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Arguably the most used and the least properly comprehended word in discussions of health. The meanings that attach to it are legion. Its persuasive power probably derives from a combination of two factors: one, the embodied implication that the entity asserted to be needed is actually necessary; the other, that this needed entity ought to be received. To elucidate what any particular writer may be getting at, it is often helpful to ask what the thing said to be needed is needed for and who is specifying that it is needed. From this one might enquire as to whether there are other means than the one asserted to be needed - especially ones that may be more effective, or more cost-effective - and whether the person specifying the need is appropriately qualified (for example, by training, accountability or responsibility). One may also enquire as to the social value, moral worth and so on of the outcome for which the thing said to be needed is necessary (if it is necessary). In this way, some analytical content might be injected into what otherwise is in danger of being mere slogan mongering.

It is invariably a good procedure to distinguish between a need for health and a need for health care (the latter may be seen as a kind of derived demand from the former). Important and difficult issues remain concerning, for example, whether any particular need ought to be met, whose need it is, and how much of it ought to be met. In prioritizing needs, economists naturally reach for the tools of cost-effectiveness and cost-utility analysis, which can indeed be helpful, not least in exposing the necessity for making social value judgments and interpersonal comparisons of health and illness.

The most frequently met practical measures of need at the community level are morbidity and mortality data. They plainly imply a need for health,

228 Negative Predictive Value though not necessarily a need for health care (which may not be effective in altering either for the better). Other concepts include capacity to benefit from health care (which is an outcome measure if the underlying thing needed is health care) and the resources that are necessary to reduce capacity to benefit to zero (that is, to the point at which the marginal benefit falls to zero). There are manifest formidable problems of measurement with both of these.

Need is often used as a criterion for adjusting the distribution of health care resources in the interests of fairness or equity. Again, its usefulness in this role would be much enhanced (in proportion to the reduction in its capacity to do harm) if the questions suggested above were probed.

Negative Predictive Value

Negative predictive value (PV-) is the proportion of individuals with negative test results who really do not have the disease being investigated. In the figure, PV- = d/(c + d). Cf. Positive Predictive Value, Sensitivity, Specificity.

Diagnosis Present Absent

"S

OJ

a

b

PL,

(true positive)

(false positive)

OJ

c

d

3

(false negative)

(true negative)

Negative Rights Good

Opposite of positive rights good.

Negbin Model

An extension of the Poisson regression model. Short for 'negative binomial'. In this sort of model the dependent variable is in non-negative integers and its expectation is an exponential linear function of the independent variables.

Net National Product 229

The variance of the dependent variable is larger than the mean, in contrast to the Poisson model, where the variance equals the mean.

Neonatal

Concerning the first four weeks of life after birth. Nephrology

The medical specialty concerned with diseases and abnormalities of the kidneys. Same as renal medicine.

Nested Case-control Study

Same as cohort case-control study.

Net Exports

A national income accounting term: the difference between the value of exports and imports in a time period (usually a year).

Net Investment

A national income accounting term: it is gross investment less depreciation. See Investment.

Net National Product

A national income accounting term: it is Gross National Product less depreciation (or capital consumption). This is the entity commonly referred to as 'national income' even though it is computed from the output side of the economy. But NNP can also be computed by adding up the incomes accruing to residents of a jurisdiction in a period and allowing for depreciation: incomes from employment, self-employment, profits (including interest and dividends) and rents. Adding net property income from abroad yields Net National Product at factor cost.

230 Net Present Value Net Present Value

The discounted value of the differences over time between monetary costs and benefits in each period.

Network Externality

See External Effects.

Neumann-Morgenstern Independence

This is an assumption of expected utility theory that means, roughly speaking, that adding the same third lottery to two lotteries, whose ranking has already been determined, will not affect that ranking.

Neurology

The science of nerve systems. New Active Substance

A pharmaceutical or similar product that was not on the market in the European Union before a specified date.

New Chemical Entity

A new chemical entity is a drug containing no active molecule or ion that has previously been approved by a regulatory authority.

New Drug Approval

The term applied to approval by the US Food and Drug Administration of a new drug for inter-state sale.

Acronym for Nottingham health profile.

Nomogram 231

NICE

Acronym for National Institute for Health and Clinical Excellence.

Acronym for number needed to diagnose.

Acronym for number needed to treat.

