Health Economics

1
Health Economics Policy3rd EditionJames W.
Henderson

• Chapter 4
• Economic Evaluation in Health Care

2
The Inevitability of Trade-Offs

• The value of a medical intervention
• The inclusion of a drug on the formulary
• Paying for an experimental procedure
• Investing in new technology
• Is it worth it? How do we measure value to
  insure we get value for spending?

3
Economic Evaluation

• Reality of opportunity cost
• Useful alternatives compete for resources
• Making choices is sometime unpleasant
• Options for colorectal cancer screening
• Fecal blood test
• Barium enima
• Sigmoidoscopy
• Colonoscopy
• Is it worth the extra money?

4
What is Economic Evaluation?

• A comparative analysis
• Evaluating alternative courses of action
• Examining both costs and consequences
• Identify
• Value
• Measure
• Compare

5
Types of Economic Evaluation

• Cost of illness studies
• Cost-benefit analyses
• Cost-effectiveness studies

6
Cost of Illness Studies

• What does it cost?
• Burden of a disease
• Burden of 5 chronic conditions in US (Druss et
  al., 2001)
• Mood disorders, diabetes, heart disease, asthma,
  and hypertension
• Direct cost of treatment - 62.3 billion
• Cost of treating coexisting conditions - 270
  billion
• Lost productivity - 36.2 billion
• Role in analysis increased awareness

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Cost-Benefit Analysis

• Simple extension of capital budgeting
• Developed to help public sector make decisions
  that maximize public welfare from tax spending
• Optimization in the absence of market pressure

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Benefit-Cost Criterion

• If ratio is greater than one, project is
  acceptable
• If net benefit stream is positive, project is
  acceptable.

9
Challenges of Cost-Benefit Analysis

• Valuing benefits
• How do you place a value on a human life?
• Willingness-to-pay approach
• When applied to health depends on
• wealth
• life expectancy
• current health status
• possibility of substituting current consumption
  for future consumption
• Choosing a discount rate

10
Cost-Effectiveness Analysis

• Developed outside traditional welfare economics
  framework
• Measures health benefit by health outcome, not
  the dollar value of life
• Using the decision makers approach
• Maximize the level of health for a given
  population subject to a budget constraint
• Practical guide for choosing between programs or
  treatment options when budgets are limited

11
Incremental Cost-Effectiveness Ratio

• If CA gt CB and EA lt EB, B dominates.
• If CA lt CB and EA gt EB, A dominates.
• If, however, CB gt CA and EB gt EA, choice is not
  obvious. Use CE.

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Graphical Presentation of CE
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Interpretation of CE Graph

• Strategies that form the solid line connecting
  the points lying left and above are the
  economically rational subset of choices
• Points like C and E are strictly dominated
  alternatives
• The inverse of the slope between any two points
  represents the incremental CE ratio
• As the slope gets flatter, the CE ratio gets
  higher giving literal meaning to
  flat-of-the-curve

14
Measuring Costs

• Direct associated with use of resources
• Medical
• Non-medical
• Indirect related to lost productivity
• Medical
• Non-medical
• Intangible associated with pain and suffering,
  grief, anxiety, and disfigurement

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Measuring Effectiveness Improvements in Health

• Surrogate measures stated in terms of clinical
  efficacy
• Blood pressure, cholesterol levels, bone mass
  density, or tumor size
• Intermediate measures stated in terms of clinical
  effectiveness
• Events, scores on exams
• Final outcomes measure economic effectiveness
• Events avoided, disease-free days, life-years
  saved, quality-adjusted life years saved

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Improved Life Expectancy Due to Clinical Treatment
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Quality of Life Measures

• Attempt to measure value of life in terms of
  quality and quantity
• View QALY as life expectancy with a preference
  weight for perfect health attached to each year
• Measured on a preference scale anchored by death
  (0) and perfect health (1)

18
Calculating QALYs Using Preferences for Health
States
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Standard Time Trade-Off for Calculating QALYs

• Standard time tradeoff offering 2 options
• chronic health state i for t years, followed
  immediately by death
• Perfect health for x years (where x is less than
  t), followed immediately by death
• Vary length of x until individual is indifferent
  between two options
• Value of one year in chronic health state is x/t

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Standard Gamble for Calculating QALYs

• Direct approach based on fundamental axioms of
  utility theory
• A treatment is available for individuals in
  chronic disease state
• When it works, the treatment provides a permanent
  cure. When it does not work, the result is
  immediate death
• How high does the risk of dying have to be before
  the patient refuses treatment?
• The utility value of each year in the chronic
  disease state is equal to the associated
  probability that the treatment works

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Performing an ICER

• Rank the alternative treatment options by health
  benefit (beginning with the one with the lowest
  benefit).
• Eliminate treatment alternatives that are
  strictly dominated.
• Calculate the ICER between each treatment option
  and the next most expensive option.
• Eliminate treatment options that display extended
  dominance.
• Determine which treatment options have an ICER
  that is below the cut-off ICER.