College of Public Health and Human Sciences

1. College of Public Health and Human Sciences Public Health Policy Institute Economic Analysis of Public HealthPolicy Presenter: Jangho Yoon, PhD Date: August 22, 2013

2. Benefit vs. cost

3. Topics • Three methods: cost analysis, benefit-cost analysis, & cost-effectiveness analysis. • Different methods provide different information. • Continuum types of program evaluation tools.

4. Cost analysis • Analysis of program cost and cost of illness. • Cost minimization • Stand-alone evaluation method when • Assessing only one program • Do not know of program effectiveness • Competing program options are equally effective

5. Cost analysis • Average cost • Cost per unit of output • e.g., cost per child immunized • AC = TC / Q • AC = average cost • TC = total cost • Q = quantity of an intervention • AC = cost-effectiveness ratio (CER)

6. Cost analysis example • Suppose • Smoking rate in an inner-city high school is 50%. • Prevention Program A: enrolled 20 students, cost $20,000, and 15 of the 20 students did not smoke. • Prevention Program B: enrolled 40 students, cost $50,000, and 30 of the 40 students did not smoke. • Average costs • Program A: one additional non-smoker for every $4,000 spent. • Program B: one additional non-smoker for every $5,000 spent.

7. Cost-effectiveness analysis • Compares several competing options in terms of both costs and health outcomes. • “Which option is the cheapest, most effective way to achieve a certain health status?” • Outcomes not monetized. • May include the quality-of-life aspect: life years vs. quality-adjusted life years. • Intermediate health outcomes

8. Cost-effectiveness analysis example • Suppose • Program A: enrolled 20 students, cost $20,000, and eventually 15 of the 20 students did not smoke. • Program C: enrolled 20 students, cost $15,000, and 12 of the 20 students did not smoke. • Comparison of the programs • Program A is more effective • Program C is cheaper in terms of the total cost • A simple cost-effectiveness analysis compares per-unit costs • Program A cost $4,000 for each additional non-smoker. • Program C cost $7,500 for an additional non-smoker.

9. Benefit-cost analysis • Assigns a dollar value to an outcome, and compares the monetary benefits and costs. • "Do the economic benefits of providing this service outweigh the economic costs?"

10. Benefit-cost analysis • Benefit-to-cost ratio R = Benefit ($) / Cost($) • Net value (= net benefit = net rate of return) NV = Benefit ($) – Cost ($)

11. Benefit-cost analysis example • In a benefit-cost analysis of Program A • Compare the $ value of averted smokers to the monetary cost of providing the program. • A non-smoker avoids $10,000 costs of illness more than a smoker during her life time • Program A leads to the benefit of $50,000 and the cost of $20,000 in the very first place. • Benefit-to-cost ratio: $50,000 / $20,000 = 2.5 • Net rate of return: $50,000 ($10,000×5 smokers avoided) – $20,000 = $30,000.

12. Framing Economic Analysis

13. Framework of economic analysis • Identify need/issue/problem • Synthesize evidence, assess current local policy, and generate policy options (alternatives) • Develop a cost inventory & evaluate resource use • If applicable, obtain data on effectiveness outcome (or its dollar value). • Analyze costs (and outcomes), if applicable, to select the best option.

14. Synthesize evidence, assess current local policy, and generate policy options • Must consider • Programs • Target population • Program site • Study design • Time frame • Audience • Study perspective

15. Develop a cost inventory

16. Develop a cost inventory

17. Evaluate resource use • Direct cost = program cost = fixed cost + variable cost

18. Exercise • Ms. Betty is a manager responsible for tuberculosis-control activities at the county health department. Her clinic is located in a building leased by the county from the city. For transportation, Ms. Betty uses her personal vehicle and is reimbursed for mileage. • The clinic is equipped with a portable isolation unit for infectious patients. Patients who need chest x-rays are referred to the local hospital. • The clinic has a nurse who spends the majority of her time in the field, administering tuberculin skin tests to patients suspected of being infected with tuberculosis, collecting sputum samples for smears and cultures with her portable nebulizer, and administering drug treatment. • Ms. Betty and the nurse use laptops and a database software program to keep track of their patients. • From this brief description, identify fixed and variable costs associated with this tuberculosis-control program.

