Adapting portfolio theory for the evaluation of multiple investments in health with a multiplicative extension for treatment synergies

John F P Bridges, M. Stewart, M. T. King, K. Van Gool

Research output: Contribution to journalArticle

Abstract

Portfolio theory is central to the analysis of risk in many areas of economics but is seldom used appropriately in health economics. This contribution examines the use of portfolio theory in the context of cost-effectiveness analysis (CEA). A number of modifications are needed to apply portfolio analysis to the economic evaluation of health care interventions. First, the method of reporting the results of a CEA, and consequently some of the underlying assumptions, needs to be modified. Second, portfolio theory needs to be expressed in terms of effects on individuals aggregated to a population. Finally, one needs to allow for the possibility of synergy between the various health interventions. This paper derives a general formula for a portfolio of health care interventions that allows for synergies between interventions where the population effects are aggregated from individual effects. A number of special cases are also derived to highlight the nature of the formulation of the modified portfolio theory. We conclude that, while modified portfolio theory adds a theoretical foundation to health care evaluations, it may not be operational until estimates of the correlation between interventions are available, and the question of uncertainty is resolved in health care evaluation. Also, while a synergy may be present at the individual level, when aggregated over a large population it may not be significant given the standard assumption of constant returns to scale.

Original languageEnglish (US)
Pages (from-to)47-53
Number of pages7
JournalEuropean Journal of Health Economics
Volume3
Issue number1
DOIs
StatePublished - 2002
Externally publishedYes

Fingerprint

Cost-Benefit Analysis
Delivery of Health Care
Health
Economics
Population
Uncertainty
Evaluation
Synergy
Portfolio theory
Healthcare
Cost-effectiveness analysis

Keywords

  • Evaluation
  • Risk
  • Treatment synergies

ASJC Scopus subject areas

  • Medicine (miscellaneous)

Cite this

Adapting portfolio theory for the evaluation of multiple investments in health with a multiplicative extension for treatment synergies. / Bridges, John F P; Stewart, M.; King, M. T.; Van Gool, K.

In: European Journal of Health Economics, Vol. 3, No. 1, 2002, p. 47-53.

Research output: Contribution to journalArticle

@article{21218c81d8c044328cab7ea355865de0,
title = "Adapting portfolio theory for the evaluation of multiple investments in health with a multiplicative extension for treatment synergies",
abstract = "Portfolio theory is central to the analysis of risk in many areas of economics but is seldom used appropriately in health economics. This contribution examines the use of portfolio theory in the context of cost-effectiveness analysis (CEA). A number of modifications are needed to apply portfolio analysis to the economic evaluation of health care interventions. First, the method of reporting the results of a CEA, and consequently some of the underlying assumptions, needs to be modified. Second, portfolio theory needs to be expressed in terms of effects on individuals aggregated to a population. Finally, one needs to allow for the possibility of synergy between the various health interventions. This paper derives a general formula for a portfolio of health care interventions that allows for synergies between interventions where the population effects are aggregated from individual effects. A number of special cases are also derived to highlight the nature of the formulation of the modified portfolio theory. We conclude that, while modified portfolio theory adds a theoretical foundation to health care evaluations, it may not be operational until estimates of the correlation between interventions are available, and the question of uncertainty is resolved in health care evaluation. Also, while a synergy may be present at the individual level, when aggregated over a large population it may not be significant given the standard assumption of constant returns to scale.",
keywords = "Evaluation, Risk, Treatment synergies",
author = "Bridges, {John F P} and M. Stewart and King, {M. T.} and {Van Gool}, K.",
year = "2002",
doi = "10.1007/s10198-001-0090-5",
language = "English (US)",
volume = "3",
pages = "47--53",
journal = "European Journal of Health Economics",
issn = "1618-7598",
publisher = "Springer Verlag",
number = "1",

}

TY - JOUR

T1 - Adapting portfolio theory for the evaluation of multiple investments in health with a multiplicative extension for treatment synergies

AU - Bridges, John F P

AU - Stewart, M.

AU - King, M. T.

AU - Van Gool, K.

PY - 2002

Y1 - 2002

N2 - Portfolio theory is central to the analysis of risk in many areas of economics but is seldom used appropriately in health economics. This contribution examines the use of portfolio theory in the context of cost-effectiveness analysis (CEA). A number of modifications are needed to apply portfolio analysis to the economic evaluation of health care interventions. First, the method of reporting the results of a CEA, and consequently some of the underlying assumptions, needs to be modified. Second, portfolio theory needs to be expressed in terms of effects on individuals aggregated to a population. Finally, one needs to allow for the possibility of synergy between the various health interventions. This paper derives a general formula for a portfolio of health care interventions that allows for synergies between interventions where the population effects are aggregated from individual effects. A number of special cases are also derived to highlight the nature of the formulation of the modified portfolio theory. We conclude that, while modified portfolio theory adds a theoretical foundation to health care evaluations, it may not be operational until estimates of the correlation between interventions are available, and the question of uncertainty is resolved in health care evaluation. Also, while a synergy may be present at the individual level, when aggregated over a large population it may not be significant given the standard assumption of constant returns to scale.

AB - Portfolio theory is central to the analysis of risk in many areas of economics but is seldom used appropriately in health economics. This contribution examines the use of portfolio theory in the context of cost-effectiveness analysis (CEA). A number of modifications are needed to apply portfolio analysis to the economic evaluation of health care interventions. First, the method of reporting the results of a CEA, and consequently some of the underlying assumptions, needs to be modified. Second, portfolio theory needs to be expressed in terms of effects on individuals aggregated to a population. Finally, one needs to allow for the possibility of synergy between the various health interventions. This paper derives a general formula for a portfolio of health care interventions that allows for synergies between interventions where the population effects are aggregated from individual effects. A number of special cases are also derived to highlight the nature of the formulation of the modified portfolio theory. We conclude that, while modified portfolio theory adds a theoretical foundation to health care evaluations, it may not be operational until estimates of the correlation between interventions are available, and the question of uncertainty is resolved in health care evaluation. Also, while a synergy may be present at the individual level, when aggregated over a large population it may not be significant given the standard assumption of constant returns to scale.

KW - Evaluation

KW - Risk

KW - Treatment synergies

UR - http://www.scopus.com/inward/record.url?scp=0038621541&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=0038621541&partnerID=8YFLogxK

U2 - 10.1007/s10198-001-0090-5

DO - 10.1007/s10198-001-0090-5

M3 - Article

C2 - 15609117

AN - SCOPUS:0038621541

VL - 3

SP - 47

EP - 53

JO - European Journal of Health Economics

JF - European Journal of Health Economics

SN - 1618-7598

IS - 1

ER -