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

2. 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

3. 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

4. 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

5. 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

6. 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:

7. 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?

8. 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

9. 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

11. 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

12. 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?

13. 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?

14. 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

15. 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

16. 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 s
Cost-Utility Analysis s
Cost Benefit Analysis s and 1990s
CMA and CEA answer narrower questions, CUA and CBA answer broader questions

17. 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)

18. 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

19. 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?

20. 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

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

22. 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

23. 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

24. Cost Utility Analysis
Maynard (1991) ranks seven courses of action by cost per QALY:
Home renal dialysis £ Heart transplant £8000
Kidney transplant £ Heart bypass £2000
Hip replacement £ Stroke prevention £750
Anti smoking campaign £250
Allan Williams (1985, converted in 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

25. 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

27. 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

28. 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

29. 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

30. 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

31. 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

32. 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

33. 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

34. 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

35. 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

36. 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

37. 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.

38. 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

39. 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

40. 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)

41. 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:
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

42. 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)

43. 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

44. 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

45. 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