Cost effectiveness Analysis_Economic Evaluation.pdf

Cost Effectiveness
Analysis
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Presenter
Santoshi Paudel
MPH 2023
SPH and CM
Prepared by: Santoshi Poudel

Cost Effectiveness Analysis (CEA)
• Cost-effectiveness analysis is a way to examine both the costs and
health outcomes of one or more interventions.
• The cost effectiveness analysis compares the cost (in monetary units)
of an intervention to its effectiveness as measured its outcome in
natural health units (e.g. years of life saved, cases prevented, etc.)
• It is the cost per health outcome unit achieved, for eg: the cost per
malaria case prevented or cost per life saved.
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• CEA is applied in the areas where effect or outcome is measured in non
monetary terms (clinical areas as well as to evaluate health policies,
programs, and interventions). It can be applied to both service
providers and users.
• Mostly used in the situation where decision maker operating with a
given budget is considered limited range of options within given field
• We compute relative cost and effects (evaluated in relation to other
alternatives)
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Cost Effectiveness Analysis (CEA)

Uses of CEA
• CEA can assist with the achievement of technical efficiency by helping with the
choice of an intervention or interventions based on the lowest cost per unit of
health benefit achieved.
• CEA can be used for allocative efficiency by choosing an intervention or
interventions to achieve the maximum benefits at the population or societal
level.
• CEA assists in prioritizing interventions by identifying those that provide the
most health benefit per amount spent.
• CEA is useful when the primary objective of the study is to identify the most
cost-effective strategy from a group of alternatives that can effectively meet a
common goal and are often competing for the same resources.
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Estimates of CEA
1. Numerator: Cost of an intervention or program, and
2. Denominator: Measurement of effectiveness of health outcome
• Measurement of the effectiveness most often comes from:
Impact evaluation of the intervention or program,
And the choice of the outcome indicator depends on what the
evaluation could measure and/or the objectives of the program.
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Dominance in CEA
a. Two options
• If option B is cheaper and generates
more benefits than option A we would
have no reason to choose option A
• B dominates A
b. More than two options
• B is extendedly dominated by A and C
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Steps of Cost-Effectiveness Analysis
1. Identification of two or more alternatives/interventions
• Cost-effectiveness analysis requires the identification of two or more
intervention strategies.
• For example: we may wish to compare two types of diagnostic testing
for malaria (mutually exclusive interventions), or ARI treatment with
treatment of diarrhoea (independent interventions).
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Steps of Cost-Effectiveness Analysis Contd..
2. Identification of perspectives
• Cost-effectiveness analysis also depends on the perspectives of the
decision maker.
• Whether the costing and evaluation is done from a standpoint of
specific beneficiary or health provider or from the overall societal
perspective should be clearly stated.
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3. Determination of costs
• Detailed costing should be done for each intervention and should
include more than the direct costs alone.
• The total costs can be divided into following categories:
Direct costs specifically linked to health interventions
Cost expenditures associated with adverse events
Cost savings that accrue as a result of improved health outcome
• Cost-effectiveness analysis even assesses indirect, or opportunity costs.
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4. Determination of outcomes
• For cost-effectiveness analysis, the outcomes for both the alternatives
should be measures in a similar natural unit.
• For example in case of malaria diagnostic tests, the outcomes may be
measure in terms of number of true malaria cases identified.
• In case of ARI and diarrhoea treatment, the outcomes may be in
terms of number of child mortalities averted.
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5. Determination of a cost-effectiveness ratio
• Once costs and effectiveness are measured, a cost-effectiveness ratio is
determined.
• Cost effectiveness ratios typically come in the form of:
Average cost-effectiveness ratios (ACERs)= c/e
Incremental cost-effectiveness ratios (ICERs)
• When two interventions are independent (e.g. ARI and diarrhoea
treatment), then average cost effectiveness ratios are calculated separately
for each of interventions and one with lower ACER is given higher priority
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Incremental Cost Effectiveness Ratio:
• When most effective treatment option for a medical condition is also
the least expensive, then the choice is easy.
• But when most effective treatment option is also more expensive
then the choice is difficult and hence we have to measure ICER.
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5. Determination of a cost-effectiveness ratio
• When two interventions are mutually exclusive (e.g. two types of diagnostic
testing for malaria), then incremental cost effective ratio is calculated as
incremental costs of one program compared with the other, divided by the
incremental effects of one program compared with the other.
ICER = 𝛥c/𝛥e
= (c2 – c1) / (e2 – e1)
Where c= costs of treatment
e= effectiveness of interventions
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6. Decision making
• For independent interventions, they should be implemented in the
order of their ACER starting from the lowest ACER, until the budget is
exhausted.
• For mutually exclusive programs and fixed budget, first dominated
interventions are eliminated and the more effective interventions are
implemented until budget is exhausted.
• The incremental cost effectiveness data is interpreted using a cost-
effectiveness plane.
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Cost Effectiveness Plane
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-500
-400
-300
-200
-100
0
100
200
300
400
500
-1 -0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1
Intervention is less effective and more
costly Intervention is more effective and more
costly
Intervention is less effective and
less costly
Intervention is more effective and
less costly
∆ Effectiveness
∆
Cost
Cost More
More Effective
Less Effective
Cost Less
ICER Threshold

