Economic evaluation in public healthA brief introduction of concepts, methods and decision rules

Werner BrouwerProfessor of Health EconomicsInstitute for Medical Technology Assessment &Institute of Health Policy & ManagementErasmus University Rotterdam

Economics

Why are you here?

Economics

• Economics is concerned with the efficiency (and equity) implications of the allocation of scarce resources in society over alternative uses

• Equity and efficiency issues cannot be solved independently (Arrow, 1963) • Core assumption: desires of individuals are infinite, yet are resources

limited. • Scarcity: never enough resources to satisfy all human wants and needs• Choices required to spent scarce resources ‘optimally’• Optimal defined by the goal function: maximization of welfare / utility /

happiness (individuals), profit (firms), social utility (society) given constraints• Here also scarcity of time: focus on economic evaluation!

Welfare economics is normative science

• Welfare economics is concerned with normatively judging a change (like implementing some intervention), moving us from ‘state of the world’ A to B

• ‘In order to make statements about the consequences for economic welfare of an event we must go beyond the study of positive economics, which is concerned with the effects of an event on objectively measurable economic variables, such as price and quantity. That is, the welfare economist wishes to determine the desirability of a particular policy – not in terms of his or her own values, but in terms of some explicitly stated ethical criteria’ (Boadway and Bruce, 1984, p.1).

• Social welfare normally deemed to be some aggregation of individual welfares only (welfarism) - if social welfare increases a change is deemed desirable

• Measuring individual welfare difficult…

From Pareto to CBA• Non comparability of utility gave rise to quite strict rules for optimality• Pareto optimal allocation of goods and services in a society: no reallocation

possible in such a way that at least one person is better off and none is worse off. • Very restrictive – avoided by expressing gains and losses in monetary terms• Potential Pareto-optimality occurs when the (monetary) gains of the winners are

sufficient to compensate the loss of the losers (Kaldor & Hicks)• That is nothing else than the foundation of economic evaluation in its purest form:

Cost Benefit Analysis• (Compromise: we assume the utility value of all euros to be equal!)• CBA: see whether the losses (costs) are outweighed by the gains (benefits) of

some change: • vi * (Qi

B – QiA) – (CB – CA) > 0 vi*Δ Qi – ΔC > 0 vi*Δ Qi > ΔC

ΔC / Δ Qi < vi (don’t pay more per unit than the unit is worth)

Economic Evaluation in Health

new health care intervention

old health careintervention

Difference in (value of) health status after intervention

Difference in resources consumed

Do the benefits, here defined as health (value) exceed the costs?

Economic Evaluation in Health

• Aim to aid decision makers in health care by providing them information on the relative efficiency of programs in producing health (value)

• Provides information on all relevant costs and (value of) health gains of different alternatives health care technologies (e.g. pharmaceuticals, operating procedures, public health, etc)

• Main types of evaluations are:– Cost-benefit analysis ($/$)– Cost-effectiveness analysis ($/E) and the preferred– Cost-utility analysis ($/QALY)

• Latter types are not full economic evaluations: they indicate only the amount of health gained, not the value of health, i.e., such economic evaluations focus on left-hand side only: ΔC / Δ Qi

• Broader framework: cost-consequence analysis

Perspective• Given welfare economic roots of economic evaluation, it is often advocated to

adopt a societal perspective in performing them• Indeed, only then one can assert that benefits outweigh costs • “When a CEA is conducted from the societal perspective, the analyst considers

everyone affected by the intervention and counts all significant health outcomes and costs that flow from it, regardless of who experiences the outcomes or costs’. (Gold et al., 1996)

• E.g.: Quick discharge from hospital – may save costs for the hospital, or even health care sector, but may require more informal care ; Cheap rest vs. expensive drug – more absence from work makes rest less cheap…!

