Accounting for the missing opportunity costs in incremental cost-outcome analysis

When used to assess the value for money of cost-increasing health care interventions, incremental cost-outcome analysis (i.e. cost-effectiveness and cost-utility analyses) overlooks potentially important opportunity costs. Consequently, a reliance on this method in practical decision making may serve to sustain otherwise avoidable inefficiencies. To mitigate this problem, a net quality adjusted life year (QALY) approach (or, more generally, a net outcome approach) to health economic evaluation is recommended. Moreover, existing empirical evidence in the experimental economics and psychology literature suggests that people will attach a disutility of significantly greater magnitude to outcomes that are perceived as losses, than the utility they attach to gains of the same absolute size. The net QALY approach ought to be modified to account for those circumstances where health outcomes may be valued differentially according to whether they are perceived as already 'owned', or as merely 'potential'. The importance of this modification is discussed here by way of example.