Flagship Program on

Health Sector Reform and

Sustainable Financing

Principles of Economic Evaluation in Health

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Purpose of the Session

To give an introduction to the topic of the economic evaluation in health

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Contents

Concept of economic evaluation Basic methods of economic

evaluation Basic components of an economic

evaluation analysis Conclusions

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Concept of economic evaluation (1)

Idea of economic evaluation in health is relatively new. To some degree, scarcity not explicitly considered in former evaluations of health care.

For example: economic evaluation of pharmaceuticals

Before: To introduce a new pharmaceutical, it was enough to prove its effectiveness compared to placebos.

Nowadays: Economic criteria are getting ever more important when considering the approval of a new drug, especially if it is financed by a public entity. To be approved, new drugs have to be more cost-effective than previous ones to be financed.

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Concept of economic evaluation (1)

Economic evaluation increasingly used as a method of prioritization

For example, at MEDLINE more than 10, 0000 studies related to economic evaluation are yearly registered. Thirty year ago, less than 100 studies were produced yearly on this issue.

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Concept of economic evaluation (1)

Economic evaluation studies are based on economists’ way of thinking

Economists consider above all the following two principles: There is scarcity of resources When there is scarcity it is necessary to

make decisions that maximize benefits

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Concept of economic evaluation (1)

Economic evaluation studies try to answer the following two questions: Are resources being allocated in the best

possible way? Are benefits greater than if another decision had

been taken? ==> Economic evaluation analysis deals with efficient

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Concept of economic evaluation (2)

Economic evaluation can be defined as: “the comparative analysis of alternative courses

of action in terms of both their costs and their consequences”. (Drummond, 1997)

Examples: Compare the cost/result of construction of a hospital vs.

provision of scholarships for basic education Compare the cost/result of provision of benefits packages with

catastrophic coverage vs. provision of basic benefits package Compare the cost/result of caesarean section vs. a normal

delivery

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• Measure costs and results

• Compare alternatives

• Make decisions

Concept of economic evaluation (3)

In view of the former definition, economic evaluation consist of the following steps:

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Concept of economic evaluation (4)

Also, per previous definition, economic evaluation must contain following elements: 1. Both cost and results need to be

included. To analyze only costs, or only results implies a partial analysis

2. At least two alternatives have to be compared (status quo can be considered as an alternative).

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Concept of economic evaluation (5)

Examples of analysis that cannot be considered economic evaluations: Effectiveness analysis of early coronary

angioplasty ==>Does not consider costs, does not compare

alternatives Analysis of the cost of the provision of a

basic benefits package==> Does not consider results, does not compare

alternatives

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Making decisions

Concept of economic evaluation (6)

Economic evaluation refers to a group of tools that can be used to make decisions when i) it is necessary to chose among various alternatives and ii) there are economic constraints.

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Allocate resources to programs and projects

Choose

technologies

Allocate resources between sectors

Concept of economic evaluation (7)

Kind of decisions that can benefit from economic evaluation analysis

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Concept of economic evaluation (8)

Clarifying the perspective or point of view from which economic evaluation is carried out is important and influences the analysis and results

For example: the acquisition of a cat scan may be cost-effective from the private provider’s point of view but it might be cost ineffective from the society’s perspective

Therefore, it is important to clarify the perspective of analysis when starting or analyzing economic evaluation studies

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Society's point of

view

Individual's point of view

Concept of economic evaluation (9)

Points of view to carry out an economic evaluation analysis

Allocate resources to programs and projects

Choose

technologies

Allocate resources between sectors

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+1.Consequences beyond profit

2. Shadow price=

Concept of economic evaluation (10)

Basic differences between the perspective of the individual and the society when the economic evaluation analysis is made

Individual and/or businessman • To identify options• To identify costs and

results of each option• To evaluate cost and

results• To compare costs and

results to determine the total profits of the options

Society´s point of view

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Source: Mc Master Univ. How to read clinical journals VII, To understand an economic evaluation. Canadian Medical Association Journal Vol 130 June 1, p. 1430

Basic methods of economic evaluation (1)

YesIt only considers consequences

ResultsDescription

Is t

her

e m

ore

th

an o

ne

alte

rnat

ive?

