet and Activity Research (CEDAR), a collaboration of the Universities of Cambridge and East Anglia. Contact:


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