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This paper gives an overview of two methods that can and have been used, internal to the Ministry of Health (MOH), to calculate the direct excess health system costs2 associated with smoking status. At this stage, analyses have been undertaken and the results of these have become familiar to some MOH staff, however no formal report detailing the methods and results has been produced. This report serves to fill that gap and bring coherence to understanding of the range of results. Two different methods have been used to estimate the direct public health system costs associated with smoking in a year. Over the last 18 months these methods have been used to produce estimates between $0.775 and $1.5 billion depending on the method, specification and assumptions involved. These figures may already be familiar to some MOH staff but, as they were derived under different assumptions, they may be used in a misleading fashion without a clearer explanation. Both rely on the same initial assumption – if you take two groups of people who are distinguished only by the fact they currently smoke or they have never smoked, the difference in average health costs for these two groups will be reflective of the cost to the health system of the first group’s tobacco use. That is, the excess cost for the smokers group is due to smoking. Readers should note that if everyone stopped smoking today the health system would not immediately accrue these cost benefits. In particular, the reduction of risk of premature death and other poor health outcomes due to smoking would probably take at least five years to be realised to a significant extent. That said, part of this work identifies that people who stopped smoking more than five years ago have nearly the same average costs as non-smokers (the excess cost is reduced by 85% compared to non-smokers) after adjusting for age, gender, ethnic group and deprivation score. One particularly encouraging result of these analyses is that people who have stopped smoking within the five years appear to have much lower costs as well (the excess cost is reduced by 66% compared to non-smokers). This analysis does not account for length of time since the individual started smoking so some caution should be taken in how quickly the expected cost benefits will start to accrue to health system spending. It maybe that those people who stopped more recently are predominantly those that have been smoking for a short period of time and hence, have found it easier to quite and have suffered less from the affects of the
This paper, released under the Official Information Act in June 2010, is an internal report on work undertaken over the latter part of 2009 in the Health and Disability Intelligence Unit within the Health and Disability System Strategy Directorate of the Ministry of Health. 2 We have chosen to use the word “cost” throughout this report – in the context the word “price” might have been more appropriate because in some of the health service utilisation collections an average contracted value was all that was available. An example is Emergency Department (ED) services, which are contracted at a fixed cost for each triage level even though actual costs in the ED will vary within a triage category.
exposure over the shorter period. The period the individual has been smoking is available so future analyses could test this hypothesis and provide potential estimates around the time until one would see most of the cost benefit in prevalence reduction accruing.
Background information about the two methods Figure 1 illustrates visually the excess cost attribution based on the comparison of mean costs for two groups distinguished only by their smoking status. The scale is indicative of relative cost difference but we do not provide actual dollar values at this stage. Figure 1 Example of method output
Mean public health cost ($/year/capita)
Smoker Cost Excess Cost
An extension of this idea is the assignment of people not to two groups but to three or four. For example, the non-smokers can be divided into ex-smokers and people who have never smoked. In addition the ex-smokers can be separated into recent quitters or not so recent quitters (e.g. more than 5 years or fewer than five years since quitting). Here again the assumption has been that non-smokers and more particularly neversmokers will have the lowest average health costs (if the groups are sufficiently similar in other respects). Stratification (adjusting for confounders) The two methods used the same methodology for adjusting for the socio-demographic variables of gender, NZDEP, age and ethnic group, in other words the control of confounding factors. Both methods rely on the stratification of people into socio-
