Introduction to Health Economics

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Introduction to Health Economics
Nelly BIONDI , South African Centre of
Epidemiological Modelling and Analysis
(SACEMA), Makerere University, 21th July 2009
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Outline

• What is Health Economics?
• Generic steps in Economic evaluation.
• Types of economic evaluation.

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Part 1What is Health Economics?The
importance of Economic evaluation.
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Economists view of the world

• Pessimist bottle ½ empty
• Optimist bottle ½ full
• Economist bottle ½ WASTED!!

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The Health Economic problem

• Unlimited healthcare wants with rapid growth in
  health expenditure.
• Insufficient health sector resources.
• Choosing between wants we can afford given
  our resource budget.

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Concept of opportunity cost

• The value of forgone benefit which could be
  obtained from a resource in its next-best
  alternative use.
• The aim is to choose activities where benefits
  outweigh opportunity cost.

Pg B
Pg A
Budget
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What is Health Economics?

• Theoretical framework to help healthcare
  professionals ,decision-makers or governments to
  make choices on
• HOW to maximize the health of population given
  constrained health producing resources.
• What health economists need is
• To understand the relationship between resources
  used and health outcomes achieved by alternative
  options.
• and compare!

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Economic evaluation is

• The comparative analysis of alternative courses
  of action in terms of both their costs and
  consequences in order to assist policy decisions
  (Drummond et al,1997)
• Economic evaluation is not choosing the
  cheapest.

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Economic Evaluation criteria

• Economic evaluation is used to ensure that
  limited resources are allocated as efficiently as
  possible.
• Technical efficiency meeting a given objective
  at least cost.
• Allocative efficiency producing exactly what
  society wants.
• Society may have other goals when allocating
  resources equity or ethical issues.
• Horizontal equity equal treatment of equals.
• Vertical equity unequal treatment of unequals.

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Part 2Generic steps in Economic Evaluation
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Stages in economic evaluation
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Deciding upon the study question

• Identifying the problem and aims of evaluation
• What is the problem?
• Why is this problem important?
• What aspects of the problem need to be explained?
• Choosing the alternative options
• Describing the interventions accurately.
• Defining the counterfactual intervention
  (comparator).
• Defining the audience
• Defining the info needs of the audience.
• Considering how the audience will use the study
  results.

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Deciding upon the study question

• Defining the perspective of the study
• Patient / Providers / Payers / Healthcare system
  / Society.
• Choosing a perspective depends on the audience.
• Defining the time frame and analytic horizon
• Analytic horizon gt Time frame.
• Choosing the study format
• Prospective / Retrospective / Model.
• Depends on data, time and resources available.

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Assessment of costs

• Overview of costing process
• Identification of costs
• Cost type direct vs indirect vs intangible.
• Cost category programme, patient.
• Organizational level national, regional,
  district.
• Input category capital vs recurrent.
• Intervention activities planning,
  administration, media, training.
• Time start-up vs post-implementation.
• Funding national govt vs NGO vs donor.

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Assessment of costs

• Measurement
• Measure in natural physical units (e.g. hours of
  labour time).
• Fixed, variable and total costs.
• Average versus marginal costs.
• Marginal versus incremental costs.

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Assessment of costs
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Assessment of costs

• Valuation
• Market prices (e.g. wage rates) used unless
  strong belief they do not reflect opportunity
  cost (e.g. volunteers).
• Local currencies vs international currencie.
• Adjustments for price inflation.
• Calculation
• Multiply unit of measurement by unit cost (e.g. 2
  hours of time at 5 per hour 10 labour cost).

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Assessment of health effects

• Overview of the process
• Identification
• Which outcome measure is employed depends on the
  objective of the evaluation.
• This then determines the type of evaluation.
• Measurement
• Measure effectiveness not efficacy.
• Measure (count) in natural physical units.
• Measure final not intermediate outcomes.

