Chapter 9 (Cost-Benefit Modelling) Flashcards
List five approaches that might be used to help make decisions relating to resource allocation.[1.25]
- Cost analysis
- Cost-effectiveness analysis
- Cost-utility analysis
- Cost-benefit analysis
- Willingness to pay
Define the “Cost Analysis” method of evaluating a benefit system. [2]
Cost analysis is the simplest method✓ of economic evaluation of a benefit system✓.
It assesses the costs of various benefits✓ and is useful in estimating the required budget✓ and assessing whether a particular benefit system is affordable or sustainable over time✓✓.
The costs of all the resources required to provide the services under a particular benefit system must be included in the cost analysis✓✓.
State the advantages and disadvantages of the “Cost Analysis” method of evaluating a benefit system. [2]
The advantage is that a cost analysis can provide a breakdown✓ of the current and future costs✓, changes in cost✓ as the result of changes in the scale or number of covered lives✓, as well as cost recoveries from covered lives✓.
The disadvantage of cost analysis is that it does not take the value of the impact of the benefit into account✓✓, for example, for healthcare it does not take the value of improved health into account✓. This can lead to a focus on cost minimisation✓ without considering the quality✓ and effectiveness✓ of the benefit system.
Define the “Cost Effective Analysis” method of evaluating a benefit system. [3.5]
CEA assesses the costs of the benefit system relative to its non-monetary benefits.✓✓
The benefits can be expressed in several ways depending on the nature of the benefit.✓✓
Examples include an increase in productivity, a decrease in unemployment, an improvement in poverty metrics, a reduction in infant mortality rate, and an increase in expected lifetime at birth.✓✓
Although these measures must be quantitative✓, they do not have to be measured in monetary terms✓.
One example of a measure that can be measured in monetary terms is income lost because of sick days.✓✓
In formula terms, the measure can be expressed as:
CEA =
Cost of benefit system in monetary terms / Quantitative measure of benefit effectiveness ✓✓
Cost-effectiveness is a relative concept but is useful to compare different benefit systems.✓✓
It is useful for allocating a fixed budget between a fixed set of alternatives.✓✓
State the advantages of the “Cost Effective Analysis” method of evaluating a benefit system. [1.75]
- The benefits relative to the costs is relatively easy to understand✓✓, for example, for every R10 000 spent, the expected lifetime at birth increases by 1 year.✓✓
- The benefits do not have to be converted to monetary terms✓, which avoids the controversial issue✓ of valuing the life that has been saved or helped✓.
State the disadvantages of the “Cost Effective Analysis” method of evaluating a benefit system. [2.5]
- The fact that all benefit systems assessed must have the same measure of effectiveness.✓✓
- An inability to account for multi-dimensional effects✓ and cross-correlations✓, such as decreased infant mortality due to improved literacy levels✓✓.
- The possibility that CEA will under-estimate the value of various benefit interventions.✓✓
- The fact that CEA does not reflect the utility of the benefit service to the population covered.✓✓
Define the “Cost Utility Analysis” method of evaluating a benefit system. [2.75]
CUA assesses the cost of a healthcare system relative to changes in quality of life and mortality.✓✓
In CUA, the emphasis is on healthy life years saved✓, rather than simply counting the number of lives saved✓.
The utility gained by the improvement in both mortality and morbidity✓ is measured in Quality-Adjusted Life Years (QALYs)✓, Disability-Adjusted Life Years (DALYs)✓ or Healthy Years Equivalents (HYEs)✓.
In formula terms, the measure can be expressed as CUA =
Cost in monetary terms / Utility gained ✓✓
Define the term “QALY”s . [1.75]
QALYs provide a single health-status measure✓ which combines both the quantity and the quality of life✓✓.
It is a generic measure✓ that sums years spent in different health states✓ using weights on a scale of 0 (dead) to 1 (perfectly healthy) for each health state.✓✓
Define the “Cost Benefit Analysis” method of evaluating a benefit system. [3]
CBA puts a monetary value on the cost of the benefit system and its outcomes✓; therefore, it allows for a direct comparison of cost and outcome✓.
In a healthcare context, costs can be compared to changes in the quality of life of various segments of the population✓, as well as the impact on economic productivity✓.
An advantage of this method is that the system or programme can be evaluated on its own merit✓, rather than making comparisons between different systems✓.
CBA = Cost in monetary units/Benefits in monetary units✓✓
For a benefit to be recommended, CBA < 1.✓✓
The conversion of a benefit into a monetary value per unit is challenging✓ since it is controversial to assign a monetary value to changes in a person’s health, life expectancy, and dignity✓✓.
Define the term “WTP”. [1.75]
WTP can be used to measure the value that an individual places on a benefit system.✓✓
It attempts to determine how an individual balances the costs of healthcare✓, improvements in quality of life✓, and reduction in risk exposure✓ to events affecting income security✓ and other consumption✓.
Outline the two ways to determine WTP. [3]
- The direct method✓ which is conducted through questionnaires or interviews✓✓ to establish an individual’s WTP to obtain a specific service or their willingness to accept its unavailability✓✓.
- However, interviews are hypothetical✓ and may be influenced by emotional responses✓.
- In addition, responses may not reflect actual behaviour when individuals have to pay for it.✓✓
- The indirect method✓ determines an individual’s WTP by observing their behaviour and identifying how much they are willing to pay.✓✓
However, there are many confounding factors associated with the behaviour of an individual, which is a weakness of this approach.✓✓
Chapter question 3
State the types of costs that should be considered in performing a cost analysis to allocate healthcare system.[2.5]
The cost analysis should consider all the resources✓ needed for the healthcare system in terms of the benefits provided✓, including:
* Initial and recurrent costs✓✓
* Fixed and variable costs ✓✓
* Direct and indirect costs ✓✓
* Estimates of future costs✓ and how future costs are expected to change✓ as the healthcare system and the population develop✓.
Chapter question 4
Determine the number of QALYs for the following:
i) An individual who has had 5 years of perfect health
ii) An individual who has had 2 years in a state measured as 0.5 of perfect health, followed by 3 years of perfect health. [0.5]
i) 5 years of perfect health gives 5 QALYs.✓
ii) 2 years in a state measured as 0.5 gives 1 QALY and
3 years of perfect health gives 3 QALYs,
giving a total of 4 QALYs✓.
Explain how cost-benefit analysis (CBA) is used to evaluate healthcare benefit systems. What are the advantages and limitations of using CBA for this purpose?
Cost-benefit analysis (CBA) evaluates healthcare benefit systems by comparing the total costs of an intervention to its total benefits, which are expressed in monetary terms. The primary advantage of CBA is its ability to provide a clear financial perspective on whether the benefits outweigh the costs. However, limitations include the challenge of assigning monetary values to intangible benefits like improved quality of life and the potential for differing stakeholder perspectives on value.
J2019 Q6 (iv) [5]
