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  • 1. Economic evaluation in health care and Pharmacoeconomics
  • 2.  How to provide services efficiently? ◦ Maximum output at a given cost, or ◦ Minimum cost to get a given output How to maximize the benefits or effectiveness from services with a limited resource base? ◦ Which investments will address the most pressing health problems and bring the greatest health gains? ◦ In other words, how to get the most value for money?
  • 3. Economic Evaluation Cost-Benefit Cost-Effectiveness Cost-UtilityCost minimization Analysis Analysis Analysis (CBA) (CEA) (CUA)
  • 4. More specifically on cost-effectiveness analysis
  • 5. Costs more Least desirableLess Effect More Effect Most desirable Costs less
  • 6. In simple terms it is a ratio of two informationCost Effectiveness = What you pay What you get
  • 7. Cost CBA CEAEffect CUA Measured in terms of some utility index, such as DALY
  • 8. Type of Analysis Costs Consequences Result Cost Identical in all Least cost Money Minimisation respects. alternative. Different magnitude Cost per unit of of a common Cost consequence eg. Money measure eg., LY’s cost per death Effectiveness gained, blood pressure reduction. averted. Single or multiple Cost per unit of effects not necessarily Cost Utility Money common. Valued as consequence eg. “utility” eg. QALY cost per DALY. As for CUA but valued in money. Net $ Cost Benefit Money eg willingness-to- cost: benefit ratio. pay
  • 9. CEA Hospital procedure + Public health drug agentsProgram evaluation Pharmacoeconomics
  • 10.  How “costly” the program / approach is? How much “ net effect” the program / approach could generate? What is the cost per unit of “effect”? Is this cost per unit of effect less than other comparable programs / approaches?
  • 11. Step 1: Define the program in terms of possible “interventions”Step 2: Calculate “incremental” cost for each intervention (money value)Step 3: Calculate “net” effects of each intervention (in terms of health outcome)Step 4: Divide (2) by (3) for each intervention. These are CE ratios.Step 5: The intervention with minimum CE ratio is the most cost-effective one.
  • 12.  Each program can be defined in terms of a “Goal” and a few alternative “interventions” to reach the goal. For example, take a Malaria control program. The goal is:  Reduce Malaria deaths among target beneficiaries The “possible” interventions are:  Spray insecticides, or  Clean environment, or  Promote bed nets, or  All of the above
  • 13. Step 1 Classify costs into recurrent and non- recurrent (or, development) for each intervention. Only incremental costs.Step 2 Annualize the development cost by dividing by the expected lifespan of the input.Step 3 Add annualized development cost to recurrent cost and beneficiaries’ cost (if available) for each intervention.Step 4 Subtract „negative‟ costs (or, cost savings)
  • 14. Recurrent cost: Costs incurred on the same item more than once in a year.For example, salary, rent, supplies, medicines, maintenance, etc.Non-recurrent cost: Costs incurred not more than once in a yearFor example, purchase of equipment, vehicle, building, etc.
  • 15. Annualization of non-recurrent cost:Suppose you buy a vehicle for the programme at the price $5000.The expected life span of the vehicle = 10 yearsThen the annual cost = $5000 ÷ 10 = $500Add $500 (not $5000) as the non-recurrent cost for one year.
  • 16. Beneficiaries‟ cost:This is the amount of money the beneficiaries (or, users) spent out of their own pockets for getting benefits of the interventionFor example, travel cost, drugs purchased, etc.
  • 17. Expenditure in ‘00 dollarsInterventions Development Recurrent Total project Total Total cost cost cost cost beneficiaries (annualized) costInsecticide 3.58 99.01 102.59 646.21 748.80Clean environ 9.48 251.65 261.13 734.09 995.22Bed net 20.89 225 245.89 721.10 966.99All components 35.99 238.43 274.42 806.04 1080.46
  • 18. Step 3: Calculate the “effect”
  • 19.  Measure effectiveness not efficacy ◦ Efficacy = measure of effect under ideal conditions (can it work?) ◦ Effectiveness = effect under „real life‟ conditions (does it work?) ◦ Efficacy does not imply effectiveness Measure (count) in natural physical units ◦ Number of lives/life years saved / deaths averted ◦ Change in cholesterol levels Measure final not intermediate outcomes ◦ Intermediate outcomes reflect change in clinical indicators ◦ Final outcomes reflect change in health status
  • 20. Step 1 Calculate the number of deaths “before” or “without” intervention for each type of interventions.Step 2 Calculate the number of deaths “after” or “with” intervention for each type of interventionsStep 3 Subtract (2) from (1). This is the net gain or “effect” of the intervention.
