Benefit- Cost Analysis in Health Economics

1. Cost-benefit Analysis
1
Abdur Razzaque Sarker
MHE (Health Economics), MSS (Economics)
Health Economics and Financing Research, icddrb
and
PhD Fellow in Strathclyde University, UK
Email: razzaque.sarker@gmail.com

2. What is Cost-Benefit Analysis
Cost Benefit Analysis (CBA) is an economic
evaluation
technique that both costs and consequences
(benefits)
are measured in monetary unit.
Net benefit = Benefits - Costs
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3.  An intervention should be undertaken
if the benefits exceed the costs.
Choose the intervention with the highest net
benefit if only one intervention can be
funded
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4. Why using CBA
 Resources are limited
 The intervention program should be
economically viable
 CBA adopts a broad societal
perspective as it includes all costs and
all benefits
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5. Economic evaluation methods at a glance
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6. Measuring cost of intervention
The cost of intervention will be
calculated
in the same way as other economic
evaluation methods (Please see ‘cost
analysis’).
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7. Measuring benefits
The ways to measure monetary value of
benefits from intervention
1. Cost of illness averted
2. Contingent valuation method
(willingness to pay)
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8. 1. Cost-of-illness averted
The cost of illness (COI) is defined as the
value
of the resources that are expended or
foregone
as a result of a health problem (like,
diseases).
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9. Perspectives of COI
Patient’s or household’s perspective
Provider’s perspective
Societal perspective
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10. Costs can be classified into
three types
 Direct Costs: Direct costs related to treating the
patients (example, doctor’s visit, drugs, transport)
 Indirect Cost: Loss of productivity of patients
and care-givers
 Intangible cost: Pain, anxiety, discomfort
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11. Information needs to be collected
Direct cost
 How much patients spend for medicine.
 How much money was spent for transportation
for each visit.
 Did you spend any night away from home
regarding treatment and spend money to buy
food and lodging?
 Did you spend any money for any diagnostic
tests?
 Did you pay consultation fee to the provider?
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12. Indirect cost
Examples:
 At the time you got sick with cholera, were you employed?
 How much time you waited before receiving this service?
 What was your daily wage?
 How many days had you been absent from work due to illness?
 Did anybody take care of you during your illness?
 How many days she/he had been absent from work for giving you
care?
 What was her/his daily wage?
 more……
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Information needs to be collected

13. Intangible cost
Difficult to measure and often a limitation of the study
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Information needs to be collected

14. Provider’s actual cost of illness
Provider actual cost of illness will be calculated as
the provider’s cost for treatment excluding any fees
received from the patients for hospitalization, drug,
diagnostic tests etc.
If government implements vaccination against
cholera. The cholera hospitals (wards) can be
benefited by reducing their cost for treating cholera
patients.
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15. It includes cost of providers, cost of patients or
households and costs of insurance company (if
applicable)
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Cost of illness of society

16. The cost of illness that can be averted,
i.e.
benefits of the intervention will then be
adjusted for time differentials using
discount rate.
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17. 17
Costs Parameters Average cost Standard deviation %of total cost
Direct Medical Diagnostic 9.6 (0.1) 75.7 (1) 9
Medicine 148.7 (2) 246 (3.)
Registration fee 26.1 (0.3) 130.6 (1.7)
Paramedics home visit fee 2.8 (−) 21.5 (0.3)
Bed/ Cabin charge 16.9 (0.2) 130.7 (1.7)
Direct Non-
Medical
Transportation cost 140 (1.9) 122 (1.6) 15.6
food items 63(0.8) 85 (1.1)
Informal payment 0.7 (−) 9 (0.1)
Caregivers payment 0.1 (−) 1 (−)
Materials (mug/glass/coil etc) 10.6(0.1) 17 (0.2)
Lodging 28 (0.4) 101 (1.3)
Caregivers expenditure 113.2 (1.5) 172 (2.3)
Total direct cost 559.5 (7.4) 641.7 (8.5) 24.6
In-direct Patients income loss 811 (11) 4,301 (57)
Caregivers income loss 908 (12.2) 3,701 (49)
Total indirect cost 1,719 (23) 5,656 (75.4) 75.4
Total cost of illness of household 2,278.5 (30.4) 5,668 (75.6) 100
Average household cost for cholera treatment

18. 18
Suppose in Mirpur area, every year 1200 patients are
affected by Cholera diseases and it is estimated by
our hospital record. A Cost of illness study
conducted and estimate the average cost for treating
cholera is $40 from societal perspective. We want to
minimized the burden of cholera diseases and he
initiated the following three intervention
A Only Vaccination
B Vaccination & hand washing technique
C Vaccine, hand washing & Water treatment
procedure

19. 19
Intervention Total cost (C)
Outcome
(No of case averted)
A (Vaccine) 10000 200
B ( Vaccine & hand washing) 15000 650
C (Vaccine, hand washing and
water treatment) 18000 900
We want to know which intervention is
sustainable based on cost benefit analysis?

