Economic Evaluation Flashcards
What is economic evaluation and why is it conducted?
The systematic assessment and interpretation of the value of an intervention compared with alternatives.
- Examines relationship between cost and benefit.
- Use of analytical methods to compare the costs and consequences of two or more strategies to assesses their value for money
Why?
- Supports priority setting and evidence-based policy for RESOURCE ALLOCATION
- Evaluates EFFICIENCY of choices in a transparent, systematic and logical way
- Use in NON-MARKET SITUATIONS
How does economic evaluation help to assess efficiency?
Economic Efficiency – relative value of money of interventions with directly comparable outcomes (CEA and CUA, and CBA).
- Identifies least costly way to produce a health outcome
- Usually used within the health sector.
Allocative Efficiency – resources are allocated and goods distributed in a way that maximises social welfare (CBA only).
- How to allocate resources efficiently for social benefit. - - Both within and beyond the health sector (limited use as quite difficult to measure)
What is the difference between financial and economic costs?
Financial costs – Actual money spent on resources.
Economic costs – Opportunity cost (value or level of benefit of next best alternative). Shows value of resource to society.
Important distinction as true value to society may be higher or lower than financial price (over/undervalued)
What is a direct cost?
The value of resources used in design, implementation, accessing or continuation of health care intervention
What is a direct health care cost?
Costs essential to the health services, resources spent on health care
What is a direct non-health care cost?
Resources used in connection to health service but not health sector cost eg. transport, catering
What is an indirect cost?
The value of resources expended by patients and their carers to receive an intervention
What is an intangible cost?
The costs of discomfort, pain, anxiety or inconvenience.
What is a capital cost?
Costs of resources with useful life of more than one year. Buildings, equipment, vehicles etc.; Fixed
What is a recurrent cost?
Costs of resources that have a useful life of less than one year and have to be re-purchased eg. drugs, needs, personnel time etc.; Variable
What is total cost?
Sum of all costs of an intervention or health problem.
What is annual or annualised cost?
Cost of an intervention calculated on a yearly basis.
Annualized costs – converting capital cost into current cost equivalent. (Initial cost/Years of useful life).
What is an average cost?
Total cost divided by total units of activity or outcome (TC/Q)
What is a marginal cost?
Change in total cost divided by additional unit of output (Change in TC/Change in Q)
What is an incremental cost?
Marginal cost of group of units
What are the different measures of health consequences?
Mortality – deaths averted, or life years gained
Morbidity
- disease occurrence
- number cases cured or incidence
- disease-specific indices
- general health measures (QALY/DALY)
Intermediate Measures – Alternatives/proxies when it is not possible to measure the actual health outcome
Process Measures – Activities known or believed to have a direct bearing on outcome achieved by the intervention eg. length of hospital stay
Money – Monetary values assigned to health outcome
What is a QALY?
Quality-Adjusted Life Years – QALYs
- Measure of health gain (want to maximise)
- Composite health outcome measure based on: survival (years lived); and quality of life (utility)
Level of health (Utility -> 0 = Death; 1 = Perfect Health)
Weighting x Number of years lived in that health state
Dimensions: mobility, pain, self-care, usual activities and anxiety
General population norms applied to different diseases/conditions, measures preference
Used in CUA -> good for comparing outcomes across interventions, and showing post-intervention quality of life (side-effects and morbidity)
Example: NICE
National Institute for Health and Clinical Excellence - attempts to assess the cost-effectiveness of potential dial expenditures to establish whether or not they present better value for money compared to other treatments using QALYs and thresholds.
What is a DALY?
Disability-Adjusted Life Years - DALYs
- Measure of health loss (want to minimize)
- Measure of health outcome (time lost) due to: premature death and disability (less than full health)
Disability weighting (severity of disease -> 0 = Perfect Health; 1 = Death) Weighting x number of years lived in that health state Weighting based on a global study, allows for international comparison
Four explicit value choices: premature death relative to global life expectancy, unequal age weighting, discounting of future life years, experts weighted disease severity
Used in CUA - good for comparing outcomes across intervention, showing the burden of disease
Example: The World Bank Development Report 1993, using to decide what is a good buy - addressing burden or disease and cost-effective
What is Cost-Benefit Analysis?
• Compares cost and cost of outcomes
- Measurement of consequences – Monetary Units
- Consequences - Single or Multiple Effects, not necessarily common to both alternatives
- Efficiency – Economic and allocative
Indicators: Net-present Value (NPV) and Benefit-cost ratio (BCR)
Advantages: Can compare interventions with a range of outcomes for their social benefits (across sectors). Can compare across sectors. Preferences. Only evaluation that address allocative efficiency
Disadvantages: Monetary evaluation of benefits complex and contested.