If ICER is negative
It is called “dominated” and has two interpretation:
• Numerator is Negative: Intervention would save resources and should
be done (C1>C2)
• Denominator is Negative: researcher should report that the
intervention did not have the intended effect and should not
continue with a CEA study (e1>e2)
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If the ICER is positive:
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ICER< 1 unit of per
unit income

Example for understanding CEA calculation
For Independent programs
As a decision rule, the interventions should be implemented in order of
its ACER, starting from the lowest ACER.
Suppose we have a fixed budget of 600,000 then what???
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• For mutually exclusive programs
Step 1
Step 2
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• Step 3
• Suppose we have a fixed budget of 8,000 (millions).
• However, although intervention D has highest ICER, it cannot be
implemented at given budget. Therefore, intervention B is selected
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Limitations of CEA
• It does not provide information about whether or not to expand/ scale up
the program.
• It doesn’t take into account the social desirability of health outcome.
• It overlooks the equity aspect of the intervention.
• It provides the information about technical efficiency rather than allocative
efficiency.
• It cannot compare interventions which have differing consequences
(outcomes).
• It is difficult to make policy decision based only on the comparison of the
cost-effectiveness ratios.
• CEA cannot compare programmes with different goals.
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Quick review of CEA decision
Case I: New treatment is more expensive and less effective
Don’t adopt new treatment
Case 2: New treatment is less expensive and more effective
Adopt new treatment
Case III: New treatment is less expensive and less effective
In medicine we generally consider more effective treatment so we
can ignore new treatment
Case IV: New treatment is more expensive and more effective
Calculate ICER, identify the best option considering the available
resources
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Advantages of cost-benefit analysis over CEA/CUA
• CBA answers the questions whether a program/goal is worth
achieving given the social opportunity cost of all the resources
consumed.
• CBA converts all costs and benefits to money and is not restricted to
comparing programmes between different sectors. It can inform the
resource allocation decisions both within and between the sectors of
economy. CEA/ CUA is necessarily restricted to the comparison of
health care programmes that produce similar units of outcome.
• Cost-effectiveness analysis/ cost utility analysis address mainly
questions of production efficiency with outcomes restricted to health
benefits. In contrast, CBA is broader in scope and able to inform
questions of allocative efficiency.
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Area CB analysis Cost effectiveness
Definition An ideal method for comparing all social cost
and consequences access different program or
intervention.
It compare intervention which are broadly
similar and adopts a narrower view points.
Objectives Systematic calculation all cost and
consequences occurring to society to society
from different options and expression in
monetary value.
To identifying the most efficient way of
achieving the objectives.
Focus It focuses on comparing the costs and benefits
of different interventions to determine their
overall economic desirability
It focus on identifying the intervention that
achieves a given outcome at the lowest cost
Areas Use in Pharmaceutical industries, factories,
industries
Used in Randomized Clinical Trial (CRCT)
Duration It takes several years It is of short duration
Use on
health care
At executive level of government i.e. at
decision making level
• Selecting the most cost effective intervention
for health outcomes
• Evaluation of activities under the program
Measures Benefit cost rati, Net Benefit In terms of ICER

References
• https://www.cdc.gov/policy/polaris/economics/cost-
effectiveness/index.html
• Guide to Fundamentals of Economic Evaluation in Public Health_ms-
19-162.pdf
• cost effectiveness analysis.pdf
• https://www.ncbi.nlm.nih.gov/books/NBK436886/
• https://www.cdc.gov/dhdsp/programs/spha/economic_evaluation/d
ocs/podcast_iv.pdf
• https://ihatepsm.com/blog/difference-bw-cost-benefit-and-cost-
effective-analysis
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