The economic impact of pandemic influenza

BMJ 2009; 339 doi: http://dx.doi.org/10.1136/bmj.b4888 (Published 20 November 2009) Cite this as: BMJ 2009;339:b4888
  1. Alan Maynard, professor of health economics,
  2. Karen Bloor, senior research fellow
  1. 1Department of Health Sciences, University of York, York YO10 5DD
  1. akm3{at}york.ac.uk

    In the UK this could double the drop in GDP as a result of the recession

    The immediate costs of pandemic influenza to the NHS are easy to imagine, given increased demand across the spectrum of health care—from general practice for milder cases to intensive care for the most sick. The opportunity cost of this is to ration care away from other patients as resources are focused on the care of those with influenza, particularly those with serious complications, and to the creation and delivery of an effective vaccine. From an organisational viewpoint, meeting the needs of people with pandemic flu threatens performance, such as waiting times, in other areas of health care. It also makes clinical decisions about who will be treated when, and who will be left in avoidable pain and discomfort—or possibly to die, even more difficult.

    Another consequence of a pandemic is its effect on the economy, and this is the focus of the linked study by Smith and colleagues (doi:10.1136/bmj.b4571),1 which uses a computer model to estimate the “economy-wide impact” of pandemic flu in the United Kingdom. This is essentially a cost of illness study that explores the possible financial costs of the illness—derived particularly from absence from work because of illness, fear of illness, and school closure—along with the costs and savings that would result from vaccination. Depending on the assumptions used, and using data from 2004, the authors predict a reduction in gross domestic product (GDP) of between 0.5% and 4.3%, which translates to reductions in UK output of between £8.4bn (€9.4bn; $14bn) and £72.3bn.

    These startling figures are a product of assumptions incorporated into the model, and the authors acknowledge that the evidence base for these is highly imperfect. This uncertainty is reflected by the wide range in the estimates. For example, as a pandemic progresses, what would be the level of prophylactic absenteeism from work, as employees fear infection and elect to stay at home rather than mix in a work environment? How many of those who stay at home can work from home, avoiding some of the productivity costs? The likely margins of error for this variable, as well as other clinical and epidemiological variables, are considerable and are accommodated in these model estimates by alternative assumptions. There may also be assumptions in the model that can be affected by NHS staff—for example, those in public health and general practice have a role in, where appropriate, offering reassurance to the public, influencing their perceptions of the risks of illness, and thus affecting the transition point where people chose not to come to work.

    The 2008-9 recession may have reduced GDP by more than 5% from its peak in April 2008,2 and the worst economic effect of a pandemic could be to reduce GDP by a similar amount. The effects of this on household income, unemployment, inequality, and health could be substantial. But the effects on public finances may be even more profound. As GDP falls, tax revenues fall because income and consumption decline. At the same time, public expenditure increases, particularly on social security but also on health care. The fiscal deficit already troubling the UK government and international investors could therefore escalate substantially. This is reminiscent of the late 1970s, when the government led by James Callaghan faced a substantial fiscal imbalance that resulted in the International Monetary Fund (IMF) having to support sterling and the UK economy.

    The price of IMF support was greatly reduced public expenditure. Even without a pandemic, large cuts in expenditure have already been signalled by both main political parties. The NHS is promised level cash funding for the three years after 2010, but even this will challenge NHS managers and clinicians, particularly given the earlier generosity of NHS financial settlements. To meet ever growing demands from an ageing population and new technologies, the NHS needs to free up between £15bn and £20bn over three years by increased productivity and efficiency savings, as outlined by the Quality, Innovation, Productivity and Prevention initiative.3 Even if this is successful, the effects of pandemic flu could seriously impair NHS and other public sector funding. These effects will have to be accommodated over time, perhaps through tax increases, but also, potentially, through freezes or even cuts in public sector pay. Like other public sector services, the NHS is highly labour intensive, and any real reductions in expenditure will probably require either a smaller or a less expensive workforce.

    So, does it matter to the NHS how much the pandemic costs? Yes, it does. The current outbreak of swine flu has already been costly, in terms of advance purchases of costly treatments and vaccines, and payments to general practitioners to provide them. The resulting income for drug companies and general practices has an opportunity cost, in terms of treatment of other NHS patients foregone. But if these investments are effective, and the spread of the disease is restricted, the financial benefits may be great. Government investment in these interventions, like the modelling of the economic effect of a pandemic, is largely based on “guesstimates.” We hope that the challenging scenarios outlined by Smith and colleagues will help policy makers to plan for pandemic influenza and to make good investment decisions, averting potentially serious damage to the NHS and to the UK economy.1


    Cite this as: BMJ 2009;339:b4888