Nominal Income

Income that has not been adjusted for changes in the (usually intertemporal) general price level (inflation). Cf. Real Income.

Nominal Price

A monetary price that is not adjusted for changes in the (usually intertemporal) general price level (inflation). Cf. Real Price.

Nominal Variable

A categorical variable for which there is no natural ordering. Nomogram

A two-dimensional diagram (sometimes a table) designed to allow the approximate graphical computation of one value given values for another. Its

232 Non-cooperative Game accuracy is limited by the precision with which physical markings can be drawn, reproduced, viewed and aligned. See Altman's Nomogram.

Non-cooperative Game

A type of game in game theory in which the players may not cooperate in deciding what each will do. Cf. Cooperative Game.

Non-diversifiable Intertemporal Risk

A risk in providing private long-term insurance is that future costs may be far off in time and may be substantially higher than now. This may be held to account for the fact that most insurance policies offer indemnity benefits rather than benefits in kind.

Non-ignorable Non-response

A problem with some survey instruments when non-responders may differ from responders in relevant ways. See Incomplete Data.

Non-marketed Good

This is a good that is not traded in any market. In health economics the principal good of this type is health itself. The absence of observed prices (even imperfect ones) and even the absence of straightforward quantities requires the imputation of shadow prices and indirect ways of measuring the entity (health) of interest.

Non-parametric Methods

Non-parametric statistical methods do not assume any particular family of distribution (for example, that the distribution is normal or that it is defined by mean and standard deviation, and so do not estimate any parameters for such a distribution).

Normative 233

Non-profit

Organizations whose objective is assumed to be other than profit. Any trading surplus is not available for distribution to owners (or 'trustees'). In economics, it is nonetheless usually assumed that hospitals maximize something (like the utility of managers, or that of the senior doctors who work in them). It is a characteristic of health care that is sometimes (as in Canada) required by statute. See Hospital Economics.

Non-satiation

One of the axioms of choice theory. It means that if, for any amount of a good or service, more is preferred to less, then more will be preferred to less also at all larger amounts of that good or service. See Utility.

Normal Distribution

A probability distribution with one mode, having the symmetrical shape of a bell. Also known as a Gaussian distribution. It is characterized by two parameters: the mean and the standard deviation, with 67 per cent of values lying within one standard deviation on either side of the mean. See

Distribution.

Normal Good

A good for which a change in income causes a change in demand in the same direction. The income-elasticity of demand is positive. This is probably the only sense in which health care can be regarded as a 'normal' good. Cf.

Inferior Good.

Normative

The adjective is usually taken to mean 'containing one or more social value judgments' and hence implying a 'norm' or standard that ought to be aimed at. Welfare economics is entirely concerned with normative matters. It is to be compared with positive economics. Positive economics is, however, sometimes used as a kind of Trojan horse for the introduction of implicit social value judgments, as when all varieties of implicitly good or bad things are

234 Norwegian Centre for Health Technology Assessment linked with the operation of 'the market'. See Interpersonal Comparisons of Utility, Logical Positivism, Welfare.

Norwegian Centre for Health Technology Assessment

The Norwegian Centre for Health Technology Assessment critically reviews the scientific basis for methods used in health care and evaluates their costs, risks and benefits. Their web site is at www.sintef.no/smm/News/ FramesetNews.htm.

Nosocomial

Occurring in a hospital, as in 'nosocomial infection'. Hospital-acquired disease. Cf. Iatrogenesis.

Nosology

The art of producing taxonomies of diseases, for example, by aetiology, pathogenesis or symptoms.

Notifiable Disease

A disease, usually infectious or contagious, whose occurrence is required by law to be made known to a health officer or government authority.

Nottingham Health Profile

A profile approach to health status measurement covering physical mobility, pain, social isolation, emotional reactions, energy and sleep.

Acronym for net present value.

Number Needed to Treat 235

NSAID

An acronym for non-steroidal anti-inflammatory drug.

Nuclear Medicine

Same as radiology.

Null Hypothesis

The prediction that there is no 'effect' or that the theory being tested is not 'true'.

Number Needed to Diagnose

Number needed to diagnose = 1/[Sensitivity - (1 - Specificity)]. Number Needed to Treat

The number of patients needed to be treated with a particular therapy in order to prevent one additional bad outcome. Often referred to as NNT. The reciprocal of the absolute risk reduction (NNT = 1/ARR). Suppose an existing procedure entails a risk of an adverse effect of 0.005, while an alternative has a risk of 0.004; then ARR = 0.001 and NNT = 100. Switching from the former to the latter procedure yields an expected reduction of one adverse event in every 100 cases.