19. Cost Analysis

20. Framing cost analysis • Identify need/issue/problem • Synthesize evidence, assess current local policy, and generate policy options (alternatives) • Develop a cost inventory & evaluate resource use • If applicable, obtain data on effectiveness outcome • Analyze costs–and, if applicable, outcomes to select the best option

21. Activity F: Economic Analysis • Denver school-based hepatitis B vaccination program: Cost analysis

22. Cost data sources • Primary data collection • Surveys • Medical records • Accounting and payroll systems • Published literature • Professional guidelines/practice

23. Discounting future costs • Future costs (or savings) must be discounted. • Discounting: adjust the dollar amount to reflect the time value of money by assigning lower values to costs in the future than to costs in the present. • The Panel on Cost-Effectiveness in Health and Medicine settled on a rate of 3%. • The panel also recommends 0% and 7%. • 5% internationally.

24. Discounting future costs • Relationship between current and next-year costs = interest rate. Next-year cost = present cost • Present value of next year’s costs (C2) • discount rate • : discount factor

25. Discounting future costs • Exercise: what is the current value of next year’s $100? Use 3% discount rate. 3%:

26. Discounting future costs • Compound interest for ≥ 2 years • Present value of costs in Year 3

27. Discounting future costs • Exercise: Consider a program that costs $1,000 every year for the entire four years of the intervention, that is, Year 1 (present) to Year 4. Calculate the total cost of this program at the 3%, 5%, and 7% discount rates.

28. Benefit-Cost Analysis

29. Activity F: Economic Analysis • Denver school-based hepatitis B vaccination program: Benefit-Cost analysis

30. Net prevent value • Discounting • Benefits and costs should be discounted if measured for multiple years. • Net present value (NPV): Discounted NV

31. Cost-Effectiveness Analysis

32. Cost-effectiveness analysis • Effectiveness: Benefits of a health intervention. • Quality-adjusted life years (or QALYs) is the most widely used measure in the U.S. • Incremental cost-effectiveness ratio (ICER) • The most common measure of cost-effectiveness. • ICER is simply the incremental cost divided by the incremental effectiveness. • Assess how much we need to spend to increase the effectiveness by one unit.

33. Cost-effectiveness analysis • Incremental cost-effectiveness ratio (ICER) • Incremental cost-effectiveness ratio of Program A against Program B Incremental change in costs (A-B) ICERA= Incremental change in health outcome (A-B) • ICER is cost difference divided by effectiveness difference. • Less effective competing alternative B on the right-hand side.

34. CEA exercise • Suppose • The bypass surgery for coronary artery disease costs $25,000 while the stenting costs $4,000. • The average hospitalization costs $1,000/day. • Patients given the bypass surgery on average have 4 days of hospitalization (including rehospitalization due to complications). • The stenting have an average hospitalization of 3 days. • Persons given the bypass surgery expect to gain 40 QALYs, while those given the stent live 35 QALYs. • What is the ICER of the heart bypass surgery?

35. Activity F: Economic Analysis • Denver school-based hepatitis B vaccination program: Cost-Effectiveness analysis

36. Discounted ICER • Discounting for multi-year impact • An ICER for a three-year program: ICER = ICER for Year 1 + discounted ICER for Year 2 + discounted ICER for Year 3 = ICERYear1+ (ICERYear2×)+(ICERYear3×)

37. Data sources for economic evaluation • The Community Guide • A free resource to help you choose programs and policies to improve health and prevent disease in your community. • Systematic reviews to answer • Which program and policy have been proven effective? • Are there effective interventions right for my community? • What might effective interventions cost? • http://www.thecommunityguide.org.

38. Data sources for economic evaluation • Center for the Evaluation of Value and Risk in Health (CEVR) • Cost-effectiveness registry • https://research.tufts-nemc.org/cear4/Home.aspx. • Hepatitis B vaccination: 10 hits. • Cochrane Library • Economic analysis articles • http://www.thecochranelibrary.com/view/0/economicEvaluations.html • Hepatitis B vaccination: 11 hits.

39. Data sources for economic evaluation • NHS Economic Evaluation Database (NHS EED) • University of York Centre for Reviews and Dissemination • http://www.york.ac.uk/inst/crd • Hepatitis B vaccination: 27 hits • Smoking cessation: 288 hits

40. Data sources for economic evaluation • Data extraction tools • NCHS Statistical Export and Tabulation System (SETS) • http://www.cdc.gov/nchs/sets.htm • CDC Wonder • http://wonder.cdc.gov/Welcome.html • DATA2020 • Healthy People 2020 interactive data tool • Information related to the Healthy People 2020 objectives • http://healthypeople.gov/2020/data/