demographically equivalent groups using 5-year age group, prioritised ethnic group (Maori, Pacific or Other/European), Gender and the New Zealand Deprivation 2006 Quintile (NZDEP06 Quintile) for the domicile of the individual. In testing the stratification process we controlled first for one socio-demographic variable and then added others in turn. As we added confounders we saw a reduction in the estimates of total excess cost associated with smoking. The size of this reduction deceased with the inclusion of each additional confounder. The implication is that as we control for more confounders, the differences between the smokers and non-smokers will be due less to factors other than smoking status or the two groups will become more comparable. To illustrate this effect of controlling for confounding and its implications we will use the interrelation of cost, ethnicity and tobacco use. On the basis that the New Zealand population is predominantly European with a lower prevalence of smoking than other ethnic groups, the mean cost for a non-smoker, in a model not controlling for ethnicity, is essentially the mean cost for a non-smoking European. In the same model the cost for a smoker would be driven by Maori and Pacific smokers and if those ethnic groups have a higher burden of chronic disease, as we know they do, the mean cost of smokers would be inflated by the higher costs associated with co-morbidities and consequently the cost excess would be inflated. Calculating the mean cost excess by each socio-economic group controls for this, hopefully, the majority of this inflation. Where the two methods diverge is on the basis and quality of smoking status identification, the target population and size of the cohort use to estimate the cost excess associated with smoking status of New Zealanders. Method 1: Health Service Utilisation population The first method relies on the cohort of New Zealanders registered with an NHI and deemed to be live and resident during the period 1 July 2007 to 30 June 2008. This cohort (4,264,867 persons) amounts to 99.9% of Statistics New Zealand’s estimated resident population at 30 June 2008 (4,268,900 persons) and while 0.1% of the population is significant in absolute terms (4,033 persons) these are not people accessing public health services. The method also relies on the recording of smoking status (current or ex-smoker) with ICD-10 codes in the hospital discharge data (NMDS) or dispensing of NRT to individuals (Pharmhouse). We note that smokers, ex-smokers and never-smokers will be misclassified and recording of smoking status is demonstrably and significantly incomplete. Firstly, based on the assumption that smokers on average cost more and non-smokers less and that misclassification is random the bias should be to the null, i.e. lower excess cost estimates. Secondly, we must admit that generally identification of smoking status will be on the basis of correlation with a health condition and poorer health, consequently we will over estimate cost excess between generally sicker smokers and a mix of healthier smokers and non-smokers. A way to deal with this problem (not implemented thus
far) is to estimate excess cost based on the number of smokers identified in the inpatient and dispensing data and not from the census – this will in turn under estimate costs. We present these biases to illustrate the potential problems with the method but at this stage give no indications of the possible size of each of these effects as due to time constraints this work has not been done. Method 2: Linked New Zealand Health Survey 2006/07 cohort The second method relies on the subset of New Zealanders responding to the 2006/07 NZHS (third quarter interim dataset provided by the contracted survey organisation – as at the time of the linkage the complete dataset was not available) whom we could link anonymously and deterministically to National Health Index (NHI) and hence Vote Health spending on that individual during the period 1 July 2007 to 30 June 2008. This cohort is 74% of adults responding to the 2006/07 NZHS (as at the third quarter) or amounts to 7,676 respondents. The survey did not sample from the general population, but from private dwellings (i.e. no institutions, prisons or hospitals) and will miss out on some high smoking prevalence populations with high costs or potentially poorer states of health. The method also relies on self-reported smoking status from the survey and allows for four groups: current smokers, ex-smokers more than 5-years, ex-smokers less than 5 years and people who have never smoked. The final point about the second method relates to re-weighting the estimated mean excess costs associated with smoking for each socio-demographic group back to the entire New Zealand population. As this method uses a subset of the population one has to assume that people in each group are representative of the same but much larger group of individuals in the population. There is no absolute certainty that this process will yield a total health system budget cost equal to that of the original cost frame. Another way to state this is that while absolute whole of system costs from the re-weighted estimates may not be the same as the actual Vote health budget for the year, we can with some certainty rely on the relativities. Results Table 1 provides a high level summary of the results of the two methods. Method 1 was applied on the 2006/07 linked cost dataset and method 2 on the 2007/08 linked cost dataset. These datasets included 32.2% and 63.3% of Vote Health in their respective years. The percentage of Vote Health costs linked to NHIs was dependent on the availability of cost data from different sources at the time of the analysis. For example, when the analysis using method 1 was carried out, ED and outpatient volumes and pricing data were not available. When we undertook the method 2 analysis more data was available but only for the more recent year, hence the different years for the costs datasets. In method 1 $3.35 billion (Public Hospital Discharge, Laboratory Testing Claims and Community Pharmacy Dispensing Claims) was linked to the individuals in the NHI population frame, $2.07 billion of which was for people 15 years or older. The same
