1. Health Economics: An Introduction to Cost-effectiveness Analysis
Subhash Pokhrel
Nana Anokye

2. Why do we need economic evaluation?
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3. Patient demand
Most goods and services are rationed by price, and people decide how to use their own money
But market failures mean that health services are better provided collectively
So health interventions are provided at zero or subsidised cost at point of consumption
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4. Balancing supply and demand
This can cause an imbalance between patients’ demands and the system’s ability to provide
So we need other mechanisms to ‘ration’ health care resources
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5. Informal rationing mechanisms Klein, Day & Redmayne 1996
Denial
Exclusion criteria (e.g. age limit for dialysis)
Selection
Inclusion criteria (e.g. smoking behaviour and access to surgery)
Deflection
Cost shifting (e.g. health/social)
Deterrence
Access barriers (e.g. co-payment)
Delay
Waiting lists
Dilution
Reduced service quantity/quality for users
Termination
Premature cessation of service
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6. Formal rationing mechanisms
Access by ability to pay
Price
Prioritise sickest patients
Clinical need
Prioritise patients with highest expected health gain
Clinical benefit
Balance health gain against cost
Cost effectiveness
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7. Opportunity costs
If a health service spends more on one thing, it has to do less of something else
Opportunity cost = value of the best alternative use of resources
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8. The opportunity cost of one course of IVF?
One-third of a cochlear implant
11 cataract removals
Half a teaching assistant for a year
One-thousandth of a Challenger tank
1 heart bypass operation
150 childhood vaccinations
2000 school dinners
Source: Morris et al. 2012
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9. Social choice the role of economic evaluation?
Economic evaluations should be designed such that conclusions are representative of societal wishes Traditionally, economic evaluation is based on the assumption that society wishes to improve efficiency by finding services that give more health gain per £ Economic evaluations aim to support decision-making: they will not be the sole criteria considered
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10. The decision problem
Economic evaluations are designed to inform decisions.
Distinction from traditional research which is designed to test hypotheses.
Need to specify the decision problem that the economic evaluation will address
Identify decision maker, the relevant perspective; the relevant comparator interventions and the metrics by which to compare them
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11. What is economic evaluation?
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12. Economic Evaluation
“... the comparative analysis of alternative courses of action in terms of both their costs and consequences.”
New programme
Current programme
Costs
value of extra resources used (loss to other patients)
Consequences value of health gain for this patient group
Drummond, Stoddart & Torrance, 1987
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13. Main types of Economic Evaluation
Type of analysis
Valuing resources
Valuing health outcomes
Application
Cost minimisation -
Comparison of interventions with similar clinical effects
Cost effectiveness
Single indicator of morbidity or mortality
Comparison of interventions which differ on one, and only one, measure of effect
Cost utility
Index of morbidity and mortality (QALY)
Comparison of any health care interventions: may trade off health effects
Cost benefit
Comparison of any health or non-health interventions
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14. How to conduct a good economic evaluation Define the decision problem Framing the question
Specify who the decision maker is and what perspective they are concerned with
Identify which patients should be included
Define population at point in pathway
Consider subgroups & risk stratification
Choose the right interventions and comparators
Include all relevant options
Current practice, usual care
‘Do nothing’, ‘best supportive care’, placebo?
Include all relevant costs and health effects
Identify all significant costs and savings
Select appropriate measure(s) of outcome P I C O
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15. Well-defined study question?
Comprehensive description of alternatives?
Effectiveness established?
Important costs/consequences identified?
Costs/consequences measured accurately?
Costs/consequences valued credibly?
Discounting?
Incremental analysis?
Treatment of uncertainty?
Discussion of other issues?
How to conduct a good economic evaluation? Drummond’s criteria The Drummond Checklist
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16. How to conduct a good economic evaluation
How to conduct a good economic evaluation? Drummond’s criteria The Drummond Checklist
Criteria are not sufficient for assessing what is a useful study Criteria are at best a minimal standard for what is an appropriate study to facilitate decision making For each context/decision problem, context specific criteria are key
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17. Making choices The use of economic evaluation
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18. Trading off benefits, harms and costs
‘Dominated’ more expensive & worse
Better but more expensive
New treatment
Current treatment
Effect (QALYs)
‘Dominant’
cheaper & better
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19. ... but is it cost-effective?
No – small health gain/ £
Cost (£)
Yes – big health gain/ £
Effect (QALYs)
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20. The “Cost per QALY” Incremental Cost Effectiveness Ratio (ICER)
Extra cost
QALYs gained
Extra cost
QALYs gained
Effect (QALYs)
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21. How much can/should we pay for a QALY? Cost-effectiveness threshold (λ)
NICE threshold: £20,000 to £30,000 per QALY
Effect (QALYs)
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22. The decision rule ICER = (C1 – C0) (E1 – E0) < λ INB = (C1 – C0)
Intervention (1) cost-effective vs. comparator (0) if:
ICER =
(C1 – C0)
(E1 – E0)
< λ
Or equivalently … use Incremental Net Benefit (INB)
INB =
(C1 – C0)
(E1 – E0) -
> 0 λ
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23. NICE approach to EE: Methods Manual (NICE, 2013) 1/2
Element of health technology assessment
Reference case
Section providing details
Defining the decision problem
The scope developed by NICE
5.1.4 to 5.1.6
Comparator(s)
As listed in the scope developed by NICE
2.2.4 to 2.2.6, 5.1.6,
Perspective on outcomes
All direct health effects, whether for patients or, when relevant, carers
5.1.7, 5.1.8
Perspective on costs
NHS and PSS
5.1.9 and
Type of economic evaluation
Cost–utility analysis with fully incremental analysis to
Time horizon
Long enough to reflect all important differences in costs or outcomes between the technologies being compared to
Synthesis of evidence on health effects
Based on systematic review
5.2
some slides in this deck courtesy of: HERG Short Course

