“Economics is the science which studies humanbehaviour as a relationship between given ends andscarce means which have alternative uses” (Robbins,1932)“Economics is a study of how people and society endup choosing with or without the use of money, toemploy scarce productive resources that could havealternate uses; it studies production of variouscommodities over time and their distribution forconsumption, now or in future, among various groupsin the society. It analyses costs and benefits ofimproving patterns of resource allocation.”(Samuelson, 1980)
Health Economics• “The application of economic theory tophenomena and problems associatedwith health” (John Last)
Why Health Economics?• Scarcity in Healthcare resources• Varied, ever increasing needs• Social, ethical and political aims• Allocating resource to fit the best need
Scarcity in Healthcare Resources• Limited Budget• Human intensive industry• Expensive training• Technological progress• Distributional issues• Unexpected occurrence of diseases
The Criterion for Economic EfficiencyEconomists definitions of efficiency encompasses 2 aspects:1. Technical Efficiency: the least costs method of achieving a given end2. Allocative Efficiency: Maximising the benefit obtained from available resources
Areas of Health EconomicsExamples of Health Economics studies:• Cost of illness studies• Economic Evaluations• Health Impact Assessments• Health Technology Assessment• Health Financing• Equity, Priority Setting and Resource Allocations
Cost of Illness/Disease Studies• Quantifies and Monetise the burden of a disease• Use to illustrate and present the burden of a disease in monetary term• Example: • Cost of UK Road Traffic Accidents • Cost of Smoking
Cost of Illness Studies• Benefits: • Highlighting the magnitude of a problem • Compare diseases/problems using a common unit (monetary) • Provide information for economic evaluation studies• Issues: • Can be driven by: political, commercial, or other interest • Comparability between different studies • Do not offer explanation on how best to allocate resources
Cost Analysis• Measure the range of costs within a particular aspect (or a disease)• Important aspect: • Cost perspective • Whose perspective is it? • NHS? • Employers? • Families? • Society?
• Cost category: • Healthcare cost • Staff, Consumables, Overheads, Capital items, Other services • Transport cost • Out of pocket cost • Lost Production and earning
• Measuring cost • Scope of costs: Width vs breadth • Costs vs Price/tariff • Time Horizon/Discounting • Currency for multi country setting• Analysing costs • Incomplete data • Outliers • Skewness (average or median cost?)
Evidence Based Health Economics• So far, we have discussed Evidence in terms for effectiveness only. However, in reality, we are bound to many constraints – one of it is economic• And a range of competing alternatives• A specific clinically significant intervention does not necessarily means that we will automatically able to adopt it
Economic Evaluations• Evaluating the costs and „benefit‟ of different programmes• The comparative analysis of alternative courses of action in terms of their costs and consequences.• A tool guide to resource allocation and priority setting in order to achieve efficiency
Characteristics…• Economic evaluation has 2 characteristics 1. inputs and outputs (costs and consequences) 2. choice between at least 2 alternatives ConsequencesA Programme A CostsA Choice CostsB Comparator B ConsequencesB
Cost in Economic Evaluation• The cost of a programme is defined as the opportunity cost• Benefit that is given up or forgone by making one choice over another
Cost estimations• How Should Costs Be Estimated? Values for non-market items – volunteer time Capital outlays - Opportunity costs of funds tied up in the capital asset( discounting) Depreciation – best method – to annuitize the intitial capital outlay over the useful life of the asset – the equivalent annual cost.
Types of economic evaluationType of Analysis Costs Consequences Result Identical in allCost Minimisation Money respects. Least cost alternative. Different magnitude of a Cost per unit of common measure eg.,Cost Effectiveness Money LY‟s gained, blood consequence eg. cost pressure reduction. per LY gained. Single or multiple effects Cost per unit of not necessarily common. Cost Utility Money Valued as “utility” eg. consequence eg. cost QALY per QALY. As for CUA but Net £ Cost Benefit Money valued in money. cost: benefit ratio.
Cost Minimisation Analysis• Decision rule: • Find the programme with the least cost• Involve only cost analyses of programmes• Issue: Comparability between programmes: • Perspective • Cost widths and breadths • Time horizon • Discounting
Cost Effectiveness Analysis • Find the programme that cost the least for the same level of output • When output are measured in a „natural scale‟ (e.g. death prevented, case prevented, etc) and are comparable across programmes • Example: • Cost effectiveness analysis of cervical cancer screening • Output measure: cost per potentially curable cancer detected • Issues?
