Topic G Cost-Benefit Analysis Flashcards
Cost-Benefit Analysis
A pharmacoeconomic analysis that compares both costs and benefits (=outcomes) in monetary units
Cost-Benefit Analysis
Originally introduced in effort of aiding economic welfare decision regarding public policy. Now it is used in irrigation and flood control, wildlife, air quality etc.
Advantages of CBA
Many different outcomes can be compared as long as the outcomes measures are valued in monetary units. Can compare multiple programs with varying outcomes.
Advantages of CBA
Very useful in determining which programs or intervention has the greatest benefit among multiple options “Which program will provide the greatest benefit among the multiple alternatives?”
Disadvantages of CBA
Placing economic values on medical outcomes is not an easy task. It can lead to biased or inaccurate estimates of the outcomes.
Components of CBA
Costs & Benefits
CBA Costs
Direct medical and direct non-medical
CBA Benefits
Direct medical, direct non-medical, Indirect: (HC), (WTP) and Intangible: (WTP)
Cost vs. Benefit
Direct medical costs vs. Direct medical benefit
Human Capital (HC) Method
Indirect Benefits: Increases (=prevents the decrease) in productivity or earnings because of a program or intervention. Estimates wage and productivity losses because of illness, disability, or death. Calculation: Wage rate and Missed time
HC Example
Average Income: $40,000
Average Work Days: 240 days
This patient used to miss 20 days per year from work before utilizing asthma program. After utilizing asthma program, now she misses 7 days per year from work.
Indirect benefit (=Cost saving): (20-7) x 167 = $2,171
(167 is the daily wage rate) - 40,000/240 = 167/daily
HC Calculation
(Difference of the days missed work) x (Daily Wage Rate) = $$$
HC Disadvantage
Personal wage differences
Does not consider health-related quality of life such as pain & suffering
Willingness-to-Pay (WTP) Method
To determine “how much people are willing to pay to reduce the chance of an adverse health outcome”
It incorporates patient preferences and intangible benefits such as quality of life.
WTP: Bidding Vehicles
Open Ended Questions
Closed Ended Questions
Bidding Games
Payment Card
Open Ended Questions
“How much would you be willing to pay for the program or intervention?”
It is used the least because: It leads to a wide range of the values and many respondents do not know what values to put in.
Closed Ended Questions
Take it or Leave it
Uses only one WTP value
Bidding Games
Several bids (3 times is optimal) are offered to reach a person’s maximum WTP
Time Consuming.
“If yes, ask…” “If no, ask….”
Payment Card
Provides the respondents with a list of possible WTP amounts to choose from. Very easy to use and provides a range of values at the same time.
2 Ways to Present CBA
Net Benefit or Net Cost: Subtraction
Benefit to Cost Ratio or Cost to Benefit Ratio: Division
Net Benefit OR Net Costs
Net Benefit = Total Benefits - Total Costs
Net Cost = Total Costs - Total Benefits
Interventions are considered to be cost beneficial if:
Net Benefit > 0 or Net Cost < 0
Benefit to Cost Ratio or Cost to Benefit Ratio
Total Benefits/ Total Costs
Total Costs/ Total Benefits
Interventions are considered to be cost beneficial if:
Benefit to Cost > 1 OR Cost to Benefit < 1
