4.1 economic evaluation (t)

Craig Mitton & Francois Dionne | Priority Setting & Resource Allocation | 1

Economic evaluation in healthcare


Economic evaluation and priority setting

•How does economic evaluation fit with a priority setting process such as PBMA?

•Can economic evaluation guide resource allocation decisions?

2


This leads to these questions

1.What is economic evaluation?

2.How is it done?

3.What are the results?

4.What are the limitations of economic evaluation, specifically with respect to resource allocation decisions?


What is Economic Evaluation?

• Economic evaluation is a set of scientific methods to assist decision-makers in making choices between alternative interventions

• Concerned with efficiency not just effectiveness

• Based on principles of welfare economics

• maximise the well-being of the community

• ‘Fair’ choices require a systematic comparison of costs (resources) and consequences (outcomes or benefits) of alternative health programs


Basic premise

Economic evaluation is about comparing the costs and benefits of an intervention with the cost and benefits of an alternative intervention


Efficiency Concepts•Technical efficiency

• How to do something using as few resources as possible (e.g. LEAN process)

•Allocative efficiency

• About what to do

• About whether to do something rather than how to do it


Economic Principles• Opportunity cost

• The benefits associated with the best alternative use of a bundle of resources is the opportunity cost

• The Margin

• Marginal Cost = cost of one more unit of output/consumption

• Marginal Benefit = benefit from one more unit of output/consumption


Types of Economic Evaluation Cost-Effectiveness Analysis (CEA)

Difficult to compare across programs as outcome measure is intervention-specific, therefore better suited to addressing technical efficiency

Cost-Utility Analysis (CUA)Can be used to address technical efficiency or allocative efficiency because it allows for comparison across programs as outcome measure is generic

Cost-Benefit Analysis (CBA)Easiest to compare across programs but requires putting a dollar value on health conditions

Cost-Minimization Analysis (CMA)When benefits are constant under all alternatives being considered (special case, only costs are compared)


Nature of Economic evaluation

Target patient group

Survival Quality of life

Program A

Program B

Impact on health status

Impact on health care costs

Impact on health status

Impact on health care costs

Survival Quality of life

Intervention costs Hospitalisations Drugs, procedures etc.

Intervention costs Hospitalisations Drugs, procedures etc.


How is it done: Generic steps in economic evaluation

(1) Define study question and perspective

• Describe alternatives

(2) Identify, measure and value costs and benefits

• Measure costs and benefits in physical units relevant to the analysis

(3) Analysis of costs and benefits

• Discounting, incremental (additional) costs and benefits of alternatives, sensitivity analysis on key parameters

(4) Decision rule

• Incremental Cost-Effectiveness Ratios (ICERs)


Study Perspective

• Study question determines perspective

• Perspective determines costs/ consequences considered

• e.g. societal, government, third party payer, provider

• Societal - widest possible range of costs/ consequences

• Provider – narrowest perspective


Costs

• Identify, measure and value all resource use impacts

•Direct health care costs (e.g. costs of intervention)

•Direct personal costs (e.g. transportation)

• Indirect costs (e.g. productivity losses)

•AND, all savings

•Valuation using opportunity costs


Benefits

•Cost-Effectiveness Analysis

• Measure benefits in natural units e.g. Blood pressure, weight

•Cost-Utility Analysis

• Measure benefits in terms of QALYs (Quality-Adjusted-Life-Years) or equivalent

•Cost-Benefit Analysis

• Measure benefits in terms of dollar valuations


0.0

1.0

0.4

0.2

0.6

0.8

Initial

Final

Quality Adjusted Life Years (QALYs)Full

Health

Dead


Base case

Intervention

QALYs Gained = (20)*.8 – (14)*.6 = 7.6

0 14 20Life Years

0.8

0.6

Qualit

y o

f Li

feQuality Adjusted Life Years (QALYs)


Results: Incremental Cost-Effectiveness Ratio

(Costnew – Costold)

(Effectivenessnew – Effectivenessold)

Incremental resources

required by the intervention

Incremental health effects gained by

using the intervention

ICER = C / E

= ICER


A simple decision rule

ICER for new program ≤ $20,000/QALY

Decision: adopt new program

ICER for new program> $20,000/QALY

Decision: do not adopt new program


$20,000/QALY

$100,000/QALY

C

B

D

E

A

Decrease in QALYs Increase in QALYs

More Costly

Less Costly

Grades of recommendation

The Cost-Effectiveness Acceptability Plane

F


$20,000/QALY

$100,000/QALY

C

B

D

E

A


More Costly

Less Costly

New technology is equally or more effective & less costly

A. Compelling evidence for adoption

F


$20,000/QALY

$100,000/QALY

C

B

D

E

A


More Costly

Less Costly

B. Strong evidence for adoption

New technology more effective, incremental cost/QALY ≤$20,000

F


New technology more effective, incremental cost/QALY more than $20,000 and less than $100,000

$100,000/QALY

C

B

D

E

A

C. Moderate evidence for adoption

Increase in QALYs

More Costly

Less Costly

Decrease in QALYs

$20,000/QALY

F


$20,000/QALY

$100,000/QALY

C

B

D

E

A


More Costly

Less Costly

New technology more effective, incremental cost/QALY > $100,00022

D. Weak evidence for adoption

F


$20,000/QALY

$100,000/QALY

C

B

D

E

A


More Costly

Less Costly

New technology is less effective, or equally effective, and more costly23

E. Compelling evidence for rejection

F


$20,000/QALY

$100,000/QALY

C

B

D

E

A


More Costly

Less Costly

New technology is less effective, or equally effective, and costs the same or less24

F. Less costly and less effective

F$20,000/QALY


Limitations of Economic evaluation

Potential challenges to validity

But more importantly, with respect to resource allocation decisions:

• Does a low ICER mean that the new drug/ technology is ‘cost-effective’?

• What does an ICER actually mean in terms of budget impact?

• What about other factors affecting the decision, objectives other than maximizing health impact


Conclusion

• Economic evaluation or CEA methods are well developed; many studies now include an economic component

• In some cases, CEA is an ideal tool, but in most cases it plays a role within a broader framework


The many factors in funding decisions

DECISION

Safety

Budget Impact

Public expectations

Politics and public image

Physician support

Moral and ethical concerns

Productivity, satisfaction and QOL

Effectiveness

Cost-effectiveness

Regulatory Issues

Efficacy

Societal values

4.1 economic evaluation (t)

News & Politics

resource allocation

value costs

economic evaluation

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benefitsmeasure costs

theanalysis3 analysis

benefits ofalternatives

costs consequences considerede