Flagship Program on Health Sector Reform and

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• Flagship Program on Health Sector Reform and
• Sustainable Financing

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Principles of Economic Evaluation in Health
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Purpose of the Session

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

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Contents

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

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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.

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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.

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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

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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?
• gt Economic evaluation analysis deals with
  efficient

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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

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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

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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).

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Concept of economic evaluation (5)

• Examples of analysis that cannot be considered
  economic evaluations
• Effectiveness analysis of early coronary
  angioplasty
• gtDoes not consider costs, does not compare
  alternatives
• Analysis of the cost of the provision of a basic
  benefits package
• gt Does not consider results, does not compare
  alternatives

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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
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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
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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 providers point
  of view but it might be cost ineffective from the
  societys perspective
• Therefore, it is important to clarify the
  perspective of analysis when starting or
  analyzing economic evaluation studies

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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
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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

Societys point of view

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Basic methods of economic evaluation (1)
Are costs and consequences considered?
Yes
No
It only considers costs
It only considers consequences
Costs and Results Description
No
Costs Description
Results Description
Is there more than one alternative?

1. Cost-minimization analysis
2. Cost-effectiveness analysis
3. Cost-utility analysis
4. 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
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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.

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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

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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

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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

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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

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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
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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.

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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.

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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).

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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
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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
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Basic elements of an economic evaluation (2)
RESULTS
COSTS
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Basic elements of an economic evaluation (3)

• Identification of costs and results
• Costs to consider in an economic evaluation
  analysis

For example
Staff costs
Costs for the health care sector
Costs for patients and their families
Costs for other sectors
Out of pocket payments, waiting time
Lost production from work absenteeism
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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
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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.

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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

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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.
• gt 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.

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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.

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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
  its not indifferent between getting 1 million
  today or 1 million in a year. Works by giving
  greater weight to earlier costs and benefits.

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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

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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.

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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.

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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.

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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.

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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.

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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.
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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

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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