Yes

No

Are costs and consequences considered?No

Effectiveness analysis

1.Cost-minimization analysis2.Cost-effectiveness analysis 3.Cost-utility analysis4.Cost-benefit analysis

It only considers costs

CostsDescription

Costsanalysis

Costs and ResultsDescription

Economic evaluation

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Basic methods of economic evaluation (2)

All four types of economic evaluation consider costs.

All four methods lead to the concept of “cost per unit of result”.

The “key” difference among the methods consists in the measurement and quantification of results.

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Basic methods of economic evaluation (3)

Method 1: Cost-minimization analysis Among various options it looks for the cheapest It is only appropriate when the alternatives being

compared have a similar level of effectiveness. For example

Compare the cost of providing ambulatory care services in a tertiary care level hospital vs. the provision of the same services in a health post

Compare the cost of IUD vs. contraceptive pills

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Basic methods of economic evaluation (4)

Method 2: Cost-effectiveness analysis This kind of analysis compares costs with results in

health. Results are measured in physical units that are natural for the program. There is no subjective valuation of the result.

For example: Prevention programs for malaria. It compares the cost per

prevented malaria case by program Treatment programs for malaria. It compares the cost per

treated malaria case by programs

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Basic methods of economic evaluation (5)

Method 2: Cost-effectiveness analysis Measures results on a single scale

For example, a road prevention accident program avoids deaths and injuries but a measure of cost-effectiveness only evaluates avoided deaths or injuries

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Basic methods of economic evaluation (6)

Method 2: Cost-effectiveness analysis It only can be used to compare programs

with the same results For example

It cannot be used to compare the malaria prevention program with the dengue prevention program

It cannot be used to compare the impact of wearing glasses vs. the impact of a cesarean section

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Physical welfare

Death Emotional welfare

+

?

+

?

Add different results

For example...

Basic methods of economic evaluation (7)

Cost-effectiveness cannot be used to compare programs or interventions with results that are not in the same units of measurement

In those cases, a common denominator is needed

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Basic methods of economic evaluation (8)

There are two methods to obtain the common denominator: Cost-utility analysis Cost-benefit analysis

Both of them evaluate the results of an intervention using the “utility”, or the subjective value of the result, for the decision maker.

That contrasts with cost-effectiveness analysis, that expresses the results in terms of physical units.

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Basic methods of economic evaluation (9)

Method 3: Cost-utility analysis It is a special case of cost-

effectiveness analysis where consequences are measured as life years (DALYs, QALYs and “DALES”, EuroQol) lost or gained.

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Basic methods of economic evaluation (10)

Method 4: Cost-benefit analysis

Evaluate the results in monetary units.

Compare costs and benefits, both of them

expressed in monetary units.

Evaluate if a project or program is desirable in

terms of criteria previously established (for

example, it accepts projects when the ratio

cost/benefit is less than 1).

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Basic methods of economic evaluation (11)

Cost-benefit

SummaryKind of analysis Costs are

considered?How each unit of

result is measured?

Cost-minimization Yes Project

Cost-effectiveness Physical units

Cost-utility DALYs, QALYsDales, Eurocol

Monetary units

Yes

Yes

YesCost-benefit

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1. Identify costs and results

2. Measure costs and results

3. Value costs and results

+

CONSIDERATIONS

Time

Sensitivity analysis

Incremental analysis

BASIC STEPS

Basic elements of an economic evaluation (1)

All four economic evaluation techniques involve similar basis steps and considerations.

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Basic elements of an economic evaluation (2)

COSTS RESULTS

Costs

Identification Measure Value

Health sector (C1)

Patient and family (C2)

Other sectors (C3)

Consumed Resources

Health Program

Change in health status

Saved resources

Effects (E) Health gain

Preferences in health status

Willingness to pay (W)

Willingness to pay (W´)

Health Sector (S1)

Patient and family (S2)

Other sectors (S3)

Saved resources

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Staff costs

Out of pocket payments, waiting time

Lost production from work absenteeism

Basic elements of an economic evaluation (3)

Identification of costs and results

Costs to consider in an economic evaluation analysis

Costs for the health care sector

Costs for patients and their families

Costs for other sectors

For example

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Being unconscious

More income

Severe suffering

Basic elements of an economic evaluation (4)

Changes in the physical, emotional or social functioning (Disability )

Health sector and patient savings (monetary benefits)

Changes in the quality of life of the patients and their families (distress)

Identification of costs and results

Results to consider in an economic evaluation analysis

For example

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Basic elements of an economic evaluation (5)

Many times only the costs and results for the health system are considered. This could lead to erroneous decisions.

