Health Economics 2013

7/27/2019 Health Economics 2013

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Health Economics


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Learning objectives:

Define economics and its main elements.

Define economic efficiency.

Distinguish between different types of efficinecy.

Understand the role of economic evaluation inproviding information for decision-makers

Distinguish between the different types ofeconomic evaluation and when each may beappropriate .


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3

Economists view of the world

Pessimist: bottle empty

Optimist: bottle full

Economist: bottle WASTED!!


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4

The Health Economic problem

Unlimited healthcare

wants with rapid growth

in health expenditure.

Insufficient health sector

resources.

Choosing between wantswe can afford given our

resource budget.


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What is Economics?

The study of how men and society end up

choosing to employ scarce resources that

could have alternative uses


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Three elements fundamental to understanding

the economic perspective:

Choosing,

It aims to

provide a

framework forchoice so that

the full

implications of

all choices areclearly identified

before they are

made.

Scarce resources

Scarcity exists

since needs,

wants, demandsor desires will

always be

greater than

resourcesavailable to

meet them.

Alternative uses.

think about the

possible

alternative useof any resources,

which

economists call

opportunitycost.


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Concept of opportunity costOpportunity cost can be defined as the benefits given up in the

best alternative use of resources.

The aim is to choose activities where benefits outweigh

opportunity cost. Spending on health care is worthwhile as long as benefits are

greater than opportunity costs

Requires information on benefits of all possible uses of

nations resources!

Pg BPg A

Budget


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Are the benefits from what is chosen

greater than what is forgone?

Thus, opportunity cost can be defined as thebenefits given up in the best alternative use

of resources.


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What is Health Economics?

Theoretical framework to help healthcare professionals

,decision-makers or governments to make choices on

HOW to maximize the health of population givenconstrained health resources.

What health economists need is

To understand the relationship between resources used and healthoutcomes achieved by alternative options.

and compare!


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Decision-making based on evidence

ofeconomic efficiency willultimately allow more things to be

achieved with the same level of

resources

.


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Decision problem we face in health care

Should a new drug or new surgical procedure be adopted or whether aparticular medical procedure/health intervention worth undertaking?

Should one form of treatment be expanded (while another is contracted)?

After clinical effectiveness has been demonstrated, need to look to thebalance of benefits and costs; identification and estimation of the healthoutcomes or benefits and costs of health care.

A specialist hospital requests a license to establish a kidney transplantprogramme as claims it is cheaper than constant dialysis


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What is Economic Evaluation

Economic Evaluation compare the costs and

consequences of two (or more) alternative

health care interventions.

It is a way of thinking to improve the value for

money from investments in health care and

welfare .

Concerned with EFFICIENCY not just

effectiveness


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Economic Evaluation and Efficiency

Each of the techniques is aimed at answering different

questions: technical efficiency, allocative efficiency

Technical efficiency:

choice ofhowto provide health care

Minimize input for a given output

Allocative efficiency:

choice ofwhathealth care to provide

Maximize outputs(benefits) to given resources


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Technical efficiency

Producing a given level of output at a minimal cost or

producing the maximum amount of output for a given cost

Concerned with efficiency within a programme

Examples:

When providing hernia repair surgery, is it best to provide

conventional surgery or laparoscopic surgery?

When providing rheumatology clinics, is it best to provide anurse practitioner services or a consultant based service?


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Allocative efficiency

Programmes compete for the allocation of

scarce resources

Comparison across programmes such as

gynaecology, intensive care services, renal

services, etc.

Example:

Should there be an expansion of surgery for

rheumatology clinics or renal services?


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Economic evaluation and its

application

Tool to aid priority setting and resource allocation

Is increasingly being used

National Institute for Health and Clinical Excellence (NICE)

Provides recommendations on the use of new and existingmedicines and treatments within the NHS

Recommendations are based on a review of clinical and

economic evidence


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The choice ofwhat health care to provide is

about what economists call:

allocative efficiency.

The choice ofhow to provide health care is

about what economists call?

technical efficiency.


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Economic evaluation

is defined as the comparative analysis ofalternative courses of action in terms of both

their costs and consequences.


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Economic evaluation is

The comparative analysis of alternative courses of action in

terms of both their costs and consequences in order to assist

policy decisions (Drummond et al,1997)

Economic evaluation is notchoosing the cheapest.


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Types of Economic Evaluation

Cost effectiveness analysis (CEA),

Cost utility (CUA) and

Cost benefit analysis (CBA).


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When to use each of the above techniques will

depend of the nature of the question to be

addressed, which may be:

A choice between alternative clinical

strategies for a condition;

Timing of an intervention;

Settings for care;

Types and skill-mix of personnel providingcare;

Programmes for different conditions;


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Immediate (direct) effects on health:

In cost effectivenessanalysis these are usuallyclinically defined units appropriate to the area of study,such as lives saved, reduction in tumour size, 'changein blood pressure' etc.

In cost utilityanalysis, benefits from an interventioncan be as the impact on general well-being/ happiness/satisfaction, these are more generally labeled asutilities. Measures such as the quality adjusted lifeyear (QALY) are used to quantify this.

