Economic evaluation in health care -I Zahidul Quayyum Health Economic Research Unit

Outline Economic Evaluation Priorities Setting in Health Care Decision problem we face What is economic Evaluation Steps in economic evaluation Types of Economic Evaluation Measures and Valuation of Costs: Cost Analysis Measures of Health Effects

Economic Evaluation and Priority Setting Economic Approach of Level of spending Back to the concept of opportunity costs The opportunity costs of committing resources to produce a good or service is the benefits forgone from those same resources not being used in their next best alternative Spending on health care is worthwhile as long as benefits are greater than opportunity costs Requires information on benefits of all possible uses of nation’s resources! Improving public expenditure management essentially would essentially require cost-effectiveness analysis

Decision problem we face in health care The principles of economic evaluation Should a new drug or new surgical procedure be adopted or whether a particular medical procedure/health intervention worth undertaking? Should one form of treatment be expanded (while another is contracted)? After clinical effectiveness has been demonstrated, need to look to the balance of benefits and costs; identification and estimation of the health outcomes or benefits and costs of health care. A specialist hospital requests a license to establish a kidney transplant programme as claims it is cheaper than constant dialysis

What is Economic Evaluation Economic Evaluation compare the costs and consequences of two (or more) alternative health care interventions. It is a way of thinking which is backed up by a set of tools, that are designed to improve the value for money from investments in health care and welfare (Fox-Rushby and Cairns, 2005). Concerned with EFFICIENCY not just effectiveness

Economic evaluation Intervention A (e.g. current practice) Costs A Effects A Total costs A Total effects A Intervention B (e.g. new treatment) Costs B Effects B Total costs B Total effects B Difference in costs: Costs B - Costs A Difference in effects: Effects B - Effects A Costs B - Costs A Effects B - Effects A ICER:

Example 1 Current practice New medication Difference [B-A] Effects (average per patient) 25 life-years [Effect A] 25.5 life-years [Effect B] +0.5  New medication more effective so implement new medication………….. but what about costs?

Example Current practice New medication Difference [B-A] Costs £2000 (average per patient) £2000 [Cost A] £4000 [Cost B] +£2000 Effects 25 life-years [Effect A] 25.5 life-years [Effect B] +0.5  ICER = £2,000/0.5= £4,000 per life-year  It costs an additional £4,000 to obtain 1 additional life year

Example -2 Current practice New medication Difference [B-A] Costs (average per patient) £3000 [Cost A] £2000 [Cost B] -£1000 Effects 25 life-years [Effect A] 25.5 life-years [Effect B] +0.5  New medication dominates

Economic Evaluation and Efficiency Each of the techniques is aimed at answering different questions: technical efficiency, allocative efficiency Technical efficiency: choice of how to provide health care minimize input for a given output Allocative efficiency: choice of what health care to provide maximize benefits subject to given resources

Technical efficiency Producing a given level of output at a minimal cost or producing the maximum amount of output for a given cost Concerned with efficiency ‘within’ a programme Examples: When providing hernia repair surgery, is it best to provide conventional surgery or laparoscopic surgery? When providing rheumatology clinics, is it best to provide a nurse practitioner services or a consultant based service?

Allocative efficiency Programmes compete for the allocation of scarce resources Comparison across programmes such as gynaecology, intensive care services, renal services, etc. Example: Should there be an expansion of surgery for rheumatology clinics or renal services?

Economic evaluation and its application Tool to aid priority setting and resource allocation Is increasingly being used National Institute for Health and Clinical Excellence (NICE) Provides recommendations on the use of new and existing medicines and treatments within the NHS Recommendations are based on a review of clinical and economic evidence Scottish Medicine Consortium

How are Economic Evaluation conducted? Two approaches: Conducted alongside RCT (Randomized Controlled Trial) or non-randomised studies (such as before and after studies) Collect primary (new) data Rely on existing (secondary) data or existing studies Technology Assessment Reviews (TARs) for NICE

Types of Economic Evaluation Identification of different types of costs and their subsequent measurement and valuing are similar, the nature of consequences varies Cost-minimization Analysis Cost-Effectiveness Analysis - 1970s Cost-Utility Analysis - 1980s Cost Benefit Analysis - 1960s and 1990s CMA and CEA answer narrower questions, CUA and CBA answer broader questions

Types of Economic Evaluation Methods: Cost-effectiveness: benefit in natural units (life-years) Cost-utility: benefit in utility values (QALY) Costs benefit: benefit in monetary value Based on the notion of opportunity cost Incremental cost-effectiveness ratio (ICER)

CMA & CEA Concerned with technical efficiency “Given that it is decided that a goal/policy will be pursued, what is the best way of achieving it?” OR “What is the best way of spending a given budget?” involves the comparison of at least two options

Cost minimisation analysis (CMA) Not a full form of economic evaluation Know (or assume) health effects to be equal Two possibilities Evidence suggests there is no difference in outcomes But uncertainty surrounding the estimates Prior view that health effects are equal What is basis of this view?

