Economic Evaluation (MPH)

Economic Evaluation of
Health Interventions
Aguest 2008 Health Economics for MPH Students 1

Economic Evaluation in Health

What is …?
Economic Evaluation is the comparative
analysis of alternative courses of action in
terms of both their costs and
consequences.

Taxonomy of Health Evaluations
Are both costs and consequences of the alternatives examined?
NO YES
Is there comparison of two or more alternatives?
Outputs Only Costs
Reproduced from Drummond et al., 1997

Only
NO 1A Partial Evaluation 1B 2 Partial

Outcome Cost Evaluation
Description Description Outcome-Cost
Description
3A Partial Evaluation 3B 4 Full

Efficacy or Cost Economic
YES
Effectiveness Analysis Evaluation
Evaluation CMA
CEA
CUA
CBA

Nature of Comparative
Analysis
Costs A Consequences A
Program A
Choice
Consequences B
Program B
Costs B
Note: (1) If program A is subject of interest, program B can

represent some other program, or no program at all. (2) The
difference in costs is compared to the difference in consequences.
4 Main Methods of Economic
Evaluation
• Cost minimisation analysis (CMA)
• Cost effectiveness analysis (CEA)
• Cost utility analysis (CUA)
• Cost benefit analysis (CBA)

Example of Comparing health intervention projects

Measuring Costs of a Health
Intervention
Program Costs
 Costs to Participants (Users)
 Costs Associated with side

effects of the Intervention

Classification of Costs, Remember?
Total and Average costs
Variable and fixed costs
Capital and recurrent costs
Financial and economic costs
Marginal and incremental costs
Others classification

Others Ways of Classifying Costs
By activity/function
By cost category
By level of health service system
By source
By currency

Uses of Cost Data
Accountability
Assessing efficiency
Assessing equity
Assessing priority
Making cost projection
Considering cost recovery

Designing Economic Evaluation
Studies
Define the audience
Define the problem or question
Clearly indicate the strategies including baseline
comparator
Specify perspective of the analysis
Determine time frame and analytical horizon
Determine the analytical method or methods
Determine whether the analysis is to be marginal
or incremental analysis
Designing … Cont’d
Identify relevant costs (WTP or COI approach?)
Identify health outcome or outcome of interest
Specify discount rate
Identify sources of uncertainty and sensitivity
analysis/threshold analysis
Determine summary measures
Distributional effects of the alternative strategies

Perspectives ( )

Approaches to Cost Studies
Retrospective Study
Model of Interventions Prevention
Prospective Study

Costs
MEASURING COSTS

Identifying costs
• Direct medical costs
• organising and operating costs borne by the health
sector
• Direct nonmedical costs

• incurred by patient/families in the course
of treatment
• Indirect costs
• losses in production due to absence from work
• Intangible costs
• psychological costs associated with treatment
Program Costs
Capital
‗ Buildings
‗ Equipment
‗ Vehicles
‗ Consultancies (non-recurrent)
Recurrent
‗ Personnel
‗ Supplies
‗ Vehicle operation and maintenance
‗ Building operation and maintenance
‗ Consultancies (recurrent)
‗ Other
Costs to Participants (Users)
Out-of-pocket costs
Travel costs and child, elderly care or
any other cost paid by user
Contribution to the service (e.g. drugs,
food, etc)
Productivity Losses in the form of:

Travel time
Waiting time
Actual service time

Costs Associated with side Effects
Cost of treating the side effects (prob. of

side-effect X cost of treat.)

OUTCOMES
MEASURING OUTCOMES

Health-Related Benefits
Increased life expectancy
Decreased morbidity
Reduced disability
Improved quality of life
Averted medical costs
Increased worker productivity

Examples of Outcomes

QALYs
Without treatment X With treatment X
Estimated survival = 5 years Estimated survival = 10 years
Estimated SG utility = 0.5 Estimated SG utility = 0.7
QALYs = (5 X 0.5) = 2.5 QALYs = (10 X 0.7) = 7.0
QALY gain = 7.0 - 2. 5 = 5. 5 QALYs

QALYs: Measurement Framework
“A” + “B” represents the total
2. With
Perfect 1.0 gain in quality and quantity of
Program
Health life. “A” is gained by improving
quality, “B” is gained by extending
life.
Health-related
quality of life
A
(Weights)
B
Qua
l ity-
Adj
ust ed L
ife
Yea
rs Gai
1. Without ne d
Program
Dead 0.0
Intervention Death 1
Duration (years) Death 2
Measurement of Health-related Quality of life

Preference elicitation methods
Utility estimates can be obtained through direct
measurement or by imputing them from the literature
or expert opinion
There are three main methods for direct measurement

used in cost utility analysis. These methods range
from 0 representing death or the worst health state to
1 or 100 for full health or best attainable health state
Visual Analogue Scale (VAS)
Standard Gamble (SG)
Time Trade-off (TTO)

Visual Analogue Scale (VAS)
Individuals are asked to indicate
where on the line between the best
and the worst imaginable health
states they would rate a pre-defined
health state