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Basic elements of an economic evaluation (6)

Example of an incomplete analysis of costs and results Problem: Use cost-utility to decide if

immunization program is carried out in urban or rural areas.

Results:• The provision cost is higher in rural area.

• Health outcomes equal in both areas (e.g., DALYs)

• Savings for health sector and patients are similar in both cases

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Basic elements of an economic evaluation (7)

Example of an incomplete analysis of costs and results : The study didn't take into account all

costs and benefits in the rural area:That the program in the rural area will produce

savings in transportation costs.

==> thus program benefits in rural area would be underestimated, leading to implementation in urban areas only on the basis of an incomplete cost and benefit analysis.

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Additional Considerations

The time Often costs are incurred before results are

obtained. Not all results are produced at the same

time. For example, a program meant to reduce

the risk of diabetes are incurred during a long period and the results are also produced in the long run.

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Additional Considerations

The time Costs and results must be adjusted according to

time in all economic evaluation analysis. The technique to do that kind of adjustment is called

discount. The principle behind this technique is that:

individuals and society prefer to have something today rather than in the future. For example it’s not indifferent between getting $1 million today or $ 1 million in a year. Works by giving greater weight to earlier costs and benefits.

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Additional Considerations

Sensitivity Analysis Many times the economic evaluation

studies are associated with uncertainty regarding the results due, in part, to information problems.

Thus, analysts must make calculations with their “best estimation” based on the available information and assumptions

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Additional Considerations

Sensitivity Analysis Evaluates how much results vary when

the assumptions and the parameters are changed.

Robustness of results is measured. A sensitivity analysis of the relevant

variables always has to be done after finishing an economic evaluation.

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Additional Considerations

Example: The case: Evaluation of different alternatives to

treat an ear infection. The final result favors one of them.

Sensitivity analysis: it is evaluated if the previous result changes significantly when effectiveness is changed and the number of hospitalizations due to post treatment complications are varied. It is found that results do not change substantially.

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Additional Considerations

Example Conclusion: The result remains mostly

unchanged, despite the changes in those relevant variables.

Thus, results not sensitive to them and economic evaluation is consistent

Strong conclusions are obtained.

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Additional Considerations

Incremental analysis This analysis measures the additional costs

of an intervention or a program to produce an additional unit of result (DALYs, QALYs, monetary units, etc.) compared to standard intervention/program.

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Additional Considerations

An incremental analysis example The case:

There are two alternatives of antimicrobials for the treatment of ear infections. They cost respectively $1,250,000 and $1,375,000 and produce 89% and 95 % of successful treatments. Cost-effectiveness ratios of each alternative are 14.045 and 15.473.

This means that:The incremental cost of the second strategy is $125.000

($1.375.000-$1.250.000) to get 6 additional units of result (95%-89%) per each 100, i.e. the marginal cost is $20.833.

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Additional Considerations

An example of incremental analysis The case:

Cost DALYsAlternative 1 3000 140Alternative 2 3400 220Difference 400 80

This means that: The incremental cost of the second strategy is 400 (3400-3000) monetary units to get 80 additional DALYs (220-140), i.e. the marginal cost is 5.

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Conclusions

The economic evaluation methods are tools meant to help the decision process.

Not all studies that include costs and results are considered economic evaluation analysis.

The results of an economic evaluation analysis vary according to the study perspective or point of view.

There are various methods and not all of them are appropriate in all cases

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Conclusions

The economic evaluation analysis usually includes the following elements: Costs estimation Results estimation The time Sensitivity Presentation of results in ratios of costs and

consequences