Economic Evaluation of Health Care Fields

1. Economic Evaluation of Health Care Fields Prof. Jae-Young Lim

2. General Background • Why we need it? Scarcity of resources  choice problem • Economic evaluation: general criterion of selecting the most valuation alternative • Process of development of economic evaluation • 17 century, English doctor, Richard Petty • Act of flood avoidance in 1936 of USA

3. The concepts of economic evaluation • Comparison of inputs and outputs (cost-benefit analysis, cost-effectiveness analysis, cost-utility analysis, cost minimization analysis) • Basin factors • Inputs and output • Choice problem • Difference in policy process: political and social validity should be considered in policy process

4. Each method of economic evaluation- depending on categorization- • Drummond et. al.(1987) Input of resources Output: health promotion Health Care • Effectiveness • Health promotion measured in physical units • Utility • Quality Adjusted Life Year • Benefit • Health promotion measured by monetary units • Cost • direct cost • indirect cost • intangible cost

5. Cost and benefit of health care (I) • cost: economic cost vs. accounting cost • Direct cost • Resources in health care services • Other resources: social welfare services • Supporting of patient’s family • Indirect cost: early death and decrease of productivity due to diseases • benefit: change in health level • Health promotion and extension of life year • Increase of production amount due to recovered health status • Health promotion  reduction of medical cost in future

6. Cost and benefit in health care (II) • Measurement of cost and benefit • Method of value evaluation • Human Capital approach • Willingness to Pay Approach • Specific Method • Value evaluation by market price • Value evaluation by non-market price

7. Cost minimization Analysis • Cost minimization analysis • Condition: same outcome of various projects • Method: choosing the project which pay the least cost • example: in appendectomy, we have two options such as hospital admission and day surgery unit. Which one we should choose?

8. Cost-Effectiveness Analysis • condition: the outcomes have same features but different level of achievements • Method: we choose the project which pay the least cost given the same level of outcome or make the greatest outcome given the same level of cost • Example: treating hypertension patients  visiting working placevs. walk in doctor’s office • Discussion: if we have same characteristics of outcome, we can apply this method even seemingly different projects.

9. Cost Effectiveness Analysis (II) • Measurement of outcome: the following conditions should be satisfied. • The object should be only one and be clear. • There should be clear index which could be applied to different projects. • Sources: the validity of medical facts should be investigated • Utilization of previous works which was performed based on randomized clinical trials • Other issues • What if there exists by-products? • Effectiveness in future: discount rate  present value • Sensitivity analysis: the results have stability under different parameters on which the research is performed

10. Cost Utility Analysis (I) • Condition: kinds or amount of outcomes of various projects don’t have to be same, but should be measured by “Healthy Days” or “Quality Adjusted Life Years”(QALY). • Decision criterion: the greatest QALY per cost or the least cost per QALY should be chosen. • Example: concerning several treatment methods for immature baby, the most cost-effective method should be found using decision criterion above. • Difference from CEA: the outcome is represented by Healthy Days or QALY.

11. Cost Utility Analysis (II) • Utility: value assigned to specific health status evaluated by individual or social preferences and not is health status per se. • QALY (Quality-Adjusted Life-Year) • QALY = U(utility weight)  LY(life year)  for example, a person might retain his/her health status by 70% of perfect health status during 2 years due to arthritis, then his/her QALY is 1.4(=0.7ⅹ2). • Conditions • The output should be measured by the change of quality of life due medical intervention.

12. Cost Utility Analysis (III) • Measurement of Utility • Rating Scale • Subjectively evaluated form 0 (death) 100 (perfect heath) • The number has only ordinal concept, which suggests that the normal arithmetic method can’t be applied. • Standard Gamble • Neumann & Morgenstern’s Expected Utility Theory • According to different value of p, we can set up the individual value on state i by finding p which make two situations be indifferent. p Healthy option1 Dead 1-p State i Option 2

13. Cost Utility Analysis (IV) • Time trade-off • Developed by Torrance • Option 1 means s/he will be living with i health status during t years, and option 2 means s/he will be living with perfect health status during x years which is lower than t. • When s/he is indifferent in two options given x, x/t suggests the utility of health status i. Option 2 Healthy 1.0 option 1 hi State i Dead Time 0 x t

14. Cost Benefit Analysis (I) • Condition: the quality or quantity of each projects should not be same but be measured by monetary units. • Method • List up cost and benefit of each project • Measure each item of cost and benefit with monetary unit • Calculate the present value of cost and benefit of each project • Choose the project whose cost-benefit ratio is the greatest one

15. Cost Benefit Analysis (II) • Evaluation of cost and benefits(Human Capital approach or willingness to pay approach) • Example: Breast cancer screening project of 40~59 age years old woman it is assumed that 10,000 lives could be saved by this project. • Method of evaluating value of life • Discounted present value of life (human capital approach) • Willingness to pay for surviving • Expert’s opinion • Decision criterion • Cost-benefit ratio • Net benefit • Net present value • Internal Rate of Return

16. Limit of economic evaluation • Economic evaluation is only one criterion among many standards. • Efficiency vs. Equity • Supplementary vs. deterministic

17. The Economic Evaluation is very important but we should think another important issue in health investment which might be more important. Thanks for your listening!!!