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2. Cost-effectiveness Analysis (CEA)
Compares the cost of an intervention to its effectiveness
measured in natural health units
• Costs: Monetary Unit
• Consequences: Natural units (Years of life saved, cases prevented)
CEA s used when alternatives produce a common health
outcome of interest but is achieved to different degrees.
Typically expressed as a ratio
Cost per natural unit effect (C/E)
Effects per unit cost (E/C)
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3. Cost-effectiveness Analysis (CEA)
Mostly used in situations where a decision maker,
operating with a given budget is considering a limited
range of options within a given field.
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5. 1. Identification of two or more
alternatives and outcomes
Two alternatives can be compared if we are looking at a
similar outcome in natural units.
• Two different methods of screening for breast cancer can be
measured in terms of No. of true cases found
Even if two programs are different, it is possible to
measure outcomes, if units are same
• Number of deaths prevented
• Years of life saved
Example: Two child health programs “Nutrition program” versus
“IMNCI” to prevent childhood mortality
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6. Types of alternatives/interventions
Independent programs
• Cost and effectiveness of one program is not affected by
implementation of another program
• Example: Treatment of ARI and treatment of diarrhoea among
under 5 children
• Two programs in two different population/setting
Mutually exclusive programs
• If one program is implemented, another program cannot be
implemented
• Programs for same population
• Example: Two alternative antibiotics for treating ARI in children
(cotrimoxazole vs amoxicillin)
• Two types of diagnostic testing for malaria
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7. 2. Identification of perspectives for costing
In cost analysis, different perspective may be considered
• Patient and family: opportunity cost, transportation,
caretaker cost
• Health care provider: salary, equipment and drugs
• Ministry of health: salary paid to officials, storage,
transportation and distribution, volunteers,
administrative costs, training
• Societal: message communication, foreign assistance,
family member taking care of the sick
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8. 3. Determination of costs
Costing for each courses of action should include both
direct and indirect costs
• Direct costs specifically linked to health interventions
• Cost expenditures associated with adverse events
• Cost savings that accrue as a result of improved health
outcome
• Other opportunity and indirect costs
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9. Costing
Costing non-market items
• Volunteer’s time
• Family of patient’s waiting time
• Loss of sleep
• Leisure of patients
Two approaches
• Opportunity cost: valuing the time of the person at the wage or
income the person could have earned
• Market cost: what would be the cost if hospital or clinic hired
someone to do the work the volunteer has performed
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10. 4. Determination of cost-effectiveness
ratio
Different approaches based on nature of alternatives
• For independent interventions: Average cost-effectiveness ratio
(ACER)
Average C/E ratio =
• For mutually exclusive programs: Incremental cost effective ratio
(ICER)
ICER=
∆
∆
=
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11. Cost-effectiveness ratio
Calculating ICER for mutually exclusive
programs
• Order programs according to their effectiveness
• Calculate the incremental C/E ratio
• Eliminate dominated alternatives
• A program is dominated if the incremental C/E ratio decreases
for the next program with higher effectiveness
• Recalculate the incremental C/E ratios
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12. 5. Decision making
For independent program (ACER):
• Implement program in the order of their C/E ratio until
the budget is exhausted
• Lowest ACER is most cost-effective and hence given
the highest priority
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13. 5. Decision making
For mutually exclusive program (ICER)
If we are comparing program B to program A
Easy case
• B is more expensive and less effective (prefer A)→A dominates B
• B is less expensive and more effective (prefer B) →B dominates A
Not so easy case
• B is more expensive and more effective →
• B is less expensive and less effective →
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Now what?
15. Choosing the best strategy
Choose the most effective strategy whose ICER is less
than the threshold cost/life years after excluding
dominated strategies
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16. Choosing the best strategy
Guidance on how to define the threshold cost/LY
Use gross domestic product (GDP) to derive categories of
cost-effectiveness:
• Highly cost-effective: <1GDP per capita
• Cost-effective: between 1 and 3GDP per capita
• Not cost-effective: >3GDP per capita
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17. Errors to avoid
Reporting ratios of total cost to total life years
Failing to exclude strongly or weakly dominated strategies
Claiming that strategy with the lowest ICER is the best
choice
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18. Limitations of CEA
Does not inform whether or not to expand/scale up the
program
Doesn’t take into account the social desirability of health
outcome.
Provides information about technical efficiency rather than
allocative efficiency
Cannot compare interventions with differing
consequences (outcomes)
Cannot compare programs with different goals
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19. Exercise 1
Calculate C/E ratio for following independent programs
Decide which is more effective and should be
implemented if there is fixed a budget of 600,000
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Intervention Cost Effectiveness
A 100,000 10
B 400,000 20
C 900,000 30
20. Exercise 2
Calculate C/E ratio for following mutually exclusive
programs
Decide which program would you consider for
implementation if there is fixed a budget of
a. 60,000 USD
b. 220,000 USD
c. 1,300,000 USD
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Intervention Cost in 00 (USD) Effectiveness
Prog. A 2000 0.2
Prog. B 10000 0.4
Prog. C 500 0.1
Prog, D 9000 0.3
21. Exercise 3
Calculate C/E ratio for following mutually exclusive
programs
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Intervention Cost in 00 (USD) Life expectancy
(years)
No intervention 2,500 4
A 5,000 8
B 6,000 7
C 7,000 10
D 12,000 12
E 13,000 13