3 Unique nature of health as a good Non-transferable goodsOutcome of an intervention is always uncertain for an individualSupply induce demandExternality
4 Health EconomicsApplying economic principles and theories to health and to the health care sector
5 Health Economic Evaluations Are Just One Part of Health Economics other topics in health economics:optimal size of hospitals, optimal payment for physicians, optimal level of co-payment by patients,….
6 Definition of Health Economic Evaluation The comparative analysis of alternative courses of action in terms of BOTH their costs and health consequencesPharmaco-economic evaluation =if at least one drug is involved
7 The Different Steps of Evidence Can it work? = EfficacyDoes it work in reality? = EffectivenessIs it worth doing it, compared to other things we could do with the same money? = Cost-effectiveness = Efficiency
8 Difficult questions and difficult answers ... which services to provide?how much to provide?at what stage in the disease process to provide it?to whom it should be provided?
9 Economic Evaluation costs (inputs) and consequences (outputs) comparison of two or more alternatives
12 1. PARTIAL EVALUATION 1.2 two or more programmes efficacy effectivenesscost analysis
13 2. FULL ECONOMIC EVALUATION two or more programmesboth costs (inputs) and consequences (outputs)
14 2. FULL ECONOMIC EVALUATION Cost-minimization analysisCost-effectiveness analysisCost-utility analysisCost-benefit analysis
15 Quality adjusted life years (QALYs) Decision makingMethodconsequenceDecision ruleCMAIdenticalLowest costCEA‘Natural units’Lowest cost per improved outcomeCUAQuality adjusted life years (QALYs)Lowest cost per QALY gainedCBABahtHighest net benefits
16 The use of CE or CU ratios as a decision rule CE ratio = the difference in costs divided by the difference in outcome ∆C = CA - CB `∆E QALYA - QALYB
23 Unit cost determination System analysisNRPCC RPCC PSLC+MC+CC LC+MC+CC LC+MC+CCTDC TDC TDCIDC from NRPCC IDC from RPCC(cost allocation) (cost allocation)Full cost of PS= (IDC+DC)Volume of care providedUnit cost
25 Monetary valuation : benefits Human capital approachRevealed preferenceStated preference
26 Revealed preferenceextra earnings of construction workers in risky occupations over safe occupationsnot appropriate in the healthcare field due to consumer ignorance and zero or subsidized price at the point of use (Arrow,1963; Culyer,1971; Mooney,1986)
28 Single outcome : effectiveness Immediate outcome :symptom freeIntermediate outcome :no of ulcer preventedFinal outcome : life years saved
29 Multiple outcome : utility Non-preference-based measures of health status : QOL not utilityPreference-based measures of health status : QALYs
30 Non-preference-based measures of health status standardized questionnairesto assess patient health across broad areas : symptoms, physical functioning, work and social activities, and mental well-being
31 Non-preference-based measures of health status (cont.) can be disease-specific or genericcan generate a profile of scores, or a single indexusually, scoring procedures (e.g.SF-36 assumes equal weighting for most items.)
32 Non-preference-based measures of health status (cont.) to assess the relative efficiency of interventions in very limited circumstances3 components to the scoring:(1) equal weighting (e.g.the SF-36)(2) weightings to combine items(3) combined into an overall total score using a set of weigh.(not usually done)
33 Non-preference-based measures of health status (cont.) For clinical purposes : present separate scores by dimension.
34 Preference-based measures of health status standardized questionnairesassess patient health across broad areas including symptoms, physical functioning, work and social activities, and mental well-beingcan be disease-specific or generica single index based on people preferences (e.g.EQ-5D, HIU)
35 Preference-based measures of health status (cont.) value of 0-11 is equivalent to full health0 is deadknown as health state utilitiesused to calculate quality-adjusted life-years, QALYs
36 Preference-based measures of health status (cont.) Quality of Well-Being Scale (QWB) :lengthier interviewRosser’s disability/ distress sale : self-administrationHealth Utility Index (HUI; mark I to III):self-administration
37 Preference-based measures of health status (cont.) EQ-5D (EuroQoL) : self-administrationEQ-15D : self-administrationno consensus amongst health economists as to which is better.