Cost-effectiveness analysis (CEA) Effects are measured in terms of the most appropriate uni-dimensional natural unit Cost per unit effect Examples: Renal failure  cost per life saved Screening for Down’s syndrome  cost per Down’s syndrome foetus detected Location of Long-term care  cost per disability day avoided

CEA Straightforward to carry out Cannot compare disparate alternatives Narrow, uni-dimensional measure of effect Interventions often produce multiple outcomes

Cost-utility analysis (CUA) Effects are multi-dimensional Combines life years gained with some judgment (or value or preferences) on the quality of those lifeyears Most popular measure: quality adjusted life years (QALYs) Can address technical efficiency and allocative efficiency within the health care sector

Cost Utility Analysis CUA is a special case of CEA where QALYs are employed as the measure of health status CUA uses cost per QALY as means of ranking alternatives Alternatives can be close substitutes, as in CEA, but need not be Alternatives need not even be health care measures

Cost Utility Analysis Maynard (1991) ranks seven courses of action by cost per QALY: Home renal dialysis £17300. Heart transplant £8000 Kidney transplant £3500. Heart bypass £2000 Hip replacement £1000. Stroke prevention £750 Anti smoking campaign £250 Allan Williams (1985, converted in 1989-90 prices) GP advice to stop smoking £260 Hip replacement £1140 CABG for severe angina LMD £1590 Breast Cancer Screening £5340 GP control of total serum cholesterol £ 2600 Hospital haemodialysis £21500

Cost Utility Analysis CUA have important implications for allocation of resources CUA is still generally restricted to efficiency with which health service resources are used; tends to neglect costs borne by others (such as patients) CUA may be used to rank alternatives but it cannot say with certainty whether any option yields positive net benefits, this is because costs and benefits are measured in different terms

Measuring Health and Life Types of Health Measures: Mortality: Death averted, Life years gained Morbidity: prevalence and incidence Disease Specific Measures: disease profile (chronic respiratory distress questionnaire) Disease indices (Arthritis Impact Measurement Questionnaire- AIMS) Generic health measures: Health Profiles (NHP),WHO Quality of Life(WHOQOL- low & middle income countries) Health Indices: Non-preference based: SF-36, Preference Based: EQD5(international), HUI, QWB index

Measures of health effects Some studies use unidimensional measures of health such as lives saved, pain relieved, a condition cured, mobility restored The problem with such measures is that they cannot be used to compare changes in health status where more than one aspect of health shows changes – the majority of cases Most popular multidimensional measure of health is QALYs in which two aspects of health – duration of life and quality of life – are combined in a single index

Measures of health effects In principle, duration of life is fairly easily quantified although, in practice, estimating life expectancy is not an exact science Measuring quality of life is much more difficult – in theory and practice Most techniques involve attaching ratings to different states of health between two extremes: 1 = “good health” and 0 = death

QALY – Measure for Health Effects in CUA The method employs mobility, physical activity and social activity as criteria; another common method employs disability and distress as criteria Life expectancy is then multiplied by the quality of life rating to yield QALYs, i.e. adjusting the length of time affected through the health outcome by the utility value (on a scale of 0 to 1) QALYs- Other names Years of Healthy Life (YHL – US), Health Adjusted Person Years (HAPY) , Health Adjusted Life Expectancy (HALE)- Canada

Quality Adjusted Life Years (QALY) Perfect Health 1.0 2. With Programme Shaded area: Quality Adjusted Life Years A QALY Weights B Without Programme 0.0 Dead Death 1 Death 2

Quality Adjusted Life Years (QALY) Perfect health Without surgery: 0.23 = 0.6 QALYs With surgery: 0.910 = 9 QALYs  QALYs gained = 8.4 Worst imaginable health

QALY league tables Rank procedures based on marginal cost per QALY gained Procedures with lowest cost per QALY receive higher priority Disadvantages Assumptions underlying ratios not considered Is QALY maximization really the end goal? List based approach: opportunity cost and the margin again ignored

QALY – Measure for Health Effects in CUA However, various problems with QALYs The use of QALYs implicitly assumes that there are no other objectives to health care than health maximization There are other aspects people care about – such as information or the process of treatment – which QALYs do not cover