24. NICE approach to EE: Methods Manual (NICE, 2013) 1/2
Element of health technology assessment
Reference case
Section providing details
Measuring and valuing health effects
Health effects should be expressed in QALYs.The EQ-5D is the preferred measure of health-related quality of life in adults.
5.3.1
Source of data for measurement of health-related quality of life
Reported directly by patients and/or carers
5.3.3
Source of preference data for valuation of changes in health-related quality of life
Representative sample of the UK population
5.3.4
Equity considerations
An additional QALY has the same weight regardless of the other characteristics of the individuals receiving the health benefit
5.4.1
Evidence on resource use and costs
Costs should relate to NHS and PSS resources and should be valued using the prices relevant to the NHS and PSS
5.5.1
Discounting
The same annual rate for both costs and health effects (currently 3.5%)
5.6.1
some slides in this deck courtesy of: HERG Short Course

25. Introduction to economic evaluation Summary
Some form of rationing explicit or implicit is inevitable
NICE and some other HTA bodies, are making cost-effectiveness a much more explicit criterion
Methods of economic evaluation differ principally in the way effects are measured
Cost per QALY is most useful for making decisions within fixed budget at health service level
But only CBA can be used to compare health with non-health policies
If economic evaluation is to be used to inform decision-making, it needs to be high quality and appropriate
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26. Thinking to do a cost-effectiveness analysis?
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27. Ask yourself a couple of questions:
1. Do you know what your decision problem is?
Population, Intervention, Comparator, Outcomes
2. Do you know you have adequate support?
Engage with health economists
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28. Health Economists??
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29. Health Economists Core skills Learnt skills Wikipedia definition:
“In broad terms, health economists study the functioning of healthcare systems and health-affecting behaviors such as smoking”
Core skills
Learnt skills
Economics; Number crunching; Modelling; econometrics (other name for stats!); study designs; measurement of costs and health outcomes
Applied epidemiology; disease and treatment (causes; prognosis; care pathways, etc. etc.
But,
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30. Engaging with health economists??
Speak to colleagues for a recommendation!
Do you need a generalist?
Do you need a specialist?
Engage early!
“We have a grant application going in tomorrow. I wonder whether you would like to collaborate as a health economist? Please provide a paragraph on health economic analysis first thing tomorrow”
Seek advice on your design, …yes, right from the beginning!
Health economists often have ideas about several important aspects of your study such as RCTs; measuring outcomes; data management, analysis, etc. etc.
“Alone we can do so little; together we can do so much” (Helen Keller)
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31. Some areas where collaboration with health economists may be useful:
Cost analysis
Within trial analysis
Measuring / Modelling long term outcomes
Cost-effectiveness analysis
Analysis of existing fiscal data alongside service outcomes data
Developing pilots
Testing interventions
Reviewing your work
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