In cost benefit analysis, benefits might be consideredin the same terms as costs, which means that benefitsmust be valued in monetary termsby some means


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Cost-effectiveness analysis (CEA)

Effects are measured in terms of the most appropriate

uni-dimensional natural unit

Cost per unit effect

Examples:

Renal failure cost per life saved

Screening for Downs syndrome cost per Downs syndrome foetus

detected

Location of Long-term care cost per disability day avoided


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Cost-Effectiveness Analysis ( CEA )

CEA is concerned with technical efficiency issues, suchas: what is the best way of achieving a given goal orwhat is the best way of spending a given budget?

Example: What is the best way of treating renal failure? cost per

life saved.

What is the best way of screening for Downs

syndrome?


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Cost-utility analysis (CUA)

Effects are multi-dimensional

Combines life years gained with some judgment (or value orpreferences) on the quality of those lifeyears

Most popular measure:

quality adjusted life years (QALYs)

Can address technical efficiency and allocative efficiency

within the health care sector


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Cost-Utility Analysis

CUA is concerned with technical efficiency andallocative efficiency (within the health caresector).

The outcomes are multidimensional under thisform of analysis.

CUA tends to be used when quality of life is animportant factor involved in the healthprogrammes being evaluated.

CUA combines life years (quantity of life) gainedas a result of a health programme and the qualityof those life years.


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Cost Utility Analysis

CUA is a special case of CEA where QALYs are employed as themeasure of health status

CUA uses cost per QALY as means of ranking alternatives

Alternatives can be close substitutes, as in CEA, but need notbe

Alternatives need not even be health care measures


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Cost Utility Analysis

CUA have important implications for allocation of resources

CUA is still generally restricted to efficiency with which health

service resources are used; tends to neglect costs borne by

others (such as patients)

CUA may be used to rank alternatives but it cannot say with

certainty whether any option yields positive net benefits, this

is because costs and benefits are measured in different terms


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Calculating QALYs example

Weights:

Good health = 1

moderate health = 0.8

poor health = 0.5

LYs:

Year 1 + year 2 + year 3 = 3LYs (1+1+1)

QALYs:

Year 1(x0.5), year 2(x0.8), year 3(x1) = (0.5+0.8+1) =2.3 QALYs

Intervention may increase recovery such that

year 1(x0.8), year 2(x1), year 3(x1) = (0.8+1+1) =2.8 QALYs

No difference in LYs but gain in QALYs


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How a QALY is calculated

Patient x has a serious, life-threatening condition.

If standard treatment he will live for 1 year and his

quality of life will be 0.4

If he receives the new drug he will live for (1.25years), with a quality of life of0.6

Standard treatment:

1 (year's extra life) x 0.4 = 0.4 QALY New treatment:

1.25 extra life) x 0.6 = 0.75 QALY


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Therefore, the new treatment leads to 0.35

additional QALYs (that is: 0.75 -0.4 QALY = 0.35

QALYs).

The cost of the new drug is assumed to be 10,000,standard treatment costs 3000.

The difference in treatment costs (7000) is divided

by the QALYs gained (0.35) to calculate the cost per

QALY.

So the new treatment would cost 20,000 per QALY.


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Cost-utility Analysis

In CUA, the outcomes are measured in healthy years, towhich a value has been attached.

CUA is multidimensional and incorporates considerations ofquality of life as well as quantity of life using a common unit.

Result: Cost per unit of consequence (e.g. cost/QALY).


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Cost-benefit Analysis

CBA try to value the outcomes in monetary terms, so as tomake them commensurate with the costs.

Result: Net benefit or cost-benefit ratio.

CBAs rarely used in health care.


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Summary

Type of Analysis ResultConsequencesCosts

Cost Benefit

Cost Utility

Cost Effectiveness

Single or multiple effects

not necessarily common.

Valuedas utility eg. QALY

Different magnitude of a

common measure eg., LYs

gained, blood pressure

reduction.

Money

Money

Money

Cost per unit of

consequence eg. cost per

LY gained.

Cost per unit of

consequence eg. cost per

QALY.

As for CUA but valuedin

money.

Net

cost: benefit ratio.


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Summary

CEA Technical efficiency Uni-dimensionaloutcomemeasure

CUA Technical efficiency

Allocative efficiency within healthsector

Mulit-dimensional

outcomemeasure (healthonly)

CBA Technical efficiency

Allocative efficiency

Broadest

outcomemeasure ()

Easiest

Difficult/challengin

g


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The quality adjusted life years could be

used in which type of economic analysis?

a. Cost effectiveness analysis

b. Cost benefit analysis

c. Cost utility analysis

d. It would not be used


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Which of the followings is a feature of

cost benefit analysis?

a. Costs are related to clinical output measure

b. Outputs are assumed equal

c. QALYs are often used

d. Inputs and outputs are measured in

monetary forms


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In economics the central problem is:

a. Money

b. Consumption

c. Scarcity

d. Production


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Allocative efficiency is about:

a. the best way to achieve a given outcome

b. maximising total benefits within a given

budget

c. being aware that everyone is allocated a fair

share

d. spending as much of an allocated budget as

possible

Health Economics 2013

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