Economic evaluation Definition - the comparative analysis of alternative courses of action in terms of both their cost and consequences

Cost –The value of the inputs needed to produce any good or service. –Cost has to be measured in some units, usually money. –Cost has been classified differently.

From providers’ point of view: –Fixed costs –Variable costs From consumers’ point of view: –Direct costs –Indirect costs From shared point of view: –Medical costs –Non-medical costs

Opportunity costs: –Is cost measured in terms of alternative output forgone in order to produce a good. –Semi-variable costs –Total costs –Average cost

Marginal cost Unit cost Cost centre: –A section of a firm whose costs and revenues are distinguished from those of other sections.

Social costs: –Is cost including the external costs of an enterprise, such as the value of smoke damage, noise, and river pollution, as well as the direct costs of its proprietors. In the long run all costs: – are variable costs

- A full economic evaluation consists of identifying, measuring, valuing and comparing the costs and consequences of the alternatives being considered. - there are 3 major analytical techniques.

Analytic TechniqueMeasure of CostsMeasure of consequences Cost-Effective Analysis (CEA) Money UnitsPhysical Units (effects) Cost-Utility Analysis (CUA) Money UnitsQuality-Adjusted Life Years Cost-Benefit AnalysisMoney Units

Cost-benefit analysis: –The attempt to compare the total social costs and benefits of an activity, usually in money terms. –Should include direct pecuniary cost and benefits, as well as external costs (pollution, noise,…) and external benefits (reduction in traveling time or traffic accidents. –Total social costs (-) total social benefits = (+ or -?) –Because non-marketed costs and benefits are difficult to measure, the results of CBA can be highly controversial.

Cost-effectiveness: –The achievement of results in the most economical way. –This approach assesses efficiency by checking whether resources are being used to produce any given results at the lowest possible cost. –Cost effectiveness is most relevant as a concept of efficiency in cases such as the provision of defence, education, health care, policing, or environmental protection, where a monetary evaluation of the results achieved is often difficult and controversial.

- CEA: cannot be used to compare (e.g) malaria program with MCH program. - to make these broader comparisons, a common currency for measuring consequences is needed. - the common currency is achieved in two distinctly different ways: - CUA (preference- weighting) - CBA (value –weighting)

QALYs; attempt to capture and reflect both the quantity of life years added by a health program and the quality of life resulting from treatment. A QALY is calculated by multiplying the number of life years added by a program by a standardized, subjective weight between 0 and 1.0 that reflects the health-related quality of life during that time, 0= weight for death 1.0= weight for preferred health Rating scale (0, 0.25, 0.50, 0.75, 1.0). --(e.g),15 years life saved through dialysis (10x0.75)+(5x0.050)=10 -In CUA the alternatives are compared in terms of cost per QALY -QALY addresses allocative efficiency.

- Cost-benefit and Cost-utility analysis have different theoretical roots. - Cost-benefit analysis derived directly from welfare economics…that sets as a goal maximizing net benefit (benefit-cost). -Cost-utility analysis…more commonly is seen as founded on an approach where the goal of health system is seen as maximizing health, as measured by QALYs or some other measure, rather than welfare.

-QALYs: Should be -preference-based -interval-scaled, - and perfect health and death must be on the - same scale

- Approaches for measuring preferences - Direct methods - visual analog scale, time-trade off, standard gamble in face to face interviews. - Indirect methods - based on multi-attribute health status classification systems (e.g, pain and discomfort; perfect vision and totally blind)

- - Three well known indirect systems: - Quality of Well Being ( Kaplan and Anderson.1996), - Health Utilities Index ( Feeny et al., 1995; Torrance et al., 1995., Torrance et al., EuroQol EQ-50 ( Essink-bot et al., 1993; Kind, 1996)