Cost-benefit andcost-effectiveness analysis: applications

to health care programs and policies

Greg Mason

PRA Inc.and

University of Manitoba

October 28, 2011

Value for money• Value for money (VFM)is the priority activity in public and

private health policy.

• VFM = “bang per buck” or “buck per bang”

VFM = [benefits – cost] = net benefits

• Key questions:

• Do the benefits exceed the costs?

• What set of programs, interventions, and policies produce the greatest set of net benefits?

• What are the bad (negative VFM) ideas?

• Techniques from economics such as cost-effectiveness and cost-benefit offer useful tools for identifying and ranking VFM in health programs and policy.

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Value for money

• Are we doing the right thing?

Relevance• Are we doing it well?

Performance

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Value for money: relevance

• Relevance issues:– Issue 1 - Continued need for the program: Assessment

of the extent to which the program meets a demonstrable need and is responsive to the needs of Canadians.

– Issue 2 - Alignment with payer/user/provider priorities: Assessment of the linkages between program objectives and (i) federal government priorities and (ii) departmental strategic outcomes.

– Issue 3 - Alignment with payer roles and responsibilities: Assessment of the roles and responsibilities of the payer in delivering the program.

Source: Adapted from Treasury Board of Canada, Directive on the Evaluation Function (Annex A) April 2009

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• Performance issues (effectiveness, efficiency, and economy)– Issue 4 - Achievement of expected outcomes:

Outcomes achieved (including immediate, intermediate, and ultimate outcomes).

– Issue 5 - Demonstration of efficiency and economy: Assessment of resource utilization (cost) in relation to the production of outputs and progress needed to realize expected outcomes.

Source: Adapted from Treasury Board of Canada, Directive on the Evaluation Function (Annex A) April 2009

Value for money: performance

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Performance is measured along the results chain

Activities OutputsImmediateoutcomes

(Typically within a year)

Longer-termoutcomes(Up to 15 years)

EconomyCost to complete activities(e.g., cost of recruitment, course development)

EfficiencyCost per nurse trained

(e.g., total training costsdivided by graduates)

EffectivenessCost per client that becomes employed

(e.g., total program costs divided bynumber of patients that achieve a specific

health outcome)

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Economy reflects the unit cost of engaging in activities, such as trainee assessment, case planning for clients, or creating and managing a clinic.

Example: Cost of developing courseware (wages + overhead + materials)Example: Cost of setting up flu clinics (location, staff training, media, notifying vulnerable groups)

Efficiency is the unit cost of all the activities needed to produce and output.

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Example: Cost per nurse graduate (number of grads divided by the total program cost)Example: Cost per potential flu shot (before any shots are actually given)Example: Cost of awarding a dollar to third party delivery for screening program

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Effectiveness (also termed cost-effectiveness) is the cost of obtaining one unit of outcome.

Example: • Number of flu shots (immediate) • Reduction in the incidence of flu as a result of a

vaccination promotion program (longer term)Example:

• Increase in screening incidence (short term)• Increase in five-year survival rate for Stage 2 breast

cancers (long term)

Application of result chain analysis: the logic model

The “logic model” is the core tool for conceptualizing causal relationships between program interventions and outcomes.

1. Health screening using third party delivery (e.g., diabetes screening in First Nation communities)

2. Electronic medical records to improve service delivery by providers (currently in primary care clinical settings)

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Inputs / activities

Outputs Immediate outcomes

Final outcomes

Resources are mobilized to : Provide counselling Design promotional

material Train primary care

providers in the distribution of the screening kit

Outreach programs designed and implemented

Kits distributed Staff trained

Lower morbidity and mortality

Increased life years

Reduced health system costs

Increased social and economic contribution of survivors

Are we getting inputs / resources at the lowest cost ?

Are resources deployed at least cost ?

Are the processes well organized and coordinated?

Economy

Are the activities all needed for the outputs?

Are we creating outputs at the lowest cost ?

Are the outputs available on time and to the required quality ?

Efficiency

What is the cost per unit outcome?

Has the project/program produced outcomes at a cost consistent with other approaches?

Is this the best/least cost way to get desired outcomes?

Effectiveness

Intermediate outcomes

Client awareness

Increased use of screening

Increased participation in treatment and prevention

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Results chain for a health screening program

Structure of vaccination CEA

• Benefit– reduced short-term cost due to illness– reduced long-term cost for caring for the small number of

catastrophic incidents– averted loss of incomes for those who are disabled/dying– averted cost of lost time at work and play

Cost– economic loss for the small number who experience

adverse reactions to vaccine – vaccination program

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Cost-effectiveness analysis example –vaccination programs for at-risk groups

• Outputs include the creation of vaccination sites or alternative delivery (e.g., pharmacies, places of work, physician offices, shopping malls).

• Outcomes include:– the numbers vaccinated

– reduction in sick days

– avoided deaths

• The delivery approach with the lowest cost of organizing per potential vaccination delivered is the most cost-effective in terms of outputs.

• The delivery approach with the lowest number of sick days per dollar cost is the most cost-effective in terms of outcomes.

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Vaccination for measles(Axnick et al., 1969)

Axnick, N.W., Shavell, S.M., and Witte, J.J.,(1969). Benefits Due to Immunization Against Measles, Public Health Reports , Vol. 84, No. 8.

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Annual stream of benefits and costsAxnick (measles)

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Summary of measles CEA

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