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1. Healthcare
Economic Evaluation
Presentation By:
Bikram Adhikari
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2. Economic Evaluation
Economic evaluation:
• Process of systematic identification, measurement and valuation of the
inputs and outcomes of two alternative activities, and the subsequent
comparative analysis of these.
• Existence of alternatives is at the heart of an economic evaluation
because making choices is central to economics.
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3. Economic Evaluation
• Forces that enable us to use Economic Evaluation:
• Existence of finite resources
• Prior to an evaluation, one must always check the effectiveness of the
programs.
• “There is no point in carrying out an ineffective program efficiently”
Drummond et al. (1987)
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4. Components of Economic Evaluation
• Health care programs take inputs (labor, capital, etc.) and transform
them into outputs
• Input measure is called ‘costs’ and it is in monetary units
• Diagnostic test outcome or an operation successfully completed Outputs
are called ‘effects’ and expressed in natural units (such as a percentage
detection or completion ratio)
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5. • Broader measure of effects relies on ‘utilities’ (i.e., estimates of the
satisfaction of the effects) and the output unit is called a ‘quality adjusted
life year’ (the satisfaction of the time that a person has left to live).
• Output expressed in monetary units as the costs, in which case the
consequences are now called ‘benefits’.
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6. Cost and Benefit
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7. Measuring Cost
• Step 1: Identify Category of Cost
• Step 2: Gather Cost data
• Step 3: Add up all Cost
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8. Cost
• Three categories:
• Direct
• Indirect
• Intangible
• Direct
• Directly related to the health care industry (the doctors, the hospitals
and the patients).
• Direct costs: physician and nursing expenses: Direct benefits : any
hospital cost savings
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9. Cost
• Indirect
• Inputs and outputs that pass outside the health care industry.
• The main measure of these indirect effects is via earnings forgone or
enhanced due to treatment, as the earnings reflect the value of
production lost to, or gained by, the rest of society.
• Intangible
• The pain and suffering that are caused or alleviated by a health care
intervention
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10. Measuring Benefit
• Step 1: Identify Benefits that your Customers value
• Step 2: Identify Benefits that staff, client and other Value
• Step 3: Develop a clear Logic Model
• Step 4: Select Benefits that can be measured in dollars
• Step 5: Select Benefits That Will Be Excluded from the Benefit-Cost Ratio Calculation,
but Will Be Used to Reinforce the CBA
• Step 6: Conduct an inventory of existing evaluation data
• Step 7: Measure Benefit
• Step 8: Adjust monetary benefits for inflation
• Step 9: Discount future benefits
• Step 10: Identify confounding factors
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11. Economic Evaluation- Types
• Cost–benefit analysis (CBA)
• Cost-effectiveness analysis (CEA)
• Cost–utility analysis (CUA)
• Cost minimization (CM).
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12. Comparison
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13. 13

14. Cost Benefit Analysis
• CBA is a quantitative analytical tool to aid decision-makers in the
efficient allocation of resources.
• It identifies and attempts to quantify the costs and benefits of a program
or activity and converts available data into manageable information.
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15. Cost Benefit Analysis
• Cost Benefit Analysis (CBA) provides a systematic assessment of the
costs and benefits associated with an intervention.
• Economic theory defines
• A benefit as changes that increases human well-being
• A cost as changes that decreases human well-being
• For the purpose of comparison, these increases and decreases in well-
being are measured using money as the common denominator
• All costs and benefits included in a CBA are quantified in monetary
terms
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16. Cost Benefit Analysis
• Net benefit of a change (NBV) = Benefit - Cost
• The change is said to be economically efficient if:
• NPV is positive
• Ratio of total benefits to total costs (B/C ratio) > 1
• CBA is a multi-disciplinary process, involving
• Economist
• Expertise from different fields
• The input from policy and decision-makers
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17. Steps in CBA
• Step 1: Define the objective of the intervention.
• Step 2: Define the baseline, that is, what would happen if no action is
taken.
• Step 3: Define the alternative options to achieve the objective.
• Step 4: Quantify the investment costs of each option compared to the
baseline.