  • 21. Deaths without (before) intervention: How many people died or expected to before intervention.This can be calculated from the pre-intervention or baseline mortality rate. This information is available from baseline survey data.Deaths with (after) intervention: How many people are still dying after the intervention.This can be calculated from end-line survey. Alternatively, it can be estimated on various assumptions
  • 22. Item Without intervention With intervention (Base)(1) Covered population 10000 5000(2) Number of deaths 30 10(3) Mortality rate (per 3 21000)(4) Difference in rate 1(5) Deaths averted [(4) × (1) ] ÷ 1000 = 5 deaths
  • 23. Step 1 Divide the “effect” for each intervention by its cost.Step 2 Find the intervention with minimum CE ratio.
  • 24. Intervention Intervention Intervention Intervention 1 2 3 4Total cost 748 995 967 1080Deathsaverted 4 12 5 6Costs perdeath 187 83 193 180averted(CE ratio)
  • 25. Program 1 Program 2A Target population 10000 100B Number reached 1000 50C Coverage (B/A X 100) 10% 50%D Impact (unit effects) 100 40E Effectiveness (D/A X 100) 1% 40%F Drug program cost ($) 10,000 200G Efficiency (F/B) $10 / person $ 4 / personH Cost-effectiveness (F/D) $100 / unit $5 / unit
  • 26.  Alternative dosage of lovastatin in secondary prevention of heart disease (Goldman et al 1991, JAMA 265: 1145-51) Ages 65-74 Daily dose Cost ($bn) Life years Cost/Life year 20 mg. 3.615 348,272 10,400 40 mg. 7.051 477,204 14,800
  • 27. Variable Spironolactone Eplerenone Relative risk of death due to 75.2% 86.2% heart failure Per patient cost of drug (36 $50.28 $1,230.00 months) Cost of drug per $440.00 $53,000.00 death preventedPitt B et al. The New England Journal Medicine 1999;341(10):709-717 Pitt B et al. The New England Journal Medicine 2003;348(14):1309- 1321
  • 28.  It helps set health priorities by comparing various health interventions on economic grounds It helps the managers use scarce resources in a more efficient way However, it reflects only the economic aspects of an intervention. For final selection of an intervention, other aspects need to be considered
  • 29. Problem # 1 Program‟s goal is not “to reduce deaths”, but “to reduce death + suffering”?Solution:In this case, “effect” of intervention also includes reduction of morbidity rate. But how will you add reduction in mortality and reduction in morbidity (they are different!)?The solution is to translate the project‟s “output” into some outcome index, such as Disability Adjusted Life Years or DALY. That is:Number of deaths averted = X number of DALYNumber of disability-free years created = Y number of DALYSo, total effect = X + Y
  • 30. Problem # 2 So far the discussion is based on the assumption that the program is for less than or equal to one year. What if it spreads over multiple years?Solution:In this case, we have to apply “discounting” process. That is, both costs and “effects” need to be discounted to present value.
  • 31. Blindness Control Program
  • 32. Total discounted project costs (in Million Rs.)Year Development Recurrent Total project Total Total cost Discount Present cost cost cost beneficiaries factor @ 3% value (at (annualized) cost 1994-95)1994-95 3.58 99.01 102.59 646.21 748.80 0.971 726.991995-96 9.48 251.65 261.13 734.09 995.22 0.943 938.091996-97 20.89 225 245.89 721.10 966.99 0.915 884.931997-98 35.99 238.43 274.42 806.04 1080.46 0.888 959.971998-99 44.12 280.63 324.75 766.68 1091.43 0.863 941.481999-00 60.80 297.41 358.21 685.20 1043.41 0.837 873.842000-01 76.71 353.9 430.61 712.79 1143.40 0.813 929.692001-02 80.56 311.32 391.88 692.76 1084.64 0.789 856.22Total 332.13 2057.35 2389.71 5764.87 8154.58 7111.22
  • 33. Step 1 Calculate the “output” of the project per year (e.g. treated cataract cases).Step 2 Translate “output” into Disability Adjusted Life Year (DALY) on the basis of utility values. Multiply with average life expectancy after intervention. This is DALY with intervention.Step 3 Translate “no output” into DALY. Multiply with average life expectancy without intervention. This is DALY without intervention.Step 4 Discount both DALYs and subtract Step 3 from Step 2.