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Assessment of health effects

• Valuation if appropriate
• Value is determined by benefits sacrificed
  elsewhere (see opportunity cost again).
• Valuation either in terms of
• Utility (e.g. QALY, DALY, HYE)
• Money (e.g. WTP)

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Assessment of health effects
Zoom on the concept of QALY
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Adjusting for timing

• Discounting
• Prefer to have benefits now and bear costs in the
  future time preference
• Rate of time preference is termed discount rate
• To allow for differential timing of costs (and
  benefits) between programmes all future costs
  (and benefits) should be stated in terms of their
  present value using discount rate.
• Thus, future costs given less weight than present
  costs.
• Annuitization of capital costs
• Capital costs represent an investment at start-up
  in an asset which is used and depreciated over
  time.
• Annualise the initial capital outlay over the
  useful life of asset.

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Sensitivity analysis

• Process of assessing the robustness of an
  economic evaluation by considering the effects of
  uncertainty.
• Consists in
• Identifying the (uncertain) variables.
• Specifying the plausible range over which they
  should vary.
• Recalculating results, usually based on
• One-way analysis
• Multi-way analysis
• Extreme scenario analysis
• Threshold analysis.

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Part 3Types of Economic Evaluation
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Basic types of economic evaluation

• Cost minimization Analysis (CMA)
• Cost-effectiveness Analysis (CEA)
• Cost-utility Analysis (CUA)
• Cost-benefit Analysis (CBA)

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Cost minimization Analysis

• Specific type of analysis in which the outcomes
  of the 2 (or more) healthcare interventions are
  assumed equal.
• Therefore economic evaluation is based solely on
  comparative costs.
• Result least cost alternative.

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Cost-effectiveness Analysis

• In CEA, outcomes are measured in natural or
  physical units (e.g. heart attacks avoided,
  deaths avoided).
• Only one domain of outcomes can be explored at a
  time.
• Result cost per unit of consequence (e.g.
  cost/LY gained)

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Cost-effectiveness Analysis

• Decision rule
• Two programmes A (comparator) and B.
• If Outcome B Outcome A gt Compare costs (CMA).
• If Outcome B gt Outcome A and Cost B lt Cost A, B
  is dominant.
• If Outcome B gt Outcome A and Cost B gt Cost A, we
  have to make a decision.
• In order to make a decision on which intervention
  to choose, a cost-effectiveness ratio (CER)
  should be calculated.

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Cost-effectiveness Analysis

• The most commonly CERs used are the
• Average cost-effectiveness ratio (ACER)
• Incremental cost-effectiveness ratio (ICER)
• The next question is Is the intervention
  cost-effective?

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Cost-effectiveness Analysis

• There is no magic cut-off number that
  establishes whether or not an intervention is
  cost-effective.
• It will depend on what is termed the decision
  makers ceiling ratio.
• The ceiling ratio can be inferred from the amount
  that decision-makers are willing to pay.
• To make a decision
• If ICER of the program ceiling ratio ? adopt
  the program
• If ICER of the program gt ceiling ratio ? do not
  adopt the program

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Cost-effectiveness Analysis

• The cost-effectiveness acceptability Plane

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Cost-utility Analysis

• In CUA, the outcomes are measured in healthy
  years, to which a value has been attached.
• CUA is multidimensional and incorporates
  considerations of quality of life as well as
  quantity of life using a common unit.
• Result Cost per unit of consequence (e.g.
  cost/QALY).

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Cost-benefit Analysis

• CBA try to value the outcomes in monetary terms,
  so as to make them commensurate with the costs.
• Result Net benefit or cost-benefit ratio.
• CBAs rarely used in health care.

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Summary
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Thank you! Merci!...Weebale!R. Baltussen, K.
Floyd and C. Dye, (2005) Cost effectiveness
analysis of strategies for tuberculosis control
in developing countries, British Medical
Journal, 3311364, (originally published online
10 Nov 2005 doi10.1136/bmj.38645.660093.68)D.
R. Hogan, R. Baltussen, C. Hayashi, J. A. Lauer,
J. A. Salomon, (2005) Cost effectiveness
analysis of strategies to combat HIV/AIDS in
developing countries, British Medical Journal,
doi10.1136/bmj.38643.368692.68 (published 10
November 2005)C. A. Goodman, P. G. Coleman, A.
J. Mills, (1999) Cost-effectiveness of malaria
control in sub-Saharan Africa The Lancet, vol.
354, 378-85, July. mailto nbiondi_at_sun.ac.za