QALY – Measure for Health Effects in CUA The QALY weights should be based on preference for the health states - more desirable health sates receive greater weights and will be favored in an analysis The scale of QALY weights may contain many points, but two points must be on scale- perfect health and death. Life expectancy is multiplied by the quality of life rating to yield QALYs, i.e. adjusting the length of time affected through the health outcome by the utility value (on a scale of 0 to 1), with or without discounting

QALY – Measure for Health Effects in CUA To assess the preferences for health states- individual need to be given information on symptoms, physical functioning, ability for work and social activity, and mental and social well being. The scores are based on people’s preference or arbitrary procedure

QALY – Measure for Health Effects in CUA Three most widely used techniques to measure directly the preference of individuals for health outcome are Scale: Rating Scale – rank the health outcome, Category rating, Visual analogue scale, Ratio scale Standard Gamble- measuring cardinal preferences: choosing between two alternatives, with probability attached to the states Time trade off Health state i for time t (life expectancy of an individual with chronic condition) followed by death Or . Health from time x<t followed by death.

Valuing Health Outcome/Effects Putting money values on benefits (and costs) of health and health care Various ways of valuing benefits and costs: economists: benefit = net benefits; costs= opportunity costs Time is an important cost in health - often valued by a person’s hourly wage rate - however, this infers the non working time of workers (and all the time of non workers) is valued less or not at all alternative is to apply an average wage to all time Measure of Productivity Changes – debate- double counting, often included in QALY or WTP, if equity included in policy objectives, than estimation of productivity costs may introduce unwanted biasness

Valuing Health Outcome/Effects There have been attempts to place money values on human life through analysis of: fatal accident compensation awards, and life insurance cover However, estimates vary enormously and are systematically linked to income and wealth

Willingness to Pay (WTP) as Valuing Health and Health Care WTP is a technique which can potentially be used to place monetary values on any aspect of health or health care - including the value of human life In WTP, a course of action and its benefits are described and people are asked how much they would be willing to pay for that course of action A monetary value of benefit is derived; benefits and costs are now directly comparable and (positive or negative) benefits can be calculated WTP can be used to value close substitutes (as in CEA) and broader alternatives (as in CUA)

Economic Evaluation : Case Study The clinical effectiveness and cost-effectiveness of laparoscopic surgery for inguinal hernia repair: A case study of a typical NICE economic evaluation. (Technology Appraisal 83, McCormick, K. et al, September 2004: www.nice.org.uk) A systematic review of 37 RCT to study the clinical advantages of laparoscopic repair (compared to open mesh repair) Outcomes of interest, and economic evaluation methods examined: Primary outcomes- persistent pain Secondary outcomes- rates of complications and persistent numbness durations of operations, length of hospital stay, time to return to normal activity- QALY Cost per QALY, Incremental Cost Effectiveness Ratios

Economic Evaluation : Case Study Evidence and findings : Different types of surgery and repair compared Clinical disadvantages: longer operation times and a higher rate of serious complications, especially bladder injuries There is no apparent difference in the rate of hernia recurrence Laparoscopic repair is more costly to the health service: by about £300-£350 per patient Laparoscopic surgery was not cost-effective, with ICER –incremental cost per QALY gain £46000-£606,000 when compared with OPM repair, but cost-effective compared to OFM repair For unilateral hernias, open mesh repair appears the least cost option but provides fewer quality adjusted life years (QALYs)

Economic Evaluation : Cases Study In terms of cost per QALY, open mesh repair is cheaper but the difference is small, less than £10,000 per QALY For symptomatic bilateral hernias, laparoscopic repair is the more cost effective Differences in operation time (a key cost driver) are reduced and differences in convalescence time increased, both changes which favour laparoscopic repair

Economic Evaluation : Cases Study All the results are sensitive to assumptions made about the value placed on persisting pain and numbness, highly dependent on the cost of the open repair comparator, the baseline recurrence rate, hospital policy on use of reusable or disposable consumables Other issues, for patients: the increased adoption of laparoscopic repair may allow patients to return to usual activities faster; this may reduce the loss of income for some people Other issues, for the NHS: increased use of laparoscopic repair would lead to a need for increased training which may be costly; during the training period, laparoscopic repair is likely to have higher costs (and hence be less cost-effective), regional variations may be there for implementing it

Summary Easiest CMA Technical efficiency Effects (assumed to be) the same CEA Uni-dimensional outcome measure CUA Allocative efficiency within health sector Mulit-dimensional outcome measure (health only) CBA Allocative efficiency Broadest outcome measure (£) Difficult/ challenging