Flagship Program on Health Sector Reform and Sustainable Financing

Flagship Program on Health Sector Reform and Sustainable Financing

Principles of Economic Evaluation in Health

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

Contents • Concept of economic evaluation • Basic methods of economic evaluation • Basic components of an economic evaluation analysis • Conclusions

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.

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.

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

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

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

Concept of economic evaluation (3) • In view of the former definition, economic evaluation consist of the following steps: • Measure costs and results • Compare alternatives • Make decisions

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).

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

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. Making decisions

Concept of economic evaluation (7) • Kind of decisions that can benefit from economic evaluation analysis Choose technologies Allocate resources to programs and projects Allocate resources between sectors

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

Concept of economic evaluation (9) • Points of view to carry out an economic evaluation analysis Society's point of view Individual's point of view Choose technologies Allocate resources to programs and projects Allocate resources between sectors

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 1.Consequences beyond profit 2. Shadow price = Society´s point of view +

Basic methods of economic evaluation (1) Are costs and consequences considered? No Yes It only considers costs It only considers consequences Costs and Results Description No Costs Description Results Description Is there more than one alternative? Cost-minimization analysis Cost-effectiveness analysis Cost-utility analysis Cost-benefit analysis Costs analysis Effectiveness analysis Yes Economic evaluation 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 (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.

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

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

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

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

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 Add different results + ? + ? For example... Physical welfare Death Emotional welfare

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.

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.

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).

Basic methods of economic evaluation (11) Summary Costs are considered? How each unit of result is measured? Kind of analysis Cost-minimization Yes Project Cost-effectiveness Physical units Yes DALYs, QALYs Yes Cost-utility Dales, Eurocol Cost-benefit Yes Cost-benefit Monetary units

Basic elements of an economic evaluation (1) • All four economic evaluation techniques involve similar basis steps and considerations. 3. Value costs and results BASIC STEPS 2. Measure costs and results CONSIDERATIONS Time Sensitivity analysis Incremental analysis + 1. Identify costs and results

Identification Measure Value Preferences in health status Costs Effects (E) Change in health status Health gain Health sector(C1) Willingness to pay (W) Patient and family (C2) Consumed Resources Health Program Health Sector (S1) Willingness to pay (W´) Other sectors (C3) Patient and family (S2) Saved resources Saved resources Other sectors (S3) Basic elements of an economic evaluation (2) RESULTS COSTS

Basic elements of an economic evaluation (3) • Identification of costs and results Costs to consider in an economic evaluation analysis For example Staff costs Out of pocket payments, waiting time Lost production from work absenteeism

Basic elements of an economic evaluation (4) • Identification of costs and results Results to consider in an economic evaluation analysis For example 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) Being unconscious More income Severe suffering

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.

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

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.

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.

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.

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

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.

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.

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.

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.

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.

Cost DALYs Alternative 1 3000 140 Alternative 2 3400 220 Difference 400 80 Additional Considerations • An example of incremental analysis • The case: • 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.

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

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

Flagship Program on Health Sector Reform and Sustainable Financing