**3. Concept and calculation method of medical value: cost-utility application**

#### **3.1 Background related to medical value**

This section summarizes the conditions and mechanisms of the link between value and price discussion in a medical system.

In a private economy, where the market principle works, goods (and services) are demanded and supplied in the market based on people's decision-making (free choice and action) depending on changes in price levels. If the market works well, supply and demand will be balanced, and various goods will be properly distributed. The relationship between benefits and burdens in this market is easy to explain. Meanwhile, in a public economy, where the government is the main operator, the market principle works in a limited way. Taxes that enforce the burden are a receiver of supply costs for the demand of goods.

Therefore, public needs and expenditures (including reallocation) are generally determined by the government's judgment. However, price levels in the public economy are often formed by costs (e.g., size of spending budget), which are both inefficient and inconsistent with market utility (i.e., consumer satisfaction). Additionally, the allocation of public resources may deviate from the balance between supply and demand, and inequity among participants within a group may be promoted. Thus, issues related to Use-value, Marginal utility, and Pareto optimization become apparent in the public economy [31, 32].

Subsequently, the concept of verifying the economic appropriateness of the market function and product price (among others) arises by balancing the number of

resources consumed and the results obtained (e.g., cost-effectiveness and performance) [2]. As an example of its widespread use, considering large-scale public investments (e.g., the construction of dams and bridges), the desirability of the project's implementation is evaluated based on its cost-effectiveness. Additionally, in the private economy, where technological innovation is active, and consumers have numerous choices, the concept of cost-effectiveness is used more actively to incorporate activities and stimulate product appeal. Consequently, the basic and broad concept of cost-effectiveness has developed in social policy decision-making and resource management fields. Its know-how has been cultivated in contract society and management activities and used in social consensus-building and decision-making.

Meanwhile, the provision of medical services is characterized by information asymmetry and restrictions on opportunity costs (options) against the background of health and life. Therefore, healthcare markets differ from common markets that exhibit typical demand and supply; this market has three parties (citizens, insurance, and providers) and faces asymmetric information that creates several market problems (i.e., common equilibrium market laws do not apply), including problems in defining prices. Although this is inherently unfair (bias) in the health sector from the perspective of citizens' financial burden, the system is based on medical needs such that the needs of the patient, regardless of the outcomes, receive the same medical care. Since such a tendency threatens the system's sustainability, there have been attempts to improve it as much as possible by utilizing cost-effectiveness and utility theory.

By their very nature, public goods are non-competitive; therefore, the role of price tends to be smaller. Medical care has restrictions on individual choice. However, CEA (including cost-utility analysis [CUA]) is widely used to evaluate medical technology in high-income countries, and prices are determined according to this evaluation. Recently, pricing has become more common with evidence-based or value-based approaches. In this method, a consumer's natural internal decision-making regarding consumption behavior is externally substituted by other stakeholders under certain conditions (typically advocating the maximization of group benefits) for a certain group or system based on the law of equal marginal utility and expected utility theory. These methods will be considered along with the uncertainty of outcomes and limited rationality of human beings.

The medical systems of many countries have historically operated as part of the social security system, as they gather high public interest from the necessity for all people. Further, against the background of stable supply, the pricing of medical services has often been based on costs. As described in the previous section, numerous developed countries face structural issues, such as declining birth rates, aging populations, and rising costs of medical services; thus, verification of price levels has become an urgent concern [25]. Therefore, the need to build a social consensus on the economic burden of the value of medical services has been increasing, and the verification of price levels while considering cost-effectiveness has further expanded [33]. Against this background, discussions on value evaluation and price levels in the medical field are being conducted using various approaches to consider costeffectiveness.

#### **3.2 Calculation method of medical value**

Utility refers to the degree of subjective satisfaction or demand fulfillment that each consumer obtains when consuming a certain good or service and is considered a

### *Socio-Economic Considerations of Universal Health Coverage: Focus on the Concept… DOI: http://dx.doi.org/10.5772/intechopen.104798*

fundamental concept in economics [34]. When interpreted broadly, human economic activities and all human behaviors (including the selection of medical services) aim to maximize the utility to be acquired as the background. Thus, this concept can explain the background of stakeholder behavior changes (e.g., decisions and choices) in the field of health care [35]. Furthermore, a method supported by varied theories related to utility was assumed as an approach to value evaluation.