• Still, many countries take narrower perspective (often health care)• Health care decision maker may work with some budget aimed to ‘optimize’ health• Especially in field of public health broad perspective crucial

Counting all health gains: QALYs

• CBA often difficult, distrusted and considered ‘unethical’• CEA makes coherent and consistent decision making difficult, given

incomparability of outcome measures• CUA makes different health states / health gains comparable and facilitates

decisions• Quality-Adjusted Life-Years: preference (utility) based health measure• One year of life is more valuable (i.e. preferred over) when it is lived in perfect

health rather than sub-optimal health states• It also recognises that non life-prolonging interventions may be worthwhile or

that some life-prolonging interventions are, in fact, not worth while• Thus, it tries to assess the health state of people with certain conditions

(describing, measuring) but it also tries to value them in non monetary ways

QALYs

• QALY assigns a weight to health states,• 1 represents one year in perfect health• 0 represents one year in state ‘dead’• Most health states in between 0 and 1 (some below 0) • Different ways of deriving weights: TTO, SG, VAS• Say weight of state A is 0.6 then moving someone from A

to perfect health for one year yields 0.4 QALY• Doing this for 5 years equals a gain of 2 QALYs

(undiscounted)• Information on effects of intervention ideally through RCT’s

etc

Worst imaginable health

X

Best imaginable health

Counting all costsIntervention resources, directly needed for the intervention

Non-intervention resources needed for the intervention (e.g. travel)

Patient time including productivity changes

Time of informal caregivers and other costs of informal care

INTERVENTION

Outcomes:Improved

health

Future costs that are a consequence of the intervention

... ???

Some general, basic rules

• Count costs and effects relative to some other RELEVANT situation or treatment (i.e. incrementally)

• Calculate effectiveness in a reliable way and take a sufficiently long time horizon (often requires modeling)

• Include all relevant costs (three steps: identification, measurement and valuation)

• Adjust costs and effects for the timing at which they occur (discounting)• Look at uncertainty around estimates and be explicit about this (e.g. cost-

effectiveness plane and acceptability curves)

New treatment cost-effective

New treatmentcost-ineffective

C

New treatmentmore costly

New treatment more effective

New treatmentless effective

New treatmentless costly

NENW

SW SE

Maximum acceptable ICER

Cost-effectiveness plane

From CUA to decision: monetary value required

• The popularity of CUA stems partly from the fact that benefits are expressed in terms of some health measure (like QALYs) and not in money - but still one needs to decide whether some cost per QALY is worthwhile (i.e. the v)

• Two possible approaches (all a bit simplified): (1) take a fixed budget and implement programs with lowest cost per QALY(2) add programs that have a cost per QALY below some threshold value

(threshold in theory should equal social value of a QALY): ΔC / Δ Qi < vi

• Opportunity costs either occur within the health care sector (fixed budget: health for health) or outside the health care sector (flexible budget: wealth for health)

Intervention $ / QALYGM-CSF elderly with leukemia $235.958EPO in dialysis patients $139.623Lung transplantation $100.957End stage renal disease $53.513Heart transplantation $46.775Didronel in osteoporosis $32.047Statins in high cholesterol $18.151PTA with Stent $17.889terbinafine in onychomycosis $16.843Breast cancer screening $5.147Viagra $5.097Congenital anorectal malformation $2.778

Some results

What’s the problem?• Value of a QALY appears to vary with the characteristics of the disease and / or

beneficiary in health (and perhaps other) terms• QALY maximization as a goal seems imprecise and attaching equal value to all

QALY gains may not be considered ‘equitable’ • Many factors may influence value (e.g. Dolan et al, 2005): normative vs. positive…• Equity weights can be seen simply as relative social values (v1/ v2 = α), where α is

the relative weight of type 1 compared to 2• There seems to be a broad range of vi’s attached to relevant QALYi’s

• A varying threshold is required? vi rather than v• Normative choices regarding with what the threshold should vary!• In the Netherlands: severity of illness (measured as proportion of health foregone)• In UK: NICE uses range and allows ‘equity’ weights for end of life drugs

Flexible threshold – the Dutch case

0

20000

40000

60000

80000

0 20% 40% 60% 80% 100%

Severity of illness

Cos

ts p

er Q

ALY

Threshold

Some attention points in public health• Demonstrating effectiveness can be difficult• QALYs only or most relevant outcomes?• Certain costs important (e.g. time costs) but difficult to value• Costs in other sectors need to be captured• How to weight future health effects (discounting)• Inclusion equity may be difficult• Perceived necessity sometimes low: statistical versus identifiable lives

• However, important that public health interventions demonstrate value for money!