College of Public Health and Human Sciences Public Health Policy Institute Economic Analysis of Public Health Policy Presenter: Jangho Yoon, PhD Date: August 22, 2013

Benefit vs. cost September 19, 2018

Different methods provide different information. Topics Three methods: cost analysis, benefit-cost analysis, & cost-effectiveness analysis. Different methods provide different information. Continuum types of program evaluation tools. September 19, 2018

Analysis of program cost and cost of illness. Cost minimization Cost analysis Analysis of program cost and cost of illness. Cost minimization Stand-alone evaluation method when Assessing only one program Do not know of program effectiveness Competing program options are equally effective September 19, 2018

AC = cost-effectiveness ratio (CER) Cost analysis Average cost Cost per unit of output e.g., cost per child immunized AC = TC / Q AC = average cost TC = total cost Q = quantity of an intervention AC = cost-effectiveness ratio (CER) September 19, 2018

Cost analysis example Suppose Average costs Smoking rate in an inner-city high school is 50%. Prevention Program A: enrolled 20 students, cost $20,000, and 15 of the 20 students did not smoke. Prevention Program B: enrolled 40 students, cost $50,000, and 30 of the 40 students did not smoke. Average costs Program A: one additional non-smoker for every $4,000 spent. Program B: one additional non-smoker for every $5,000 spent. September 19, 2018

Cost-effectiveness analysis Compares several competing options in terms of both costs and health outcomes. “Which option is the cheapest, most effective way to achieve a certain health status?” Outcomes not monetized. May include the quality-of-life aspect: life years vs. quality-adjusted life years. Intermediate health outcomes September 19, 2018

Cost-effectiveness analysis example Suppose Program A: enrolled 20 students, cost $20,000, and eventually 15 of the 20 students did not smoke. Program C: enrolled 20 students, cost $15,000, and 12 of the 20 students did not smoke. Comparison of the programs Program A is more effective Program C is cheaper in terms of the total cost A simple cost-effectiveness analysis compares per-unit costs Program A cost $4,000 for each additional non-smoker. Program C cost $7,500 for an additional non-smoker. September 19, 2018

Benefit-cost analysis Assigns a dollar value to an outcome, and compares the monetary benefits and costs. "Do the economic benefits of providing this service outweigh the economic costs?" September 19, 2018

Benefit-cost analysis Benefit-to-cost ratio R = Benefit ($) / Cost($) Net value (= net benefit = net rate of return) NV = Benefit ($) – Cost ($) September 19, 2018

Benefit-cost analysis example In a benefit-cost analysis of Program A Compare the $ value of averted smokers to the monetary cost of providing the program. A non-smoker avoids $10,000 costs of illness more than a smoker during her life time Program A leads to the benefit of $50,000 and the cost of $20,000 in the very first place. Benefit-to-cost ratio: $50,000 / $20,000 = 2.5 Net rate of return: $50,000 ($10,000×5 smokers avoided) – $20,000 = $30,000. September 19, 2018

Framing Economic Analysis

Framework of economic analysis Identify need/issue/problem Synthesize evidence, assess current local policy, and generate policy options (alternatives) Develop a cost inventory & evaluate resource use If applicable, obtain data on effectiveness outcome (or its dollar value). Analyze costs (and outcomes), if applicable, to select the best option. September 19, 2018

Synthesize evidence, assess current local policy, and generate policy options Must consider Programs Target population Program site Study design Time frame Audience Study perspective September 19, 2018

Develop a cost inventory Direct cost Indirect cost Intangible cost September 19, 2018

Develop a cost inventory September 19, 2018

Direct cost = program cost = fixed cost + variable cost Evaluate resource use Direct cost = program cost = fixed cost + variable cost September 19, 2018

Exercise Ms. Betty is a manager responsible for tuberculosis-control activities at the county health department. Her clinic is located in a building leased by the county from the city. For transportation, Ms. Betty uses her personal vehicle and is reimbursed for mileage. The clinic is equipped with a portable isolation unit for infectious patients. Patients who need chest x-rays are referred to the local hospital. The clinic has a nurse who spends the majority of her time in the field, administering tuberculin skin tests to patients suspected of being infected with tuberculosis, collecting sputum samples for smears and cultures with her portable nebulizer, and administering drug treatment. Ms. Betty and the nurse use laptops and a database software program to keep track of their patients. From this brief description, identify fixed and variable costs associated with this tuberculosis-control program. September 19, 2018

Cost Analysis

Identify need/issue/problem Framing cost analysis Identify need/issue/problem Synthesize evidence, assess current local policy, and generate policy options (alternatives) Develop a cost inventory & evaluate resource use If applicable, obtain data on effectiveness outcome Analyze costs–and, if applicable, outcomes to select the best option September 19, 2018

Activity F: Economic Analysis Denver school-based hepatitis B vaccination program: Cost analysis September 19, 2018

Primary data collection Cost data sources Primary data collection Surveys Medical records Accounting and payroll systems Published literature Professional guidelines/practice September 19, 2018

Discounting future costs Future costs (or savings) must be discounted. Discounting: adjust the dollar amount to reflect the time value of money by assigning lower values to costs in the future than to costs in the present. The Panel on Cost-Effectiveness in Health and Medicine settled on a rate of 3%. The panel also recommends 0% and 7%. 5% internationally. September 19, 2018