In summary, "value" is regarded as the meaning of the existence (usefulness or significance in a narrow sense) of an object regardless of whether it is "tangible or intangible." For example, in the public sector, meaning is often organized using exchange value and use-value. A value is diverse and difficult to quantify in general; however, it should be explained to the parties concerned (**Figure 7**) [36] when discussing it as part of a social system. This perspective is even more important for the effective utilization (fair distribution) of public properties. Aspects related to life and health should first be discussed from the perspective of "use-value" in developing society. Furthermore, medical care is expected to be provided to everyone at a fairly low cost (public aspect).

Therefore, several countries worldwide have more or less developed the medical field as a public system, following the lead of the 1978 Alma Ata Declaration. Specifically, Japan's universal health insurance system is assumed to have experienced this trend (see **Figure 8**). However, highly specialized professionals and therapeutic materials require large investments in developing medical resources, and their supply is restricted. Therefore, to operate and develop medical care as a social system considering the "exchange value" content that accompanies scarcity and building a

**Figure 7.**

*The conception of value assessment in the quasi-public healthcare system: The balance of the valuation of technical innovations and the guarantee that all patients have access. The public medical marketplace requires a system that considers both use and exchange values [2].*

#### **Figure 8.**

*Significance and key characteristics of value measurement in the public economy (decision-making and resource allocation) [36].*

system that incorporates certain market principles (economic aspect)—are crucial [2]. This perspective is also important in discussing consistency within the real economy.

Thus, in a quasi-public healthcare market such as Japan, it is desirable to provide mature and widespread medical care at low-cost while guaranteeing a high economic level for innovative (or effective) medical care and specialized resources. Moreover, a system that balances the use and exchange of values is necessary. As previously mentioned, assessing value in the medical field involves various restrictions. Value evaluation can be performed in several ways, which are inadequate for consistency with the real economy or developed as a theory of price setting. The approach to value evaluation that contributes to the discussion of economic activities and official prices in the healthcare system is as follows:

Generally, in microeconomics, prices converge based on supply and demand equilibrium with the background of utility theory, and efficiency is thus maximized. Incorporating herein the perspective of equity (well-being), public interest value is discussed based on the balance between patient utility value (preference, willingness to pay) and medical finance (income reallocation, finance balance) (**Figure 9**). The balance between increasing utility and cost per health program unit while weaving individuals and society is thus considered. As a result, if utility is maximized in a certain budget range, the higher performance increases the utility in a total of the entire population, and the stakeholders' "value" increases. Compared to the conceptual discussion of value, it is relatively possible to discuss consistency with a real economy or a general value; hence, it is considered suitable for examining the medical price of the public sector.

The value of medical services can be indirectly evaluated in the public sector by applying the marginal utility theory and scales based on preferences while considering different conditions and objectives from those in the private sector [37]. Incidentally, in the medical field, a method for measuring and analyzing patient utility values as a type of health-related quality of life has been developed. The application of this concept to CEA is CUA, which is a type of CEA. Based on the above, the medical value is calculated as "health recovery (patient outcomes such as utility)/resource consumption (direct medical cost) ) medical performance = medical, economic value" [38] (**Figure 10**).

*Socio-Economic Considerations of Universal Health Coverage: Focus on the Concept… DOI: http://dx.doi.org/10.5772/intechopen.104798*

**Figure 9.**

*Concept of value evaluation of health care based on utility theory and cost-effectiveness considering welfare economics.*

#### **Figure 10.**

*Concept of economic performance: One of the methods used to discuss the economic value of healthcare. "Value" in social activities is determined by the balance between capital investment and its returns. If a certain amount of money is paid to use a certain service (function), its value is determined by performance, equal to the amount of service (function) divided by the cost. For the consumption of one budget item, the greater the result, the higher is the value. The amount in terms of "restoration of health" is used as an index of "function" in the medical field [2].* A related concrete methodology is cost-effectiveness analysis, which considers health programs' medical and economic position.

This explains the socio-economic significance of the medical services provided by balancing public costs and earned utility in the medical market. It is believed that the higher the performance, the greater the utility (clinical outcomes for patients) as part of the value of the budget range.