Objective Function

A function that is to be maximized (or minimized) with respect to choice variables of interest (like 'health') and subject to whatever constraints (like 'resources') may apply.

Objectives

The aims or end-states that are sought in health systems or parts of systems. They may be cast in rather general forms such as 'to maximize utility' or more specifically in terms of directly measurable achievement (for example, number of patients successfully discharged). Useful statements of objectives are normally cast in terms of outputs to be achieved or net benefits to be maximized. A characteristic of most planning systems is that objectives are stated, with dates set for their accomplishment, and methods of monitoring progress identified.

Observational Bias

Same as information bias.

Observational Cohort Study

Same as prospective cohort study. See also Observational Study. Observational Study

Studies that depend merely on observing 'what is' without observer intervention, say, in the form of creating controls or blinding or randomizing. Causal relationships may be hypothesized and tested empirically using data from such studies. The great majority of empirical economics is of this kind.

Office of Health Economics 237

Observer Bias

A form of bias arising from lack of objectivity in those who are recording or measuring subjects' responses in clinical trials or social surveys. The cure for this disease is blinding (single or, preferably, double).

Obstetrics and Gynaecology

The medical and surgical specialties concerned with midwifery, childbirth (obstetrics) and the reproductive health of girls and women (gynaecology -also spelled gynecology).

Odds Ratio

The ratio of two probabilities. In case-control studies it is an estimate of the relative risk. The ratio of the probability, for example, of having a disease in a population exposed to certain risk factors and the probability of having that disease in another population not so exposed, or the probability that one treatment is more effective than another. It is calculated thus: the number of individuals with disease who were exposed to a risk factor (De) over those with disease who were not exposed (Dn) divided by those without disease who were exposed (He) over those without who were not exposed (Hn). Thus OR = (De/Dn)/(He/Hn) = DflJDH,.

OECD

Acronym for Organisation for Economic Cooperation and Development.

Office of Health Economics

A group of health economists based in London, England, which provides independent research, advisory and consultancy services on policy implications and economic issues within the pharmaceutical, health care and biotechnology sectors. It is funded primarily by the British pharmaceutical industry but has independent policy and editorial boards. Its web address is www.ohe.org.

238 Official Financing

Official Financing

A component of the balance of payments.

Acronym for Office of Health Economics. Oligopoly

A market with few sellers, whose interaction may involve mutually dependent strategies and tactics. See Competition.

Acronym for ordinary least squares.

Omitted Variable Bias

The difference between the expected value of an estimator and the true value of the underlying parameter due to failure to control for a relevant explanatory variable or variables. It is sometimes possible to assess the direction of the bias by using common sense. For example, if a regression of hospital costs finds that the cost per patient episode is higher in teaching hospitals than in non-teaching hospitals, the inference that teaching hospitals are less cost-effective than non-teaching hospitals is likely to be false because their costs are in reality increased by the presence of teaching, a variable for which was omitted. So the bias is clear. It is probably better on the whole to err on the side of including the wrong variables than to omit the right ones.

Oncology

The specialty of medicine concerning the diagnosis and treatment of cancer.

One-tailed Test

Opportunity Cost 239

A statistical significance test based on the assumption that there is a priori information that specifies the direction of any departure from the null hypothesis if it is untrue. Cf. Two-tailed Test.

Open Cohort Study

This is a cohort study in which the subjects are recruited and enrolled via a procedure that allows for in and out migration of people. Cf. Fixed Cohort Study.

Open-ended Questionnaire

An interview schedule or questionnaire that does not restrict the respondent to a specific set of predetermined answers but allows answers to be freely determined. Cf. Closed-ended Questionnaire.

Ophthalmology

The medical specialty concerned with diseases and abnormalities of the eyes. The word is usually pronounced as though the first 'h' were not there.

Opportunity Cost

Economists use the word 'cost' in a particular way that differs from everyday usage and also from accounting concepts of cost. Cost, in economics, is opportunity cost. Opportunity cost is the value of a resource in its most highly valued alternative use. In a world of competitive markets, in which all goods are traded and where there are no market imperfections, opportunity cost is revealed by the market prices of resources. Where these stringent conditions are not met, opportunity cost and market prices can diverge and shadow prices may be estimated to measure the former.

