Understanding Health Economics Nicola Cooper, PhD Professor of Healthcare Evaluation Research Department of Health Sciences University of Leicester

Overview What is Health Economics? Evidence-based decision making Economic evaluation Challenges of economic evaluations of non-drug interventions

What is Health Economics? Health economics is about using resources efficiently to improve the population's health. The cost effectiveness of an intervention or programme is assessed to ensure maximum health gain from the finite available resources A balance must be struck between efficient allocation of resources on the one hand and an equitable/fair allocation of those resources on the other.

NHS expenditure

Increased demand for health care Change in age structure Cost per person % of UK pop n > 65

A single course of IVF costs £2,700 What is the opportunity cost ……. OPPORTUNITY COST Within healthcare sector?Beyond healthcare sector? 1/3 of a cochlear implantHalf a junior school teaching assistant for a year 150 vaccinations for Measles, Mumps and Rubella 2000 school dinners 11 cataract removalsOne-thousandth of a Challenger 2 military tank 1 heart bypass operation Source: “Economic Analysis in Health Care” by Morris, Delvin & Parkin 2007

Evidence-based decision-making Assessing the effectiveness evidence answers questions such as “What works?” and/or “Is this intervention effective in achieving a specific outcome?” Whereas, decision-makers are also interested in “Is it worth it?”, “At what cost is the outcome achieved?” and/or “What will be the economic impact of this intervention?” benefits costs

Economic Evaluation Economic evaluation compares the costs and outcomes of alternative courses of action. Economic evaluation provides an explicit framework whereby clinical outcomes and economic considerations are combined to estimate the costs and outcomes of alternative (competing) interventions. Recommendations are based on balance between estimated cost of each intervention and the expected health benefits. i.e. cost-effective Economic evaluation can be conducted alongside a single well-conducted trial (usually over a short-time horizon) or modelled using decision analytic techniques (lifetime).

Economic decision analysis Decision analysis is a systematic and explicit quantitative approach to combine evidence from a variety of published sources to enable evaluation of the cost- effectiveness of competing interventions. Forms important component of NICE appraisals where need to decide which interventions to fund based on evidence based analyses of both clinical and cost- effectiveness. Provides answers to policy-relevant questions such as “Which interventions represent the best use of scarce healthcare resources?”

Evidence-based decision-making 1 Find the evidence 2 Synthesise the evidence 3 Estimate cost-effectiveness with decision analysis

Challenges in economic evaluations of non-drug interventions Studies often measure intermediate outcomes rather than final outcomes

Challenges in economic evaluations of non-drug interventions (cont.) Measuring effectiveness: – Utilities - “satisfaction, well-being, happiness or fulfilment of needs derived from consuming a good or service” – Preference-based measures of health-related quality of life e.g. Quality Adjusted Life Years (QALYs) – Useful wherever health is the sole or predominant benefit

Measuring effectiveness (cont.) Total cost Cost per QALY GP advice to stop smoking£50,000£167 Hip joint replacement£143,610£1,197 Renal transplant£33,360£4,000 Breast cancer screening£90,000£4,100-£6,900 Heart transplant£36,700£6,900 Coronary artery bypass graft£171,400£1,000-£16,400 Treatment of cystic fibrosis with new antibiotics£10,000£13,200 Haemodialysis for chronic renal failure£82,000£19,000 GP diagnosis of raised serum cholesterol£9,500£100,000 Drug treatment for raised serum cholesterol£21,300£125,860 Cost per QALY allows interventions in healthcare to be compared so that resources may be allocated efficiently

NICE cost-effectiveness threshold Probability of rejection Cost per QALY (£’000)

Measuring effectiveness (cont.) Alternative analyses: – Cost-consequence: reports costs and outcomes separately (i.e. does not combine into a single indicator such as cost-effectiveness ratio). Can measure both welfare and QoL more broadly than QALYs. Perspective often wider than the healthcare provider. Outcomes more difficult to interpret & aggregate. – Cost-benefit: expresses outcomes and costs in same units, usually monetary units (i.e. intervention cost- effective if the sum of the benefits is greater than the sum of the costs)

Challenges in economic evaluations of non-drug interventions (cont.) Interventions often more complex and/or less well-defined than drug interventions Wide range of outcome measures reported Lack of good quality sufficiently homogeneous evidence (e.g. well conducted RCTs) Often interested in community rather than an individual patient

Methods for the development of NICE public health guidance (third edition) methods-for-the-development-of-nice-public-health-guidance- third-edition-pdf