Discounting future costs Relationship between current and next-year costs 𝐶 𝑌𝑒𝑎𝑟2 = 𝐶 𝑌𝑒𝑎𝑟1 + 𝐶 𝑌𝑒𝑎𝑟1 ×𝛾 = 𝐶 𝑌𝑒𝑎𝑟1 × 1+𝛾 𝛾: interest rate. Next-year cost = present cost × 1+𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒 Present value of next year’s costs (C2) 𝐶 𝑌𝑒𝑎𝑟1 = 𝐶 𝑌𝑒𝑎𝑟2 × 1 1+𝛾 𝛾: discount rate 1 1+𝛾 : discount factor September 19, 2018

Discounting future costs Exercise: what is the current value of next year’s $100? Use 3% discount rate. 3%: 𝐶 𝑌𝑒𝑎𝑟1 = $100 𝑌𝑒𝑎𝑟2 × 1 1+0.03 = September 19, 2018

Discounting future costs Compound interest for ≥ 2 years Present value of costs in Year 3 𝐶 𝑌𝑒𝑎𝑟1 = 𝐶 𝑌𝑒𝑎𝑟2 × 1 (1+𝛾) = 𝐶 𝑌𝑒𝑎𝑟3 × 1 (1+𝛾) × 1 (1+𝛾) = 𝐶 𝑌𝑒𝑎𝑟3 × 1 (1+𝛾) 2 September 19, 2018

Discounting future costs Exercise: Consider a program that costs $1,000 every year for the entire four years of the intervention, that is, Year 1 (present) to Year 4. Calculate the total cost of this program at the 3%, 5%, and 7% discount rates. September 19, 2018

Benefit-Cost Analysis

Activity F: Economic Analysis Denver school-based hepatitis B vaccination program: Benefit-Cost analysis September 19, 2018

Net prevent value Discounting Benefits and costs should be discounted if measured for multiple years. Net present value (NPV): Discounted NV September 19, 2018

Cost-Effectiveness Analysis

Cost-effectiveness analysis Effectiveness: Benefits of a health intervention. Quality-adjusted life years (or QALYs) is the most widely used measure in the U.S. Incremental cost-effectiveness ratio (ICER) The most common measure of cost-effectiveness. ICER is simply the incremental cost divided by the incremental effectiveness. Assess how much we need to spend to increase the effectiveness by one unit. September 19, 2018

Cost-effectiveness analysis Incremental cost-effectiveness ratio (ICER) Incremental cost-effectiveness ratio of Program A against Program B Incremental change in costs (A-B) ICERA =   Incremental change in health outcome (A-B)   ICER is cost difference divided by effectiveness difference. Less effective competing alternative B on the right-hand side. September 19, 2018

What is the ICER of the heart bypass surgery? CEA exercise Suppose The bypass surgery for coronary artery disease costs $25,000 while the stenting costs $4,000. The average hospitalization costs $1,000/day. Patients given the bypass surgery on average have 4 days of hospitalization (including rehospitalization due to complications). The stenting have an average hospitalization of 3 days. Persons given the bypass surgery expect to gain 40 QALYs, while those given the stent live 35 QALYs. What is the ICER of the heart bypass surgery? September 19, 2018

Activity F: Economic Analysis Denver school-based hepatitis B vaccination program: Cost-Effectiveness analysis September 19, 2018

Discounting for multi-year impact An ICER for a three-year program: Discounted ICER Discounting for multi-year impact An ICER for a three-year program: ICER = ICER for Year 1 + discounted ICER for Year 2 + discounted ICER for Year 3 = ICERYear1 + (ICERYear2× 1 (1+𝛾) ) + (ICERYear3× 1 (1+𝛾) 2 ) September 19, 2018

Data sources for economic evaluation The Community Guide A free resource to help you choose programs and policies to improve health and prevent disease in your community. Systematic reviews to answer Which program and policy have been proven effective? Are there effective interventions right for my community? What might effective interventions cost? http://www.thecommunityguide.org. September 19, 2018

Data sources for economic evaluation Center for the Evaluation of Value and Risk in Health (CEVR) Cost-effectiveness registry https://research.tufts-nemc.org/cear4/Home.aspx. Hepatitis B vaccination: 10 hits. Cochrane Library Economic analysis articles http://www.thecochranelibrary.com/view/0/economicEvaluations.html Hepatitis B vaccination: 11 hits. September 19, 2018

Data sources for economic evaluation NHS Economic Evaluation Database (NHS EED) University of York Centre for Reviews and Dissemination http://www.york.ac.uk/inst/crd Hepatitis B vaccination: 27 hits Smoking cessation: 288 hits September 19, 2018

Data sources for economic evaluation Data extraction tools NCHS Statistical Export and Tabulation System (SETS) http://www.cdc.gov/nchs/sets.htm CDC Wonder http://wonder.cdc.gov/Welcome.html DATA2020 Healthy People 2020 interactive data tool Information related to the Healthy People 2020 objectives http://healthypeople.gov/2020/data/ September 19, 2018