• Measuring cost: • Approaches: • top down • bottom up costing • Cost analyses • The cost of providing the alternative intervention • The cost of providing the usual care incremental cost (the difference of the cost required to implement the intervention to the usual care)
• Measuring benefits • In „natural scale‟ • Death prevented • Subjects immunised • Etc
Cost Effectiveness Analysis• Decision will be based on Incremental Cost Effectiveness Ratio Cost ICER Effectiven ess
ICER Plane Incremental cost Intervention is more effective Intervention is less effective but more costly and more costly (COST EFFECTIVE?) (EXCLUDED) Incremental effect Intervention is less effective Intervention is more effective but less costly and less costly (QUESTIONABLE) (DOMINANT)
Cost Utility Analysis• Find the best programme which cost the least for the same level of “health utility” unit• Measure output in „utility‟ terms• Measure the “quality of life” as well as life years gained• Note: Some would still call this type of studies as Cost Effectiveness Analyses
Cost Utility Analysis• Methods of measuring Quality of life: • Survey: e.g. EQ-5D, SF36, SF • Visual analogue scale • Time trade off • Standard gamble
EuroQoL EQ5D• Measure 5 dimensions • Mobility • Self Care • Usual Activities • Pain/Discomfort • Anxiety/Depression• The combination of answers are validated with the „population norms‟ to produce their Quality of Life Score
Visual analogue scale Best imaginable health state Your Own Health State Today Worst imaginable health state
Time Trade Off• A choice between two health states • A particular health state for a given number of years Or • Full health for a shorter period• When you are indifferent within the two choices, then you can calculate the Quality of life of a certain health state
Standard Gamble• A choice of two health states with probabilities • A health state with certainty or • Perfect health with the probability of X (or death otherwise)
QALY• Quality Adjusted Life Years
QALYHealth Quality Index 1 10 x 1 = 10 QALYs 10 Years of Life
QALYHealth Quality Index 1 0.5 10 x 0.5 = 5 QALYs 10 Years of Life
Intervention that increase QALYs Health Quality Index 1 0.75 12 x 0.75 = 9 QALYs 0.5 10 12 Years of Life Intervention that improves quality of life and increasing life expectancy
QALYHealth Quality Index 10.750.50.4 15 x 0.4 = 6 QALYs 10 12 15 Years of Life Intervention that reduces quality of life but increasing life expectancy
Cost Benefit Analysis• Find the programme that has the highest rate of financial return• Measuring all output in monetary values• Natural units output needs to be converted to monetary values• Final analysis: find the highest Benefit Cost ratio
Issue: How to monetise output• Example: • How much does saving one live worth? • Or How much does one live cost?• Approaches: • Human Capital Approach • Revealed Preference • Willingness to Pay • Willingness to Accept
Valuing Human Life• How much does a human life cost?• How much does your right index finger cost?• How much does a painful back conditions „cost‟ you?
Human Capital Approach• The amount of money that would be gained by a person if s/he do not have the health situation• Normally measured in salary received / loss of employment• Issue: • Productivity Gained • Gender • Efficiency
CASP Economic Evaluation:A. Is the economic evaluationvalid?
CASP Economic Evaluation:1. Was a well-defined question posed?Is it clear what the authors are trying to achieve?• What is the perspective of the analysis? Societal (gold standard), NHS and Social Care, households, financial organisations• How many options are compared? Against doing nothing? Usual care?• Are both costs and consequences considered?• What is the time horizon? Comparability, discounting
2. Are at least 2 alternatives compared? 1. Are both costs (inputs) and consequences (outputs) examined? NO YES Examines only Examines only consequences costs NO 2 PARTIAL EVALUATION 1A PARTIAL EVALUATION 1B • Outcome • Cost description. • Cost-outcome description. description. 3A PARTIAL EVALUATION 3B 4 FULL ECONOMIC EVALUATION • Efficacy or • Cost analysis. YES effectiveness • Cost-minimisation analysis. evaluation. • Cost-effectiveness analysis. • Cost-utility analysis. • Cost-benefit analysis.
CASP Economic Evaluation:2. Was a comprehensive description ofthe competing alternatives given?Is there a clear decision tree (or similar informationgiven)Can you tell: who did what, to whom, where andhow often?
CASP Economic Evaluation:3. Does the paper provide evidencethat the programme would be effective(i.e. would the programme do moregood than harm)?• Consider if an RCT or systematic review was used; if not, consider how strong the evidence was.• Economic evaluations frequently have to integrate different types of knowledge stemming from different study designs
CASP Economic Evaluation:4. Were the effects of the interventionidentified, measured and valuedappropriately?• Effects can be measured in natural units (e.g. years of life) or more complex units (e.g. years adjusted for quality of life such as QALYs) or monetary
CASP Economic Evaluation:B. How were consequences andcosts assessed and compared?
CASP Economic Evaluation:5. Were all important and relevantresources required and healthoutcome costs for each alternativeidentified, measured in appropriateunits and valued credibly?• Identification of relevant costs and other relevant resource use (bear in mind the perspective being taken)• Measured accurately in appropriate units prior to evaluation? Appropriate units may be hours of nursing time, number of physician visits, years-of-life gained etc.• Credible valuation of the resource use: • Are the values realistic? • How have they been derived? • Have opportunity costs been considered?
CASP Economic Evaluation:6. Were costs and consequencesadjusted for different times at whichthey occurred (discounting)?• Time value of money• Time horizon• Discounting both the costs and consequences
CASP Economic Evaluation:7. What were the results of theevaluation?What• What is the bottom line?• What units were used (e.g. cost/life year gained, cost/QALY, Net benefit)
CASP Economic Evaluation:8 Was an incremental analysis of theconsequences and costs ofalternatives performed?• Was an incremental analysis of the consequences and costs of alternatives performed?
CASP Economic Evaluation:9. Was an adequate sensitivityanalysis performed?• Consider if all the main areas of uncertainty were considered by changing the estimate of the variable and looking at how this would change the result of the economic evaluation?
CASP Economic Evaluation: C. Will the results help in purchasing for local people?
CASP Economic Evaluation:10. Is the programme likely to beequally effective in your context orsetting?• Consider whether: • a) the patients covered by the review could be sufficiently different to your population to cause concern • b) your local setting is likely to differ much from that of the review.
CASP Economic Evaluation:11. Are the costs translatable to yoursetting?
CASP Economic Evaluation:12. Is it worth doing in your setting?
Policy Context of Economic Evaluation• NICE – threshold value of a cost per QALY – £20,000- £30,000• Quality Agenda DH ( 1998) A First Class Service: Quality in the New NHS.• DH(2010) The NHS Outcomes Framework
References• Donaldson, C., Mugford M. and Vale, L.(2002) Evidence– based health economics. From effectiveness to efficiency on systematic review. London: BMJ Books• Drummond, M. et.al. (2005) Methods for the economic evaluation of health care programmes - 3rd edition. Oxford: Oxford University Press• Wonderling, D., Gruen, R. and Black, N. (2005) Introduction to Health Economics. Maidenhead: Open University Press