A utility-theoretic method of computing value of disease effects for economic evaluation of health program Sushil Ranjan Howlader Ph.D. Professor of Institute of Health Economics, University of Dhaka, Bangladesh

Outline of the presentation: Background Analytical Framework Loss of utility/wellbeing due to effect of a disease on health Economic effect: loss of productivity Total effect of a disease (TED) Loss of utility due to disease Operational method of estimating money value of disease effects Loss of utility of health Total effect of disease Money Value of total effects of disease and economic evaluation of healthcare interventions Results of a survey Concluding remarks

1. Background A disease can cause two broad types of effects: effect on the health status of the individual- morbidity and mortality, and effect on the household economy--income loss and expenditures for health care. Estimation of the effect of disease on health of the people is needed for a number of reasons. The available measures have several shortcomings: estimate only one type of effect of a disease--- that on health, and not the other type of effect—that on the economy. obtain the value of disease effect on health in terms of years, either lost or gained. On the contrary, the amount of income loss and expenditures incurred are found in the units of money. The sum-total of the two types of effects cannot be obtained.

1. Background….. Objectives of the paper: The main objective of the paper is to derive a measure that can capture all types of effects of a disease and that can show directly show the money value of the effects as well as the loss of utility caused by the disease. And to analyze results of an empirical exercise.

2. Analytical Framework Given the heterogeneous nature of the disease effects, it is only the utility (or disutility) which can combine all effects into one magnitude Utility depends on health and productivity. The utilitarian school of the classical economists: equilibrium amount of commodity is where total utility is equal to total expenditure. The neoclassical economists argued that the value of a commodity as well as equilibrium demand is determined at the point where marginal utility is equal to marginal spending (price). In the case of health care, objective of a household is to get as much healthcare as is medically required and not to maximize consumer’s surplus, its total utility is equal to the total expenditure incurred

3. Loss of utility/wellbeing due to effect of a disease on health It can be assumed that the amount of utility from t is same for all life years and for all individuals, irrespective of age, caste/ creed, or status. Then, utility curve will be a straight line passing through the origin as shown in Figure 3.     Figure 3: Total utility of health years of an individual

4. Economic effect: loss of productivity  

5. Total effect of a disease (TED) The total effect of a disease, combining health effect, income loss and expenditures, is neatly shown in the figure. Y + H curve shows the time path of income and money value of health (H) in the absence of disease. After occurrence of disease, a large amount of value will be lost from the Y + H curve. The combined effect of morbidity and mortality will be: aklb + b tb Tm areas. amount of value will be lost from the Y + H curve. The combined effect of morbidity and mortality will be: aklb + b tb Tm areas. Figure 5. Total effect of disease

6. Loss of utility due to disease Figure 6. Total loss of well-being caused by a disease   Utility Life year (t)

7. Operational method of estimating money value of disease effects Income loss due to disease If the sick person suffers from the disease for the ta to tb years and then dies, the person has both morbidity and mortality. The present value of productivity loss for him will be: Expenditures for healthcare The household of the sick person as well as the society at large have to incur medical and some non-medical expenditure to receive healthcare for him. If the disease continues for several years, then irrespective of whether he recovers or dies, the present value of the expenditures (E) will be: Where t = 1 when the person becomes sick and t =b when he recovers or expires.

8. Loss of utility of health Three factors determine health effect of a disease: estimated utility ( λ ) of a healthy year of a person, severity level of the disease, and duration of disease. The amount of well-being loss will be different for the case of mortality from that of morbidity. The amount of loss for morbidity and mortality will be: H2 = λ s (tb – ta ) + λ (T- tb) Where ta is the age of the person at the time of onset of disease, tb is the age when he recovers or dies, and T is the age of normal death. The parameter λ denotes the current market value of utility of health of a sick person

9. Total effect of disease The effects can now be combined to obtain the total effect of disease (TED) in terms of money. If the disease causes both morbidity and mortality to the adult then the value of TED is: V= Once the value V of total disease effects (TED) is obtained, the value of the loss of wellbeing (LOW) to the household and the society can be estimated. (25) LOW=

10. Money Value of total effects of disease and economic evaluation of healthcare interventions (a)For analyzing efficiency of interventions The following formula can be used to obtain the evaluation ratio: (26)V= > 1 (b)For assessing justification of healthcare expenditure (26)V1= > 1 E has appeared twice—once in the numerator as one effect of the disease and in the denominator as eliminator of the disease. The formula shows that even if the amount of healthcare expenditure is quite high and the patient does not earn any income, the quality healthcare should be used so long as VEH > 0.

11. Results of a survey Patient type Loss of productivity due to morbidity Loss of productivity due to both morbidity and mortality Medical and non-medical expenditures Loss of utility of health due morbidity Loss of utility of health due to both morbidity and mortality Total Effect of disease (TED) Case 1. Adults with morbidity 2141480   227297 301725 26, 70502 Case 2Adults with morbidity and mortality 185851075 6034500 19, 45, 56077 Case 3. Old persons with morbidity Case 4. Old person with morbidity and mortality 603450 11, 32 472 Case 5. Children with morbidity Case 6.Children with morbidity and mortality 215500000 7844850 22, 38, 73872 For Case 2, number of DALYs is 52.5 years and estimated money value of DALYs is 5250000. Even if GDP is multiplied by 3 (as suggested by some scholars), it will be much smaller than the value obtained here.

12. Concluding remarks The main advantage of the method is that, unlike the available measures of disease burden, it captures in one estimate all effects of a disease and, more importantly, it obtains the money value of all effects of that. The TED measure is truly based on the utilitarian approach and can be appropriately considered as a technique of cost-utility analysis. The technique requires a small amount of data and it requires data only on objective variables. The methojustifies even a high amount of health care expenditure to be incurred for saving life of an individual.

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