1. 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

2. Benefit vs. cost
September 19, 2018

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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?"
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10. Benefit-cost analysis
Benefit-to-cost ratio
R = Benefit ($) / Cost($)
Net value (= net benefit = net rate of return)
NV = Benefit ($) – Cost ($)
September 19, 2018

11. 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

12. Framing Economic Analysis

13. 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

14. Synthesize evidence, assess current local policy, and generate policy options
Must consider
Programs
Target population
Program site
Study design
Time frame
Audience
Study perspective
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15. Develop a cost inventory
Direct cost
Indirect cost
Intangible cost
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16. Develop a cost inventory
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17. Direct cost = program cost = fixed cost + variable cost
Evaluate resource use
Direct cost = program cost = fixed cost + variable cost
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18. 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

19. Cost Analysis

20. 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

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

22. Primary data collection
Cost data sources
Primary data collection
Surveys
Medical records
Accounting and payroll systems
Published literature
Professional guidelines/practice
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23. 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

24. 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

25. Discounting future costs
Exercise: what is the current value of next year’s $100? Use 3% discount rate.
3%: 𝐶 𝑌𝑒𝑎𝑟1 = $100 𝑌𝑒𝑎𝑟2 × =
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26. 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

27. 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

28. Benefit-Cost Analysis

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

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

31. Cost-Effectiveness Analysis

32. 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

33. 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

34. 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

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

36. 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

37. 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?
September 19, 2018

38. Data sources for economic evaluation
Center for the Evaluation of Value and Risk in Health (CEVR)
Cost-effectiveness registry
Hepatitis B vaccination: 10 hits.
Cochrane Library
Economic analysis articles
Hepatitis B vaccination: 11 hits.
September 19, 2018

39. Data sources for economic evaluation
NHS Economic Evaluation Database (NHS EED)
University of York Centre for Reviews and Dissemination
Hepatitis B vaccination: 27 hits
Smoking cessation: 288 hits
September 19, 2018

40. Data sources for economic evaluation
Data extraction tools
NCHS Statistical Export and Tabulation System (SETS)
CDC Wonder
DATA2020
Healthy People 2020 interactive data tool
Information related to the Healthy People 2020 objectives
September 19, 2018