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Econ 6038: Lecture Seven Economic Evaluation of healthcare: an introduction

Econ 6038: Lecture Seven Economic Evaluation of healthcare: an introduction Raymond Yeung http://web.hku.hk/ ~rytyeung 7 November 2005 Ask yourself the following questions What are the possible economic logic behind the merge? What are the parameters you need to assess the merging proposal?

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Econ 6038: Lecture Seven Economic Evaluation of healthcare: an introduction

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  1. Econ 6038: Lecture SevenEconomic Evaluation of healthcare: an introduction Raymond Yeung http://web.hku.hk/~rytyeung 7 November 2005

  2. Ask yourself the following questions • What are the possible economic logic behind the merge? • What are the parameters you need to assess the merging proposal? • What are similar economic problems in the Chinese medicine sector?

  3. Rationale for economic evaluations • In daily operation, medical decision making cannot simply base solely on the clinical outcomes because of scarcity of resources • Economic consideration enters medical decision making as healthcare providers are endowed with power to allocate resources • This situation is more apparent in the UK or other systems where prepaid instead of FFS is the dominate mode of financing • Budget holders of the health authority should carefully ensure value for dollar

  4. Objectives of this session On completing this lecture, students should • Be able to appreciate why economic evaluation is essential in health care • Be able to identify three levels of economic evaluation in health • Be able to identify pros and cons of these analyses

  5. Types of economic evaluations • Cost-of-illness analysis • Cost-effectiveness (cost-utility) analysis • Cost-benefit analysis

  6. Burden of illness • Economic burden to society • Burden to health care services • Burden to members of community: • patients themselves • their family • others • Opportunity cost

  7. Cost-of-illness study (COI) • Identify, measure and value impact of an illness or health problem • Not a full economic study since it doesn’t consider the benefits of treatment • May help us determine priorities and plan services

  8. Mr Ho had discomfort in his hipcan we cost this problem? • Telephone survey on back pain by HKPU • 12 month prevalence: • 44% • confirmed by dr: 17% • life-time prevalence: • 57% • females > males; high prevalence

  9. Back pain in HK • 14% saw a private doctor • mean 1.3 visits • 13% went to a public clinic • mean 1.2 visits • 0.5% had physiotherapy • 1.6% were admitted to hospital • 1.3% had surgery • Low utilisation - low cost?

  10. Very approximate costing • 3,000,000 adults in HK 1.3 million will have back pain in any one year 236,600 visits to a private doctor 202,800 visits to a public clinic  6,500 have physiotherapy  20,800 admitted  16,900 have surgery

  11. Very approx. costing • Private dr. @ $200 = $4.7m • Public clinic @$500 = $11m • Physio. @$1,000 = $6.5m • IP @3,300 = $7m • Surgery @ $30,000 = $507m = $536m a year in HK (not including lost productivity, disablement, pain & suffering ………..)

  12. Can Chinese medicine help to address the back pain problem? • Suppose that there is a new approach in acupuncture to looking after patients with backpain and is an alternative to hospital care • You want to find out whether it is more ‘economical’ for Hong Kong

  13. Effective/efficient? • First - does it help patients i.e. does it produce benefit? Is it effective? • Second - is it good value for money i.e. is it efficient? • Can it be efficient without being effective?

  14. How do we measure acupuncture effectiveness in back pain? • No. of lives saved? • No of complications prevented? • Improvement in quality of life?

  15. Consult the literature • You discover that acupuncture seems to improve the quality-of-life of people but would involve more outpatient visits • So, it seems to be effective but is it efficient? • Is this value for money?

  16. What next? • Options are to do an economic study or • Find and interpret the results of other peoples economic studies • Both need the same types of thinking processes / skills which we will now review

  17. To determine efficiency • Need information on • effectiveness or benefit • costs • Then, we need to relate the costs to the benefits

  18. Which way is more efficient? • This is a cost-effectiveness approach i.e. is acupuncture more efficient than the other program? • better value for money? • do we get more benefit per $? • Need to relate the costs of each program to their benefits

  19. Cost-effectiveness analysis (CEA) • Remember the principle of marginal analysis • Count how much benefit each program gives • Count the costs of each program • Calculate cost per unit of benefit • Cost incurred / Benefit resulted • = Incremental cost-effectiveness ratio (ICER) • Suppose the Western medicine mode costs $536m and the Western medicine combined with acupuncture lead to higher total cost, say, $660m (arbitrary)

  20. Calculating cost-effectiveness • Suppose the Western medicine mode costs $536m and the Western medicine combined with acupuncture leads to higher total cost $660m • Suppose the first option can lengthen life expectancies from 80 to 84 and the latter programme can lengthen the survival of patients from 80 to 85 • Which programme has lower ICER? Which one should you recommend?

  21. Technical development of CEA in health economics • Due to advancement of statistics (e.g. Markov Chain Monte Carlo, other Bayesian statistical methods), many CEA studies employ simulation techniques that can provide solution to many complex situations • Special software has been developed and widely adopted by health economics researchers for CEA e.g. DATA (http://www.treeage.com)

  22. Cost-utility analysis (CUA) • Suppose you find that acupuncture only affect QOL. • For this back pain problem, we need QALYs ie. Quality-adjusted life years • When QALY is used to measure benefits, the CEA is also called CUA

  23. What is a QALY? • QALY = quality adjusted life year • combines survival and quality of life in one measure • 10 years at 0.5 quality = 20 years at 0.25 quality = 5 years at quality of 1.0

  24. Example of QALYs • Let’s say, on average, • A) Current mode plus acupuncture produces QOL of 0.7 (on a QOL scale) • B) Current mode (only the Western medicine) only produces 0.5 • Both programmes result in same incremental survival years (assume 10 years)

  25. Calculating QALYs • A: 1.3m people surviving 10 years, quality 0.7 = 9.1m QALYs • B: 1.3m x 10 x 0.5 = 6.5m QALYs • CER A: 660m/9.1m = $72 per QALY • CER B: 536m/6.5m= $83 per QALY • A is more efficient at producing QALYs although it costs more

  26. Cost-benefit analysis (CBA) • The effectiveness measure is expressed in monetary term ($) • CBA can answer the question of whether one programme should be implemented ie. $net benefit = $benefit - $cost > 0 • Increasingly but not widely adopted in health care because health benefit is often difficult to monetarised, using willingness-to-pay methodology

  27. Economic evaluations in HK • Cost effectiveness of a treatment, drugs or procedure is becoming a criteria for nation-wide adoption in US (such as FDA) or NICE in UK • In HK, CEA can by far be a piece of information that aid decision makings in Hospital Authority or Department of Health • Due to resource constraint, the interest of adopting EE in their decision is however increasing

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