pubhlth 228 - week 3: economic evaluation

economic evaluation

objective way to compare alternative ways of using resources to improve health & choose to spend funds to produce max health benefits

what inspired economic evaluation?

motivated by projects during the depression era, and the intro of medicaid & medicare in 1965

why are economic evaluations important?

• federal agencies (EPA & FDA) are required to conduct it to ensure good use of resources

• BUT USPTF (united states preventive services task force) DOES NOT consider costs when making recommendations

• considering how are different population groups affected

cost-analysis

focus only on program costs

efficacy or effectiveness analysis

focus only on program outcomes

cost-minimization analysis

programs have equivalent outcomes (compare program costs & outcomes)

cost-benefit analysis, measure, need, & result

• how program outcomes are measured

• program costs and benefits measured in money

• no need for group comparison

• results:

  • net benefit or net cost savings (benefit - cost)

  • cost-benefit ratio (benefit / cost)

cost-effectiveness analysis, measure, need, & results

• program costs and benefits measured in health outcomes

• non-monetary units

• need comparison b/w groups

• results:

  • cost per unit health outcomes (cost per additional year of life)

cost-utility analysis, measure, & result

• program cost & benefits measured in health outcomes

• measures health outcomes adjusted for quality of life

• subset of cost-effectiveness analysis

• result:

  • cost per quality-adjusted life year (QALY)

non-monetary units

measuring profit or success using human outcomes rather than money

net benefit or net cost savings

• result of cost-benefit analysis

• (benefit - cost) > 0 —> program worth implementing

• ex: project costs 100 million & benefit 105 million —> net: 5 million

cost-benefit ratio

• result of cost-benefit analysis

• if (benefit / cost) > 1 —> the program is worth implementing

• ex: project costs 100 million & benefit 105 million —> ratio 1.05

cost-effectiveness analysis health outcome/effect measures

• natural measures: comparing 2 treatments for the same condition

• patient-reported outcome measures: patient perspective of their own health

incremental cost-effective analysis

• if additional benefits or health effects is worth the additional cost

• decision on which program to use should be based on additional costs & benefits of 1 intervention vs another, not total or average costs and benefits

incremental cost-effectiveness ratio (ICER)

• comparing costs & benefits QALY b/w 2 intervention strategies; focus on changes in cost & QALYs

• incremental cost / incremental QALY

cost savings

• under cost-benefit analysis

• benefits measured as cost savings (ex: reduced costs due to illness or disease avoided)

how to measure benefits (cost-benefit analysis) - type of cost savings

• direct costs (medical costs, supplies, expenses for services)

• indirect costs (value of time or life lost due to illness)

• external or intangible costs (externalities or pain)

how to measure benefits (cost-benefit analysis): direct & indirect

• measure direct cost by observed $ outlay (receipts, invoices, or payroll)

• measure indirect through productivity gains, $ value of health improvements, willingness to pay, revealed preference, & cost of illness studies

advantage & disadvantages of willingness to pay approach

• advantage: based on the values people place

• disadvantage: people not knowing enough & that healthcare affects your choices

revealed preference approach

• under cost-benefit cost savings; indirect cost

• “hidden price tag” & OBSERVING (not asking) what people do

• ex: difference in home price reveals exactly how much homeowners are willing to pay for clean air

• ex: time is an indirect cost of healthcare. if a patient spends 2 hours driving to a doctor, they haven't "lost cash," but they have lost time they could have used for something else

advantages & disadvantages of revealed preference

• advantages: reflects real world limitations like income & time; unlike survey’s people give “socially acceptable answers”

• disadvantages: ability to pay bias & gives more “weight” to preferences

advantages & disadvantages of cost-benefit analysis

• advantage: money is easily understood by people, can evaluate merits, & diff health outcomes

• advantage: all benefits must be measured in $, which can be difficult & ignore scale of program (large b/c ratio may represent small net benefits)

advantages & disadvantages of cost-effective analysis

• advantages: no need to value human life in $ & can compare programs based on the cost of achieving health improvement

• disadvantages: can’t evaluate “worth” of program implementation & difficult to compare programs w/ diff health measures/outcomes

advantages & disadvantages of cost-utility analysis

• advantages: doesn’t treat ALL years of life saved as equal value (ex: someone in a coma); adjusts year based on individual preferences for diff health conditions (how much would they give up to avoid a specific condition

• disadvantages: measurement difficulty; not representative of population

QALY formula

sum of each (years x designated health state preference)

different ways to express economic evaluation results

should unrelated healthcare cost be included in c-e ratios? (ex: if evaluating a program to reduce cholesterol, should include medical costs of non-CHD health care (e.g., cancer, influenza, etc.)

• economic perspective is all about all costs

• most people exclude these costs