Identification of opportunity cost is a skilled art that can be applied only in the context of a particular decision which enables one to identify the consequences of alternative courses of action. In general, opportunity cost cannot be defined independently of the context in which the term is being used. There are, perhaps, two main reasons for this. First, if the context is, as it

240 Opportunity Loss frequently is, one of decision making, then the cost of a decision will depend upon such factors as the period of time over which the decision is believed to have consequences, which may either go well beyond a conventional accounting period (for example, when one decides to add a particular drug to a reimbursement tariff for the indefinite future) or fall short of it (for example, as when one wishes to know the cost of acquiring - as distinct from owning and operating - an item of equipment). Secondly, one must ask 'cost to whom?', for example whether the resource-using consequences of a decision are to be seen as limited to the decision maker alone, or to affect a wider set of parties.

At best, market prices can reveal the opportunity cost of resources in their most highly valued uses to people other than the decision taker in question. They do this by showing what the decision maker must pay to bid resources away from others. The opportunity cost of using resources one already owns is not usually revealed in market prices since the best alternative may be an alternative use in one's own organization (unless there is an internal market). In such cases, opportunity costs need to be elicited by discussion and judgment, and may not be readily put in monetary terms. Opportunity costs should not be confused with transfer payments. Cf. Opportunity Loss.

Opportunity Loss

The most highly valued use of resources. It is used especially in the context of decision making under uncertainty, when the value attributed to obtaining additional information depends on the opportunities thereby created. Note that opportunity cost relates to the most highly valued alternative use of resources. See Expected-value-of-information.

Optimism Bias

This is the tendency to be too optimistic in appraising the outcomes of projects or options. Enthusiasm can, in general, be a dangerous attribute in a scientist, especially enthusiasm concerning particular results (for example, results that may support a position to which one has previously committed oneself). See Bias.

Optimum

Usually defined in economics as a Pareto optimum.

Ordinary Least Squares Regression 241

Option Appraisal

This is the use of cost-benefit analysis or cost-effectiveness analysis and related techniques to assess the desirability of one option relative to another and to help decision makers understand the critical differences between options and to select their preferred one.

Option Value

Option value is the value of the availability of an option at some future date, even if it is not used directly. Its availability for use is the thing valued. For example, the mere availability of a local hospital might be valued even if one had no plan to use it and no expectation of ever having to.

Ordered Probit Model

A statistical model of ordered multinomial outcomes.

Ordinal Scale

This is a numerical measure of a variable in which the function of the numbers is no more than to indicate the order of the observations (for example, in order of size). See Utility.

Ordinal Utility

A numerical indicator/predictor of choice whose particular characteristic is that the entities amongst which one may choose are simply put in order, those that are 'more preferred' receiving a higher number. A 'strong' order is one that does not allow ties; otherwise the order is 'weak'. See Utility.

Ordinary Least Squares Regression

This is the standard statistical method of estimating the linear regression model. Its essence is finding parameter values that minimize the sum of squared residuals.

242 Ordinate

Ordinate

The vertical axis in a two-dimensional diagram commonly referred to as the >"-axis, or a point on that axis. Cf. Abscissa.

Oregon Experiment

In 1989, the US state of Oregon initiated a controversial reform of its Medicaid programme by simultaneously increasing the number of people it covered but reducing the number of services that were insured. The services included were to be based on an explicitly prioritized list. The scheme was introduced in 1994, having gained federal approval from the Health Care Financing Administration.

Prioritized list

Line 1 Diagnosis: severe/moderate head injury, haematoma or oedema with loss of consciousness Treatment: medical and surgical Line 2 Diagnosis: insulin-dependent diabetes mellitus

Treatment: medical Line 3 Diagnosis: peritonitis

Treatment: medical and surgical Line 4 Diagnosis: acute glomerulonephritis, with lesion of rapidly progressive glomerulonephritis Treatment: medical therapy including dialysis Line 5 Diagnosis: pneumothorax and haemothorax

Treatment: tube thoracostomy or thoracotomy, medical therapy Line 576 Diagnosis: internal derangement of the knee and ligamentous disruptions of the knee Treatment: repair, medical therapy Line 577 Diagnosis: keratoconjunctivitis sicca, not specified as Sjögren's syndrome