Example: Building hospital vs. building a school
How do you measure Net-Present Value? (NPV)
Net-present Value (NPV) – Subtracts cost from benefits.
(Benefits – Costs) / (1 = r)
- Benefits – costs, discounted as appropriate
- Single monetary unit
- Programs calculated separately and compared
- > 0 = worthwhile. NPV is positive when benefits exceed costs. Higher NPV has greater benefit to society
What is Benefit-cost ratio (BCR)?
Benefit-cost ratio (BCR) – Benefits divided by cost. Ratio.
Pv Benefits / Pv Costs
- Ratio of total benefits to total cost (discounted as appropriate)
- Programs calculated separately and compared
- BCR must be > 1 for benefits to exceed cost, Higher BCR more worthwhile and cost-saving
- Rate of return
What is cost-effectiveness analysis?
Compares cost and health outcomes
- Measurement of consequences – Natural Units (life years gained, reduction in severity of outcome etc)
- Consequences - Single effect of both alternatives, achieved to different degrees
- Efficiency – Economic
Indicators:
- Average Cost-Effectiveness Ratio (ACER) – single intervention
- Incremental cost-effectiveness Ratio (ICER) – compares relative costs and effects of two interventions
- Marginal Cost-Effectiveness Ratio (MCER) – assess change from contraction expansion
Advantages: Used across different interventions for easy comparison
Disadvantages: Restricted to single unit of effect (common to both interventions); one measure of effectiveness; does not take into account social costs and benefits)
Example: Two different types of drugs for cholesterol reduction (must be a common measure of effect)
What is cost-utility analysis?
Compares cost and health outcome quality
- Measurement of consequences – Healthy years (typically QALYs)
- Consequences - Single or Multiple Effects, not necessarily common to both alternatives
- Efficiency – Economic
Indicators: ACER, ICER, MCER
Advantages: Broader than CEA, able to compare multiple effects/ different health conditions using a common metric
Disadvantages: Metrics are complex, not able to capture all characteristics (including social cost and benefit)
Example: screening for breast cancer/testing HIV/AIDS patients
What is an Average Cost-Effectiveness Ratio (ACER)?
Average Cost-Effectiveness Ratio (ACER) – single intervention
Total Cost (A) / Total Effects (A)
Single intervention, compares against baseline (current or no intervention)
What is an Incremental cost-effectiveness Ratio (ICER)?
Incremental cost-effectiveness Ratio (ICER) – compares relative costs and effects
Total Cost A - Total Cost B /
Total Effect A - Total Effect B
Compares cost and health outcomes of two alternative interventions
What is a Marginal Cost-Effectiveness Ratio (MCER)?
Marginal Cost-Effectiveness Ratio (MCER) – assess change from contraction expansion
Total Cost A +1 – Total Cost A /
Total Effect A + 1 – Total Effect A
Assesses change in cost and effect when program is expanded or contracted, change is generally more than one unit -> divides additional cost by additional effect
What is cost-analysis?
Measures and compares input costs of alternatives with the same outcome
- Measurement of consequences – None
- Consequences - None
Disadvantages: Interventions have to have identical outcome (rare), input costs across alternatives
Example: Two different tests that have same level of accuracy; lowest cost of a piece of equipment
What is sensitivity analysis and why is it done?
Process of analysing the robustness of findings in an economic evaluation by varying the assumptions used in analysis. Important as accounts for uncertainty and allows testing of impact of assumptions on findings.
Different types: probabilistic sensitivity analysis, scenario analysis, one-way and multi-sensitivity analysis
Example: uncertainty around prevalence of a disease – re-calculate outcome measure with extreme values
What is discounting and when might it be used?
Adjustment of values of costs and outcomes that occur at different time periods, converting them to a common time period (generally the present) using a discounted rate
Length of time for an outcome to occur – consumption-derived utility less valued in the future, some interventions take long period of time to yield outcome
Explain the difference between strong and weak dominance in making decisions in economic evaluation
Comparison of interventions via Strong and Weak Dominance
Strong Dominance – strategy that is both more effective and less costly is preferred
Weak Dominance – if no intervention is ruled more effective or less costly, interventions are ordered by effectiveness and each is compared to the next most effective alternative by calculating an ICER
How are thresholds used for decision-making in economic evaluation?
- Cost-Effectiveness compared against thresholds
- To decide on “value for money” ICERs must be compared to specified monetary thresholds that represent the maximum willing to pay
- Eg. $50000 per year of life, WHO – GDP per capita>DALY
- Sometimes shown on a cost-effectiveness plane
Give an example of economic evaluation in practice
The World Bank Development Report 1993
Gave recommendations about essential public and clinical health service packages for low and middle-income countries. Used DALYs to measure burden of disease and advocate a minimum package to be provided and publicly financed. Good buy was cost-effective and addressed large burden of disease