VAS 100
90
We would like you to indicate on this 80

scale how good or bad is your health
today, in your opinion. Please do this by 70
drawing a line from the box below to
60
wherever point on the scale indicates
how good or bad your current health 50
state is
40
30
20
Your own health state today 10

44
Standard Gamble (SG)
Usually involves asking respondents to identify what

risk they are willing to take to achieve the benefits of
a particular intervention
Respondents might be asked to state if they would

be willing to receive an hypothetical AIDS vaccine if
it had an associated 5% (1% or 10%) risk of death
associated with this issue

Standard Gamble
Alternative 2: 95%
Complete health
uncertain outcome
5%
Death
(D)
100%
Limited health
Alternative 1: (Lh)
certain outcome
Time Trade-Off (TTO)
Usually involves asking respondents if they

would be willing to trade-off the benefits of an
intervention if it involved a shortened life of
perfect health
Respondents might be asked to state if they

would be willing to take drugs if doing so made
them completely healthy but shortened their life
by 2 (1 or 5) years

Time Trade-Off (TTO)
Alternative 2
Healthy 1.0
VALUE
Alternative 1
State i hi
Dead 0 Time
x t
Time Preference in Costs and Benefits

Formula for Computing
Present Value
A bird in the hand is worth two in the bush!
Discounting is Method used to compare costs

and benefits thatn occur at different times
P =  Fn (1 + r)-n
Where: P =n=1present value; Fn = future cost at year
Aguest 2008 n; and r = annual interest
Health Economics for MPH (discount)
Students rate, e.g., 5% 50
How Do We Discount?
• P =  Fn (1+r)-n
• P = present value
• Fn = future cost at year n
• r = discount rate
Year Costs prog A (Br.) Costs prog B (Br.)

1 5 15
2 10 10
3 15 4
Total 30 29
Discounted 26.79 26.81

How Do We …? Cont’d
Programme A: Using equation
P = F1/(1+r) + F2/(1+r)2 + F3/(1+r)3
P = 5/(1+0.05) + 10/(1+0.05) 2 + 15/(1+0.05) 3
P = 26.79
Programme B: Using equation
P = F1/(1+r) + F2/(1+r)2 + F3/(1+r)3
P = 15/(1+0.05) + 10/(1+0.05) 2 + 5/(1+0.05) 3
P = 26.81
Programme A: Using tables
P = 5*0.9524 + 10*0.9070 + 15*0.8638
P = 4.76 + 9.07 + 12.96
Aguest 2008 P = 26.79
Health Economics for MPH Students 52

Economic Evaluation (MPH)

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Economic Evaluation of

Aguest 2008 Health Economics for MPH Students 1

Aguest 2008 Health Economics for MPH Students 9

Aguest 2008 Health Economics for MPH Students 11

Outputs Only Costs

Reproduced from Drummond et al., 1997

NO 1A Partial Evaluation 1B 2 Partial

3A Partial Evaluation 3B 4 Full

Aguest 2008 Health Economics for MPH Students 13

Note: (1) If program A is subject of interest, program B can

• Cost effectiveness analysis (CEA)

• Cost utility analysis (CUA)

• Cost benefit analysis (CBA)

Aguest 2008 Health Economics for MPH Students 15

Aguest 2008 Health Economics for MPH Students 17

 Costs to Participants (Users)

 Costs Associated with side

Aguest 2008 Health Economics for MPH Students 18

Aguest 2008 Health Economics for MPH Students 19

Aguest 2008 Health Economics for MPH Students 20

Aguest 2008 Health Economics for MPH Students 21

Aguest 2008 Health Economics for MPH Students 23

Aguest 2008 Health Economics for MPH Students 24

Aguest 2008 Health Economics for MPH Students 25

Aguest 2008 Health Economics for MPH Students 26

• Direct nonmedical costs

Productivity Losses in the form of:

Aguest 2008 Health Economics for MPH Students 30

Cost of treating the side effects (prob. of

Aguest 2008 Health Economics for MPH Students 31

Aguest 2008 Health Economics for MPH Students 33

Aguest 2008 Health Economics for MPH Students 34

Aguest 2008 Health Economics for MPH Students 35

QALY gain = 7.0 - 2. 5 = 5. 5 QALYs

Aguest 2008 Health Economics for MPH Students 37

Aguest 2008 Health Economics for MPH Students 40

There are three main methods for direct measurement

Aguest 2008 Health Economics for MPH Students 42

Aguest 2008 Health Economics for MPH Students 43

We would like you to indicate on this 80

Your own health state today 10

Aguest 2008 Health Economics for MPH Students 0

Usually involves asking respondents to identify what

Respondents might be asked to state if they would

Aguest 2008 Health Economics for MPH Students 45

Usually involves asking respondents if they

Respondents might be asked to state if they

Aguest 2008 Health Economics for MPH Students 47

Aguest 2008 Health Economics for MPH Students 49

A bird in the hand is worth two in the bush!

Discounting is Method used to compare costs

Year Costs prog A (Br.) Costs prog B (Br.)

Aguest 2008 Health Economics for MPH Students 51

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