Health Economics is the science of assessing cost and benefits of health care therapies and service. HE is about making choices between options, when there is scarcity of resources.

1. Health Economics
Prepared by
Amit Pagada
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2. Flow of Presentation
• Health Economics definitions
• Needs of understanding HE
• Perspectives in economic evaluation
• Components of HE evaluation
• Types of costs
• Types of outcomes/benefits
• Methods of economic evaluation
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3. Definitions
Health economics: HE is the science of assessing
cost and benefits of health care therapies and
service. HE is about making choices between
options, when there is scarcity of resources.
Pharmacoeconomics: PE is a branch of HE that
particularly considers drug therapy. It is of
particular interest to pharmaceutical companies
and clinical pharmacologists.
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4. Needs of understanding HE
• Increasing health expenditures
• Scarcity of resources
• Making decision
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5. Perspectives in economic evaluation
• Guide to choose the relevant costs and benefits
in economic analysis
Types:
I. Patient
II. Provider
III. Payer
IV.Society
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6. Components of HE evaluation
• Costs
• Benefits/Outcomes
• Methods of economic evaluation
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7. Types of costs
• Direct: costs from the perspective of the
healthcare funder i.e. Medical & Non medical
• Indirect: Costs from the perspective of society
as a whole i.e. loss of earnings, loss of
productivity, Diet and transportation charge of
caregiver
• Intangible: Pain, worry or other distress which
a patient or their family might suffer
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8. Types of benefits
• Direct: Avoidance of illness, decreased
hospitalization
• Indirect: Improved productivity, decreased
absenteeism
• Intangible: Improved quality of life, avoidance
of stress
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9. Measurement of benefits
• Natural units: years of life saved, strokes
prevented, peptic ulcer healed
• Utility units: Word for satisfaction or sense of
well being. Attempt to evaluate the quality of a
state of health, and not just its quantity e.g.
Quality adjusted life year
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10. Methods of economic evaluation
1. Cost of illness analysis (COI)
2. Cost minimization analysis (CMA)
3. Cost benefit analysis (CBA)
4. Cost effectiveness analysis (CEA)
5. Cost utility analysis (CUA)
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11. Cost of Illness Analysis
• Sum of all costs and benefits of a diseases
• Three broad components: Medical resources
used to treat the illness, the nonmedical
resources associated with it & lost productivity
• Provide baseline against which various
treatment options may be compared
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12. Cost Minimization Analysis
• Measuring only costs, usually only to the
health services
• Applicable only where the outcomes are
identical
• Example: Comparing the costs of Drug A &
Drug B; Drug A & Drug B have evidence
supporting equal efficacy for a given condition
and equal safety
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13. Cost Benefit Analysis
• Both costs and benefits are expressed in
monetary unit
• Benefit is measured as the associated
economic benefit of an intervention (monetary
value of returning a worker to employment
earlier)
• Two ways to express results:
I. Calculate the Benefit to Cost ratio (B/C)
II. Calculate the Net benefit (Benefit - Cost)
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14. Continues…
• Choose alternative with the highest net benefit
or the greatest benefit to cost ratio
• If the B:C ratio is >1, the treatment is of value
• If the B:C ratio is =1, benefits equal the cost
• If the B:C ratio is <1, the treatment is not
economically beneficial
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15. Cost Effectiveness Analysis
• Benefits defined and measured in natural unit
(e.g. years of life saved, ulcers healed) & the
costs are measured in money
• Compares therapies with qualitatively similar
outcomes in a particular therapeutic area
• Example: The costs per patient relieved of
symptoms using a proton pump inhibitor
compared to those using H2 blocker
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16. Continues…
• Key measure is the Incremental cost
effectiveness ratio (ICER)
• ICER = Differences in costs (A-B)/Differences
in benefits (A-B)
• Adopt the treatment if ICER < Rc*
• Rc*= Maximum acceptable cost effectiveness
ratio (e.g. $50000 per QALY, €30000 per
QALY)
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17. Cost Utility Analysis
• Similar to cost effectiveness analysis
• Outcome is measured in unit of utility (e.g.
QALY)
• Endpoint is not directly dependent on the
disease status, CUA can look at more than one
area of medicine, e.g. cost per QALY of
coronary artery bypass grafting versus cost per
QALY for erythropoietin in renal disease
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18. Thank you….
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