Chapter 10: Cost-Effectiveness and Cost Analysis Designs

Why ‘Cost’ is an evaluative criterion Programs must balance effectiveness with affordability Social services are normally government funded Funding is not always guaranteed Legislature may opt not to fund program Eliminate funding due to political climate Agency directors must decide which program provide the most affordable, favorable outcome Inexpensive program may not be as effective as one slightly higher in cost Expensive program may provide a favorable outcome but only slightly better than one a fraction of the cost Managed care doctrine requires care givers consider cost and be keenly aware of the economic side of intervention Cost-Effectiveness/Cost-Benefit Analysis - Measuring efficiency of intervention

Example Cost Effectiveness Comparison of Two Job Training Programs Work Now, Inc. Job Prep, Inc. Total Program Costs $275,000 $345,000 Graduation Rate 64% 40% Persons Employed Full Time – One Year 48 73 Cost per Employed Client $5,729 $4,726 Background data on the Programs: Both work programs are located in large metropolitan areas Primary responsibility is to help adults who have never experienced full time employment Clientele is composed of adults who are dropouts or individuals with criminal histories Both program teach work preparedness skills and provide an internship Work Now’s program is less intense than Job Prep's program and can be completed one month earlier

Cost Effectiveness Analysis Job Now requires 20% more budget to operate Work Now has significant higher graduation rate (24%) Work now has higher employment statistics after one year than Work Now Cost per full-time employee is $1000.00 less per graduate Which program is more cost effective? Data appears conflicting!!!!! Evaluator must consider the purpose of the of the program in determining the cost effectiveness Job Now is the most cost effective because the purpose of the program is to help hard-core unemployed to become employed Must consider expenditures in relation to outcomes

Step-by-Step Guide Cost Effectiveness Study Define the program and its Outcome Indicators Must fully understand all components and features of a program When comparing multiple programs, must use the same operational definitions for successful outcomes Compute Costs Personnel - Salaries and benefits of program employees including volunteer Facilities – Rent for office space and building overhead (power, sewage, insurance, etc.) Equipment – Office supplies, computers, etc. Other Expenses – Travel, training, in-direct employee contribution (secretaries, director, janitor) Collect Program Outcome Data In relationship to operational definitions Compute Program Outcomes Documenting the programs successes or failures; May be computed using multiple outcome indicators Compute the Cost-Effectiveness Ratio Divide cost of program by outcome indicators to detrmine relationship between resources and outcome Perform Sensitivity Analysis Test recommendations that develop from analysis Estimates of success may influence data and it is necessary to determine if outside influences could have lead the evaluator to an incorrect conclusion

Whose Point of View? Worth of program are viewed differently by different groups or individuals Society Providers Consumers Bill Payers Perspectives will clash Cost associated with a needed intervention may be very important to one group but not very important to another Insurance company (Bill Payer) may not wish to pay for expensive but successful treatment when lower cost alternative is available Cost-Effectiveness Analysis may not be comparable across interventions Recommendation – CEAs must be undertaken from a societal perspective to account for all costs and effects and ensure that the interests of one group is not considered more important than a different group

Cost-Benefit Analysis Benefits can be either monetary or non-monetary Cost Benefits can be either direct or indirect Monetary Non-monetary Expenditures for health care and mental health services Reduced personnel and family stress Costs of child welfare services Reduce family conflict Costs of Justice System Improved anger management Cost for Foster Care Improve mental health Costs of Social Welfare programs Improved physical health Direct Indirect Court Costs Loss of work related to crime-related losses or injuries Incarceration costs Victim fear and stress Private protection costs Loss of work due to incarceration Parole/probation costs Crime related property damage Non-monetary and intangible benefits are more difficult to quantify; therefore cost benefit analysis may not be the best evaluation approach

Defining Benefits Many Benefits cannot be easily converted to cost Benefit analysis may consider pre and post-standardized measurements Satisfaction with life Satisfaction with intervention When Benefits are non-monetary, cost benefit analysis will be indistinguishable from cost-effectiveness studies When examining costs and program outcomes, call your analysis “cost-effectiveness “ if the outcome variables are not measured monetarily

Recap Policy makers, agency directors and managers want efficient programs Cost of programs must be evaluated relative to clear outcome measurements Cost-effectiveness studies are important tools used by decision makers to allocate resources “It is imperative that we develop the skills necessary to demonstrate the benefit and cost savings when one treatment is chosen over another” Cost-effectiveness studies establishes a foundation for an agency to adopt the most efficient programs

A Useful Resource! The January 2006 issue of the journal Research on Social Work Practice contains a number of articles describing cost-benefits studies in social work practice. See www.sagepub.com to examine this issue. You may be able to download these articles for free by accessing this journal through your university library!