38 Theoretical basis of preference-based consumer theorypredicting the choices of individuals between different bundles of commodities(Deaton and Muelbauer,1980)
39 Theoretical basis of preference-based (cont.) assumes individuals choose the bundle of commodities which maximizes utility subject to budget constraintutility is an indicator of the consumer’s strength of preference
40 Theoretical basis of preference-based (cont.) a person deciding whether or not to purchase health services will considerthe likely effects they are expected to have on their healthwhether the benefits of these effects are worth the costs of the health care
41 Theoretical basis of preference-based (cont.) Tradinge.g. have an operation associated with the risk of mortality VS life extending chemotherapy with side effects
42 Theoretical basis of preference-based (cont.) The main economic theory of decision-making under uncertainty is expected utility theory (EUT)Individuals choose between prospects as to maximize their expected utility(Von Neumann and Morgenstern,1947)
43 Practice of measuring preferences for health Paired Comparison (PC)Visual analogue scale (VAS)Magnitude estimation (ME)Standard gamble (SG)Time trade-off (TTO :Torrance, 1986)Person trade-off (PTO : Nord, 1992)
44 Visual analogue scale (VAS) Category rating (CR)Rating scale (RS)Visual aids e.g., “feeling thermometer” are usedwidely used to value health states : QWB,HUI-II and HUI-III transform VAS values into SG
45 Standard gamble two alternatives 1 : treatment with two possible outcomes: return to normal health and lives for an additional t years(P), or dies immediately (1-P)2 : has the certain outcome of chronic state i for life (t years) (Torrance, 1986)
46 Standard gambleProbability P is varied until the respondent is indifferent between the two alternatives, at which point the required preference value for state i is simply P, that is Ui = P (Torrance, 1986)
48 Time trade-off two alternatives 1:state i for time t (life expectancy of an individual with the chronic condition) followed by death2: healthy for time x; x < t followed by death (Torrance, 1986)
49 Time trade-offtime x is varied until the respondent is indifferent between the two alternatives, at which point the required preference value for state i is given by Ui = x/t (Torrance, 1986)
50 Time trade-off (TTO :Torrance, 1986) x*1.0 = t*Uix / t = Ui
51 Quality Adjusted Life Years (QALYs) introduced by Klarman et al for chronic renal failurecombine into a single interval-scale measurebased on relative desirability of the different outcomes (patient preferences) from perfect health to deathQALYs = Utility weight x Years of life
52 Quality Adjusted Life Years (QALYs) 2. With programmePerfecthealth = 1.01. Without programmeHealth-relatedquality of life(Utility weights)QALYs gainedDuration (Years of life)Death = 0.0Y1Y2Death 1Death 2
53 QALYs Calculation Duration Health state Weight * 3 months Hospital dialysis3 months Home confinement for TB 0.688 years Home dialysis8 years Mastectomy for breast cancer 0.48* based o TTO on a random sample of the general public(Sackett and Torrance, 1978)
54 Exercise : QALYs Calculation Sketch QALY diagram and determine QALYs gainedassume no discounting
55 Exercise :QALY Calculation Sketch QALY diagram and determine QALYs gained1. Eight-year life extension on home dialysis2. Three-month life extension on hospital dialysis3. Preventing a TB case treated at home for three months
56 Exercise :QALY Calculation 4. Assume a breast-cancer patient will become symptomatic, have a mastectomy, and live a additional six years. By screening, the cancer will be detected one year earlier, the surgery will be done one year earlier, and the life will be extended two years (compared with no screening).
57 Issues in CUAWho is the right person to ask to get the utility score? Patients, Physicians, or other.QALYs count quality and quantity of life in a one to one ratio. 2 years in a .5 condition is assumed to be the same as 1 year in perfect health.
58 Issues in CUAAdding 1 QALY to 75 people is counted the same as adding 75 QALYs to one person.QALYs are counted the same for all people--young or old, rich or poor.Evaluation with QALYs takes the average QALY answer and applies it to everyone. Note that it is possible that no person gave the average answer.
59 Using Costs and QALYsThis brings us to the task of maximizing QALYs for a given budget. This is done the same way as in CEA.In CEA we covered how to maximize the desired effect for a given budget for one patient population.An example with two patient populations (i.e. two groups with different disease states).
60 Steps Step 1—Put the Costs and QALYs in a table ordered by Costs. Step 2—Eliminate all dominated and second order dominated treatments within each group.Step 3—Given the budget you allocate money to treatments in order of incremental cost utility ratios. Remember that the budget must cover both groups. Typically you end up splitting treatments in one of the groups—this is done solving two equations and two unknowns exactly as with one group.
61 Example 15 200 L 16 100 D 14 K 12 68 C 60 J 8 B 10 40 I 50 A QALYs CostsGroup2Group1
62 Dominated Treatments There are no dominated treatments in group 2. In group 1, B is dominated, and C is Second Order Dominated.The incremental cost utility ratio between A and C is 9 and the incremental ratio between C and D is 8.We end up with a final table with incremental cost utility ratios (ICURs) for all of the non-dominated treatments.
63 Final Table10015200L2014K101260J8 1/316D440I550AICURQCG2G1
64 Example—Allocating Budgets Again you allocate a budget based on the incremental cost utility ratios. You allocate in order of the incremental ratios—and you always spend all the money.Small budget examples--Note that the ICUR of I is 4 and for A it is 5. I costs 40 and A costs 50. Hence for any budget under 40 you buy only as large a percentage of I as you can. For any budget between 40 and 90 you buy I for everyone in Group2 and as much a percentage of A as you can with the remaining money (e.g. with 65 you buy I for everyone in Group2 and A for half the patients in group 1).
65 One Example of Splitting Take a total budget of At this level you want to give treatment I to all of group 2, costing 40, and then use the remaining 80 to treat group 1. With 80 for group 1 you want to split between A and D.Solve Pa + Pd = 1, Pa(50)+Pd(100) = 80
66 AnswerPa = 2/5, Pd = 3/5.Overall, group 2 gets I, 2/5 of group 1 gets A and 3/5 of group 1 gets D.Total cost = /5(50) + 3/5(100) = 120Total QALYs = 10 +2/5(10)+3/5(16) = 23 3/5
67 Allocating Budgets Continued The order of treatments is I, A, D, J, K, L.First, total budget from 0-40, I goes to part of group 2.Second, total budget 40-90, I for all of group 2 and A for part of group1.Third, total budget , I to all of group2 and a mix of A and D to group 1. Note that the budget for group 1 in this range is between 50 and 100.Fourth, total budget , D to all of group 1 and a mix of I and J to group 2. Note that the budget for group 2 is between 40 and 60.
68 STEPS TO AN ECONOMIC ANALYSIS Understand and describe the problemChoose appropriate analysis methodCollect cost and outcome dataPerform analysisAssess sensitivity of results