  • 34.  It is a state of health indicated in 0 - 1 range, where 0 = death, 1 = perfect health. Thus utility value closer to zero implies more severity (as perceived by the patient) than the same closer to 1.
  • 35. Healthy 1Life with menopausal symptom 0.99Watery diarrhea, severe anemia 0.90Infertility 0.80Physical limitation with some 0.67 pain 0.39Deaf, dumb, or, blindDead 0
  • 36.  Multiply the output (number of patients treated) with respective utility values (i.e., utility without problem). This will be DALY with intervention. Multiply the same number assuming that no intervention is done with respective utility values (i.e. utility with problem). This will be DALY without intervention.
  • 37.  Discount DALY (1) with intervention and (2) without intervention at the same rate (3% or 5%). Subtract (2) from (1). This is net effect of the project.
  • 38. Calculation of accumulated Disability Adjusted Life Year (DALYS):With Intervention (3% discount rate) DiscountedYear Accumulated DALYs Discount factor value 1 689540.337 0.970873786 669456.6379 2 1472858.235 0.942595909 1388310.147 3 2242312.335 0.915141659 2052033.431 4 3102397.902 0.888487048 2756440.353 5 3920483.349 0.862608784 3381843.376 6 4651633.872 0.837484257 3895670.136 7 5412220.497 0.813091511 4400630.544 8 6151433.571 0.789409234 4855998.465 9 6151433.571 0.766416732 4714561.617 10 6151433.571 0.744093915 4577244.288 11 6151433.571 0.722421277 4443926.493 12 6151433.571 0.70137988 4314491.741 13 6151433.571 0.68095134 4188826.933 14 6151433.571 0.661117806 4066822.265 15 6151433.571 0.641861947 3948371.131 16 5461893.234 0.623166939 3403671.289 17 4678575.336 0.605016446 2830615.021 18 3909121.236 0.587394608 2296196.735 19 3049035.669 0.570286027 1738822.437 20 2230950.222 0.553675754 1235223.047 21 1499799.699 0.537549276 806216.2422 22 739213.074 0.521892501 385789.7599 Total 66351162.09
  • 39. Without intervention (3% discount rate) DiscountedYear Accumulated DALYs Discount factor value 1 343449.21 0.970873786 333445.835 2 733607.55 0.942595909 691495.4755 3 1116860.55 0.915141659 1022085.617 4 1545255.66 0.888487048 1372939.64 5 1952731.17 0.862608784 1684443.061 6 2316905.76 0.837484257 1940372.098 7 2695742.01 0.813091511 2191884.945 8 3063932.43 0.789409234 2418696.554 9 3063932.43 0.766416732 2348249.081 10 3063932.43 0.744093915 2279853.477 11 3063932.43 0.722421277 2213449.977 12 3063932.43 0.70137988 2148980.561 13 3063932.43 0.68095134 2086388.894 14 3063932.43 0.661117806 2025620.285 15 3063932.43 0.641861947 1966621.636 16 2720483.22 0.623166939 1695315.201 17 2330324.88 0.605016446 1409884.877 18 1947071.88 0.587394608 1143699.523 19 1518676.77 0.570286027 866080.1412 20 1111201.26 0.553675754 615245.1957 21 747026.67 0.537549276 401563.6455 22 368190.42 0.521892501 192155.8191 Total 33048471.54
  • 40. Discount Discounted DALYs Net DALY gain Net DALY gainrate With intervention Without (millions) per surgery (millions) intervention (millions) 3% 66.35 33.05 33.30 4.24 5% 54.13 26.96 27.17 3.46
  • 41.  Divide total discounted cost by net DALY gain Compare it with other programs or approaches. The lower is the value the better.
  • 42. Scenario Parameter Low Medium HighUnit cost (per Rs 905 Rs. 905 Rs. 830surgery)Net DALY 1.178 4.24 6.89gained persurgeryCost per DALY 768.25 213.44 Rs. 120.46(in Rs.)Cost per DALY 24 6.67 3.76(in $)
  • 43. Interventions Cost per DALY ($)Immunization against Polio plus DPT $ 20in high-mortality environmentARI treatment for young children in $ 20high mortality environmentImmunization against Hepatitis-B $ 25 - $ 50Primary and secondary prevention of $ 150cardio-vascular diseaseMedical and surgical management of $ 1000cancers