• Step 5: Identify and quantify the positive and negative welfare effects
of each alternative option compared to the baseline.
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18. Steps in CBA
• Step 6: Value the welfare effects in monetary terms, using market
prices and economic valuation methods.
• Step 7: Calculate the present value of costs and benefits occurring at
different points in time using an appropriate discount rate.
• Step 8: Calculate the Net Present Value (NPV) or Benefit/Cost (B/C)
ratio of each alternative option.
• Step 9: Perform a sensitivity analysis.
• Step 10: Select the most efficient intervention option
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19. Why CBA ?
• It provides a consistent framework for deciding when interventions are
desirable or not
• To estimate the benefits, in monetary terms, of proposed policy changes in
order to inform decision making.
• Estimating benefits in monetary terms allows the comparison of different
types of benefits in the same units
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20. Why CBA ?
• To determine the net impact of the project i.e. Positive or negative
• In the health care context, CBA should be used rather than the other
types of economic evaluation because it is the only method that can tell
whether an intervention is worthwhile.
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21. CBA- Uses
• Most commonly used for public decisions– policy proposals, programs,
and projects, e.g., dams, bridges, traffic circles, and anything else the
government might fund.
• Accepting or rejecting a single project
• Choosing the appropriate scale and/or timing for a project
• Choosing one of a number of mutually exclusive projects
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22. CBA- Uses
• Choosing a number of discrete alternative projects from a larger number
of discrete alternative projects
• Evaluating government policies, notably though not only related to
government regulations
• Evaluating projects or policies post- rather than pre
• CBA provides valuable feedback to staff, which can help to improve
performance within the organization.
• CBA helps to establish a culture of accountability throughout the
organization.
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23. CBA- Strengths
• Systematic way of thinking and analysis
• Focus on use of scarce resources
• Strong methodological basis
• Monetary measurement provides comparison
• Appeal to policy makers
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24. CBA-limitations
• One approach to assess the efficiency of policy/program
• Uncertainty of all parameters used
• Estimated values of objects at risk probabilities of the hazard
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25. Example: Childhood Immunization
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26. Cost Effectiveness analysis
• Cost-effectiveness analysis is a method for assessing the gains in health
relative to the costs of different health interventions
• The most popular approach which tries to continue without the prices and
work on the consequences side only with effects
• It is not the only criterion for deciding how to allocate resources, but it is
an important one, because it directly relates the financial and scientific
implications of different interventions.
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27. Cost Effectiveness analysis
• E1 the effect coming from intervention 1
• E2  the effect coming from intervention 2
• The aim now is to choose the intervention that supplies a unit of effect
at lowest cost.
• Under a CEA, treatment 1 would be more cost-effective than treatment 2
if:
Cost
Effectiveness
Ratio
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28. Cost Effectiveness analysis
• Rather than requiring the lowest cost for a given effect, one can instead try
to achieve the most effect per dollar of cost.
• Under a CEA, treatment 1 would provide most effect per dollar of cost
than treatment 2 if:
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29. Comparisons with CEA
• Three types of comparisons become immensely easier with cost-
effectiveness analysis:
• Comparisons of different interventions for the same disease
• Comparisons of different interventions for reaching specific
segments of a population
• Comparisons of different interventions for different diseases
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30. Comparisons of different interventions for
the same disease
Example
• Problem: Vitamin A deficiency
• Intervention 1: Capsule distribution
• Intervention 2: Fortifying sugar
• Cost of Intervention 1: US$6 to US$12
• Effect E1: One DALY averted
• Cost of Intervention 2: US$33 to US$35
• Effect E2: One DALY averted
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31. • Example cont..
• Another way of looking at this is to note that for the same cost, capsule
distribution could reach three to five times more people than fortified
sugar.
• This is a clear indication that more health gain is possible by spending
resources on capsule distribution.
• Several different approaches have to be considered to make decision.
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32. Comparisons of different interventions for
reaching specific segments of a population
• Spending US$1 million on expanding the traditional vaccination schedule
for children to include a second opportunity:
• Measles immunization would avert between 800 and 66,000
deaths, depending largely on the prevalence of measles.