Treatment: punctal occlusion, tarsorrhaphy Line 578 Diagnosis: noncervical warts Treatment: medical therapy

Line 579 Diagnosis: anal fistula

Treatment: fistulectomy Line 580 Diagnosis: relaxed anal sphincter Treatment; medical and surgical

Orthotics 243

A Health Services Commission developed a prioritized list of paired diagnoses and treatments. The process entailed much public consultation and many focus groups. Criteria such as the probability of death or disability with and without treatment were used in ranking procedures. The list of approved diagnoses/procedures was subjected to sensitivity analysis and eventually had 745 items (in 1995) of which the top five and borderline five at the cutoff point of 578 are in the table.

The creation of this list represents one of the world's most significant excursions into explicit 'rationing' of health care. Despite its many imperfections, and although cost-effectiveness was not an explicit criterion, there would probably be widespread agreement that treatments above the line are more cost-effective than ones below it and that the ones ranked highest are properly so ranked.

Original Position

A vantage point from which to evaluate the justice of various states of the world in Rawlsian theory. See Fairness.

Orphan Drug

A drug developed for rare diseases and conditions which, in the USA, affect fewer than 200 000 people or, in the European Union, affect five or fewer per 10 000 people.

Orthopaedics

The surgical specialty concerned with the correction of deformities of and damage to bones. Also spelled 'orthopedics'.

Orthotics

The specialty of making and fitting devices (orthoses) to correct or stabilize malformed or weak body parts.

244 Osteopathy Osteopathy

The treatment of disease through the manipulation of bones. OTC

Acronym for over-the-counter drugs.

Otolaryngology

The surgical specialty concerning diseases of the ears and throat. Otorhinolaryngology

The surgical specialty concerning diseases of the ears, nose and throat. Same as 'ENT'.

Outcome

This is another term for output. It tends to be used in preference to output when the effects in question are not quantitative or when they are characteristics of people, such as their ability to perform activities of daily living, or changes in such characteristics.

Outcomes Programme

This is a managed health care plan that includes the collection and analysis of information about the results of prescribed treatments and procedures. An outcome is usually defined as the patient's change in health status at a particular time following treatment. Surveys of patient satisfaction are sometimes included in the data. The information is used by the plan to determine the most cost-effective treatments of specific health conditions and to reduce unnecessary medical interventions.

Outlier

Output Budgeting 245

An observation that lies outside the range of most of the observations in a distribution.

Out-of-network Services

These are services by US health care providers who are not employed by or under contract with a managed care plan. Some plans require care to be provided only by doctors approved by the plan and some allow a member to see physicians outside the plan subject to deductibles or coinsurance payments. Emergency medical care outside the geographic area of a benefit plan is not considered out-of-network, but is usually specifically covered. See In-area Emergency Services.

Output

The effects produced by production. Changes in health status are the ultimate output of the health service production function. However sometimes more proximate throughput measures are used, such as 'patients discharged'. In general, the use of inputs as measures of output is not recommended since the practice begs the question as to the nature and amount of output (if any) that the inputs may generate, particularly at the margin, by assuming essentially that there is a one-to-one correspondence between input and output. Cf. Outcome.

Output Budgeting

A method of presenting allocated sums of money in an organization according to the outputs or objectives that the resources are directed towards. It is in distinction from traditional budgets that focus on input classifications like 'wages and salaries', 'capital expenditure' or 'equipment'. Ideally output budgeting transcends the boundaries of particular agencies, so that a complete picture of the resources devoted to a particular end is obtained. In health care, outputs might relate to intermediate process outcomes like patient discharges from hospital or the number of finished consultant episodes. Cf. Programme Budgeting.

246 Overhead Costs

Overhead Costs

These are opportunity costs resulting from resource use that serves a variety of programmes, departments or activities. They pose a 'problem' in any organization if one is interested in discovering the total cost of a particular programme, department and so on for the evident reason that they have not been incurred only for the sake of that particular programme or department. Any marginal impact on overhead costs arising from a change in the rate of any of the specific activities they support poses less of an intellectual challenge of attribution, though the practical challenges may be considerable.

Over-the-counter Drugs

Drugs that may be purchased without a doctor's prescription and from a wider range of suppliers than registered pharmacists. Also known as 'proprietary drugs'.

Overutilization

Too much (somehow defined) use of something. It is not a technical term in economics. See Utilization.

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