Economic Evaluation of Health Care

(Evaluasi Ekonomi untuk Pelayanan Kesehatan)

Prof. dr. Bhisma Murti, MPH, MSC, PhD

Institute of Health Economic and Policy Studies (IHEPS), Department of Public Health,

Faculty of Medicine, Universitas Sebelas Maret

Getting the best value

for health spending

What is Economic Evaluation?

Economic evaluation is the comparative analysis of

alternative courses of action in terms of both their costs and

consequences

Cost

(resources,

inputs A,B,C)

Consequence

(benefit, utility,

outcome, effect A,B,C)

Health care

(intervention or

program A,B,C)

The Rationale for Economic Evaluation in Health Care

Resources are scarce (budget constraint, limited number of health care staff, lack of medicine, etc.) so they must be used efficiently and equitable

Clinical decision making has cost implication to patient, insurance company, and government that pay for the health care provided

Economic evaluation provides a scientific tool for selecting the most cost-effective health intervention

Health care

No

n-h

ea

lth

ca

re

Budget

constraint

Budget

relaxed

How Do We Do Economic Evaluation?

Decision rule:

Choose the most cost-

effective intervention

(the best value for

limited budget)

Intervention C?

Competing alternatives

(saling bersaing)

Limited budget Intervention A?

Intervention B?

Cost-effective

intervention

Population health

Budget

Technical Efficiency (Efisiensi Teknis)

Produce the same level of output with less cost or higher level of output with the same cost (cost-efficiency)

Rp 100,000,000

Intervention A

costs

Choose Choose intervention A because it

costs less to produce the same level

of output as intervention B

Rp 200,000,000

Intervention B

costs

Allocative Efficiency (Efisiensi Alokatif)

Resources are allocated such that community welfare at large is maximized

Allocative efficiency can be achieved if all parties across sectors produce efficiently

Health programs

No

n-h

ea

lth

pro

gra

ms Utility (welfare) to the

community at large

Allocatively efficient

because resources

allocated meet the highest

utility to the community)

Allocatively

inefficient (too

much health

program)

Types of Economic Evaluation

Types of economic evaluation: 1. Cost-effectiveness analysis (CEA)

Cost-Minimization Analysis (CMA)

2. Cost-utility analysis (CUA)

3. Cost-benefit analysis (CBA)

Full economic evaluation compares

both costs and consequences of two

or more alternatives

(Drummond et al. 2005)

Cost-Effectiveness Analysis

Compares alternative interventions where costs are measured in monetary term and benefits in natural units:

– Number of patients showing better clinical outcome

– Number of infants immunized

(note: both the above examples refer to an immediate outcome of health care intervention)

– Number of child death averted

– Years of life gained, etc.

Can be used to address technical efficiency

Where the level of health benefits of all alternatives are equal, so only costs of the alternatives to be compared, this CEA is called Cost-Minimization Analysis (CMA)

Cost-Utility Analysis

Compare alternative interventions where health benefits are measured in QALYs, DALYs, HYEs, HALYs, etc

Quality-Adjusted Life Year (QALYs) are valued on a utility (U) index where U=1 represents perfect health and U=0 represents death

Example of QALYs:

– 5 years of perfect health = 5 QALYs

– 3 years of perfect health followed by 2 years in a state valued to be 0.8 of perfect health= (3 years x 1U) + (2 years x 0.8U) = 4.6 QALYs

Can address both technical efficiency and allocative efficiency

What is QALY?

Quality-adjusted life year (QALY) is a measure of

health benefit or health state that combines the

quantity and quality of life

Improved

quantity of life

with program

Improved

quality of life

with program

Quality

of life

Time

QALY without

program

0

1

Cost-Benefit Analysis

Comparing alternatives where both costs and benefits are measured in monetary terms

Valuation method of health benefits: 1. Human capital approach

2. Willingness to pay (WTP)

Can compare two or more interventions across different sectors (e.g., health, education, transportation) according to their net effects on community welfare Can address allocative efficiency

Costs Health

benefits

Basic Model of Decision Making

An economic evaluation can be performed within the context of an experiment or other studies, a simulation model, or their combination

CHOICE

Program

A

Program

B

Consequences

Consequences

Probability A

Probability B

Consequence A

Consequence B

Decision Rule

CER+ CER++++

Choose alternative intervention

with lower C/E Ratio (CER)

Choose

Intervention A

CEA for Independent Interventions

For example: Oral Rehydration Therapy and Immunization are independent programs, each aims to avert child mortality

For independent intervention, calculate the cost-effectiveness ratios (CERs):

CER of each intervention implies comparison with “do-nothing” alternative

Draw a table comparing the alternatives List the alternatives from the most effective to the least effective one Compare the CERS, select the most cost-effective alternative

CER= C/E C= cost of intervention

E= effectiveness of intervention

CEA for Mutually Exclusive Interventions

For example: current immunization program and immunization plus nutrition program are mutually exclusive. Added nutrition element is called incremental.

For mutually exclusive programs, calculate the incremental cost-effectiveness ratio (ICER):

Draw a table comparing the alternatives List the alternatives from the least effective to the most effective one Compare the ICERS, exclude the “dominated” alternative Redraw a new table until 2 alternatives left

ICER= (C1 – C2) / (E1 - E2) C1= cost of program 1

C2= cost of program 2

E1= effectiveness of program 1

E2= effectiveness of program 2

How To Compare and Choose the More Cost-Effective One among Alternative Interventions

Cost-effectiveness

plane demarcates

acceptable ICER

Alternative with ICER

below and to the right

of the plane are likely

to be acceptable.

New intervention less

costly, more effective

(“Dominance”)

New intervention

more costly,

more effective

(“Cost-effective”)

New intervention

more costly, less

effective

(“Excluded”)

New intervention

less costly, but

also less

effective

(“Questionable”)

Current

Intervention

Effectiveness difference (ΔE)

Co

st

dif

fere

nc

e (

ΔC

),

*Bell et al., 2006

Summary (Ringkasan)

Resources are scarce, so they must be used

efficiently and equitably

Economic evaluation provides a scientific

tool for clinicians and health planners to

choose the most efficient health

intervention to attain the highest possible

health status of the patient and community