• Hib vaccine would avert between 10 and 800 deaths
• Yellow fever vaccine would avert between 300 and 900 deaths.
Choices/priority ??????
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33. • US$1 million spent on nevirapine and breastfeeding substitutes to prevent
HIV-infected mothers from transmitting HIV to their children would yield
a gain of 5,000 to 20,000 DALYs
• If the same amount of money spend to expand immunization coverage
with standard children’s vaccines would yield a gain of between 50,000
and 500,000 DALYs.
• Choice/priority??????
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34. Calculating CEA
• Step 1: Measure program impact
• Step 2: Gather program costs
• Step 3: Divide impacts by costs (or vice versa)
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35. Example
• Immunization in Bhojpur
• Problem: Immunization coverage is really low in Bhojpur (less than 5%
in Sunsari)
• Supply channel is the problem:
• Hilly, tribal region with low attendance by city based health staff to
local health clinics (45% absenteeism)
• Supply-side intervention: Conducted monthly immunization camps,
held rain or shine from 11am-2pm (95% held)
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36. Example cont…..
• Problem from the demand side of immunization
• People not interested in immunization, scared?
• Opportunity cost of going for 5 rounds of
vaccination?
• Intervention for demand side problem
• Extra incentive: provided one kilogram of lentils for each
immunization (Rs. 40 – one day’s wage) plus thali set for full course
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37. Step 1: Measure Impact
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38. Step 2: Gather cost of the Program-Ingredients
method
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39. Cost Effectiveness Ratio
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40. CEA can be undertaken at
• Two distinct stages of program implementation
• Prospective analysis takes place prior to the start of a
pilot or at-scale program
• Retrospective analysis takes place after an evaluation of
the program is completed
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41. Prospective Vs. Retrospective analysis
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42. Challenges to do CEA
• Absence of incentives to do CEA
• What if the program was effective but not really cost-effective?
• No editorial requirement to show CEA in most social-science journals
• Assumptions are required
• Number of assumptions are needed to complete the analysis (e.g. multiple
outcomes, spillover effects, exchange rates, discounting, inflation, etc.)
• No one “right” way, but consistency is important!
• Costs are hard to gather
• Collecting cost data not seen as key part of evaluation unlike impact
measures, so it is not routinely provided in a standardized way
• Cost data is surprisingly hard to collect from implementers (budgets
different from implementation costs; hard to divvy up overhead and existing
costs to
project)
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43. HOW RELIABLE IS COST-EFFECTIVENESS
ANALYSIS?
• Though the basic cost-effectiveness calculation appears to be simple But
choices about:
• units of measurement
• definitions of interventions
• scope of costs, and prices to be included
will alter the numerical results but also will affect the interpretation of the
cost-effectiveness ratio.
• In many cases the differences are so large that refining the underlying
analyses is unnecessary.
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44. • When cost-effectiveness ratios are within a similar range, policy
decisions become more difficult.
• In such situations, closer scrutiny of the cost-effectiveness ratios may be
warranted to improve confidence that the measures are close.
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45. Comparison between CBA and CEA
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46. Cost–utility analysis (CEA)
• Cost utility analysis (CUA) is an economic analysis in which the
incremental cost of a program from a particular point of view is compared
to the incremental health improvement expressed in the unit of quality
adjusted life years (QALYs heart of the CUA evaluation exercise)
• Measures the effect of an intervention on health units that measures both
quantity and quality of life
• CUA was developed to address the problem of conventional CEA, which
did not allow decision-makers to compare the value of interventions for
different health problems
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47. Cost–utility analysis (CEA)
• With the QALY as the common effect, the evaluation exercise returns to
the CEA framework.
• A CUA is the special case of a CEA where the effect E is measured by a
QALY, and the following criterion:
• CEA is a special case of a CBA, and a CUA is a special kind of
CEA, it means that a CUA is a restricted CBA
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48. Steps in CUA analysis
• Identification of two or more alternatives
• Identification of perspectives
• Determination of costs
• Determination of outcomes in utility terms
• Calculation of cost-utility ratio
• Decision making
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49. Determination of Outcome
• Outcomes may be single or multiple
• Outcomes are measured in terms of utility value
• Quality Adjusted Life Years (QALY)
• Disability Adjusted Life Years (DALY)
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50. QALY
• The QALY is able to combine ‘the effects of health interventions on
mortality and morbidity into a single index thereby providing a
‘common currency’ to enable comparisons across different disease areas.