20. 20
Decision tools:
 Net Social Benefit (NSB) = B-C
 If B > C we take the intervention, i.e. B-C
>0, we accepted that program
 If B< C i.e. B-C <0, we must rejected that
intervention
 If B = C , i.e. B-C =0, we are indifferent i.e.
it may be accepted or rejected

21. 21
Intervention Total cost (C)
Outcome
(No of case averted)
A (Vaccine) 10000 200
B ( Vaccine & hand washing) 15000 650
C (Vaccine, hand washing and
water treatment) 18000 900
Intervention
Total cost
(C)
Outcome
(No of case averted)
Total Benefit
(B)
A (Vaccine) 10000 200 8,000
B ( Vaccine & hand washing) 15000 650 26,000
C (Vaccine, hand washing &
Water treatment) 18000 900 36,000
Since average COI is $40 for societal perspective

22. 22
Intervention
Total cost
(C)
Outcome
(No of case
averted)
Total
Benefit (B)
Net Social
Benefit
(NSB = B-C )
A (Vaccine) 10000 500 8,000 -2,000
B ( Vaccine &
handwashing) 15000 650 26,000 11000
C (Vaccine, hand washing
& Water treatment) 18000 900 36,000 18000
 If we consider intervention A , here, B – C < 0, Rejected A
 In intervention B, here, B –C > 0, ie. NSB >0. Accepted B
In intervention C, here, B – C > 0, i,e. NSB >0. Accepted c
If we compare all that program, only one intervention can be
funded than alternative C is better, causes it gives higher net
social benefit.

23. 23
Assigning Money Values in health
outcomes
 Human Capital Approaches
Cost of illness
 Contingent valuation method (CVM)
Willingness-to- Pay (WTP) Method
Willingness –to- Accept (WTP) Method

24.  CVM is a direct method which involves asking a
sample of the relevant population question about
their willingness to pay (WTP) for a certain product
(health intervention program)
 Willingness to pay (WTP) is the maximum amount
a
person would be willing to pay, sacrifice or
exchange in
order to receive a good or to avoid risk
 If individuals answer truthfully, their answers will
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2. Contingent valuation method
(CVM)

25. CV question can be divided into open-
ended and discrete choice.
Open-ended
Using bidding game technique respondents
are asked to state their maximum WTP for
the benefit of a specific intervention.
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26. 26
To introduce the cholera vaccine we asked
to all household head to know what they
willing to pay (max. WTP) to avoidable this
loss (COI).
 Did you agree to pay for two doses cholera
vaccine
Yes…..(1)
No….(2)
 How much you want to pay for two doses
oral Cholera vaccine ?
BDT……………………

27. 27
 In bidding game (like an auction),
respondents are offered with a bid for
acceptance or rejection. Depending on
respondent’s answer, the bid is then lowered or
increased until respondent’s maximum WTP is
reached.
 We bid a price to household head and know
about his WTP which may be increasing or
decreasing. And finally we select final WTP.

28. Discrete
Respondents are offered a bid and asked for
either accepting or rejecting. Using different
bids in different sub-samples, it is possible to
calculate the percentage of respondents who
are willing to pay as a function of price (bid).
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29. 29
 Did you agree to pay for two doses
cholera vaccine
Yes…..(1)
No….(2)
 If Yes, then which price …
3*2 = 6 USD per family member….....(1)
4*2 = 8 USD per family member…….(2)
4.5*2= 9 USD per family member…….(3)
5*2 =10 USD per family member…….(4)
5.5*2 =11 USD per family member…….(5)

30. Survey for contingent valuation
Creating a survey instrument for capturing
individuals' WTP
(a) designing the hypothetical scenario;
(b) creating a scenario about the means of
payment
Use the survey instrument with a sample of
the population of interest
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31. 31
Where,
i= indexes respondents
Y= Income
E= Education
A = Age
D=disease or health risk exposure experience
WTPi =
f
(
Yi, Ei, Ai, Di, ... )
Total WTP is achieved by deriving the
population average WTP from the data and
multiplying it by the population size, N.

32. 32
Note to interviewer:
Describe the cholera vaccine, dose and effectiveness both for adult and child to the respondents following
the structured description of the product.
Would you be willing to pay X Taka for full vaccination
for you?
Yes
No
If yes, please explain your reasons for agreeing to pay? 1. The amount is affordable
2. I don’t want to suffer from cholera
Other, specify ___________
If no, pls explain your reasons for not wanting to pay? 1. Too expensive
2. Unable to pay
Other, specify ____________
Would you be willing to pay XX Taka for full vaccination
for other members of your family?
Yes
No
If yes, please explain your reasons for agreeing to pay? 1. The amount is affordable
2. I don’t want to suffer from cholera
Other, specify ___________
If no, pls explain your reasons for not wanting to pay? 1. Too expensive
2. Unable to pay
Other, specify ____________
What would be the maximum amount you would be
willing to pay for yourself?
______________________ Tk
What would be the maximum amount you would be
willing to pay for other family members?
______________________ Tk

33. Total benefit of the proposed intervention can be calculated by
multiplying average WTP with total number of population in
interest group.
Benefits of the intervention (WTP) will then be adjusted for time
differentials using discount rate.
Example,
Total WTP = 10,000 Taka (after discounting)
Total cost of intervention = 8,000 Taka (after discounting)
Net benefit = 10,000 – 8,000 Taka = 2,000 Taka
Conclusion: If net benefit is higher than zero, then intervention
program is acceptable
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34. THANKS
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Email: razzaque.sarker@gmail.com