• QALYs are calculated simply by multiplying the duration of time spent in
a health state by the HRQoL weight (i.e. utility score) associated with that
health state.
• HRQoL describe health– Perfect health- 1; Death-0
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51. QALY
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52. Determination of Cost Utility ratio
• Incremental Cost Utility ratio:
• 𝑰𝑪𝑼𝑹 =
𝑪𝒐𝒔𝒕 𝒐𝒇 𝒇𝒊𝒓𝒔𝒕 𝒕𝒓𝒆𝒂𝒕𝒎𝒆𝒏𝒕 𝑪𝟏 −𝑪𝒐𝒔𝒕 𝒐𝒇 𝒔𝒆𝒄𝒐𝒏𝒅 𝒕𝒓𝒆𝒂𝒕𝒎𝒆𝒏𝒕 (𝑪𝟐)
𝑸𝑨𝑳𝒀 𝒐𝒇 𝑭𝒊𝒓𝒔𝒕 𝒕𝒓𝒆𝒂𝒕𝒎𝒆𝒏𝒕 −𝑸𝑨𝑳𝒀 𝒐𝒇 𝒔𝒆𝒄𝒐𝒏𝒅 𝒕𝒓𝒆𝒂𝒕𝒎𝒆𝒏𝒕
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53. Example
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54. CUA-advantages
• CUA facilitates comparisons without recourse to placing monetary
values on different health states and indeed life itself; with all the technical
and ethical challenges associated with this
• CUA can capture the value of improvements in morbidity and
mortality
• CUA increasingly facilitates the transparency of resource allocation
processes.
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55. CUA-Disadvantages
• Absence of agreement in measuring utilities
• Results are often difficult to reproduce among different evaluators
because of variations in methodologies to elicit disease weights
• Problems with the quantification of patient problems
• Absence of agreement in measuring utilities
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56. Cost minimization (CM)
• Cost-minimization analysis (CMA) measures and compares input costs
of two intervention or strategies, and assumes outcomes to be
equivalent
• The fundamental assumptions underlying this method are:
• The two options being compared have exactly the same effect
(identical benefits)
• Important alternatives have not been left out
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57. Example
• Two drugs can be used to lower the level of blood Pressure. No other side-
effects or any other costs associated with the drugs.
• Drug A costs NPR 5000/month; Drug B costs NPR 3800/month.
• Both reduces BP level by the same amount.
• Which one should we select? Why?
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58. Example
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59. CMA
• The quantity of an effect must be exactly the same for all treatments; but
also the quality of an effect must be the same.
• Unless consequences are identical across treatments, a CM would
not constitute a valid evaluation of treatments.
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60. CMA-merits and demerits
• Merits
• It is simplest of economic evaluation measures
• Very useful method is evaluating the cost of a specific drug/ intervention
• Demerits:
• It can only be used to compare products/interventions with equivalent outcome
or effect
• In many real life cases, two interventions may not always have equivalent
outcomes
• CMA is debated for its nature—
• Since only costs are measured it is a partial economic analysis (cost
analysis)
• If outcomes are measured and found to be equivalent, it is a CEA
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61. Comparison
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62. References
• Drummond, Michael; Sculpher, Mark; Torrance, George; O'Brien, Bernie;
Stoddart, Greg (2005). Methods for the Economic Evaluation of Health
Care Programmes (3 ed.). New York: Oxford University Press.
ISBN 9780198529453.
• https://www.ncbi.nlm.nih.gov/pubmed/22123096
• www.bandolier.org.uk/painres/download/whatis/What_is_cost-min.pdf
• downloads.lww.com/wolterskluwer_vitalstream_com/sample.../Chaper04.p
df
• https://apps.who.int/medicinedocs/en/d/Js4876e/5.2.html
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64. Thank you
Any Queries???