method estimated the excess cost associated with smoking at $0.755 billion or 22.5% of the total linked cost. In method 2 $7.6 billion (Public Hospital Discharge, Laboratory Testing Claims and Community Pharmacy Dispensing Claims, Outpatient Attendances, Emergency Department Services, Section 88 Maternal Claims, MOH Disability Support Services, PHO Primary Care Capitation Payments and DHB Health of Older People and Mental Health Services) was linked to the individuals in the NHI population frame. The population weighted analysis estimated values of $4.44 billion for the total cost for people 15 years and older and the excess population weighted cost associated with smoking of $0.902 billion. The proportion of spending across all age groups was estimated by scaling the cost attributable to smoking status from the analysis by the ratio of the population weighted and actual total linked costs. From table 1 we took the actual total linked costs for those 15 years and older of $6.95 billion and divided by the population weighted total costs of $4.44 billion resulting in a scale factor of 1.42. Consequently method 2 estimated the excess cost associated with smoking at 18.7% (0.902 * 1.42 / 7.6) of the total linked cost. Table 1 Summary of results
Proportion of spending associated with smoking status (15+ years) Method 1: 36.5% Health Service Utilisation population Method 2: 20.3% Linked New Zealand Health Survey 2006/07 cohort
Proportion of spending associated with smoking status (all ages) 22.5%
Excess cost attributed to smoking status (15+ years) $0.755 billion (actual)
Total cost linked to 15+ years analysis
Vote Total Health cost Budget3 linked to analysis
$2.07 billion (actual)
$10.4 billion (2006/07)
18.7% (estimated by weighting)
$0.902 billion (population weighted)
$4.44 $7.6 billion billion (population weighted) $ 6.95 billion (actual)
$12.0 billion (2007/08)
Given that our analyses haven’t linked all Vote Health spending to the population frames for analysis, and a significant proportion of this spending will be on operational, capital and training expenditure, we can only estimate how costs related
Treasury Reports of Vote Health Budgets (http://www.treasury.govt.nz/budget/votehistory/health)
to smoking will be distributed amongst the Vote Health expenditure we have not linked. We assume, in the absence of other information, that spending on health care services that have not been linked in the costs datasets will be distributed in the same way in relation to smoking status as the linked spending. We note the similar estimates of excess costs even though the second method linked almost double the costs of the first. The first method estimates 22.5% of excess costs and the second method 18.7% of excess costs (a 3.8 percentage point difference). This is obviously not conclusive evidence of the appropriateness of our assumption about the distribution of unlinked costs, but suggests that it is not a completely insensible one. Future analyses will aim to address the appropriateness of applying these proportions to the unlinked component of costs. One approach will be to estimate the proportion of costs related to smoking for each source of funding (e.g. Hospital Discharge, Pharmaceutical Dispensing, and Laboratory Testing etc). In this way we can observe the range of proportions and potentially will be able to apply the more appropriate one to each of the unlinked sources of costs. For example, we can estimate the proportion of DHB Health of Older Person and Mental Health Services funding (as we have linked costs for these events) and potentially apply this proportion to the Inpatient and Outpatient Mental Health budget, for which we do not at present have linked costs. An additional point to note relates to the effect of some of the funding mechanisms with, for example, the PHO primary care capitation payments. The basis for the payments in this case is a collection of formulas adjusting for age, ethnicity and NZDep Quintile among other things. We assume that there will be a net excess cost (proportion) associated with the capitation payments due to the fact the formulas use factors that will be highly positively correlated with smoking prevalence. So in this case if we calculate the proportion of excess cost it will be an estimate of excess cost associated with the funding formula and not directly with cost of providing primary care services. Our expectation is that the proportions affected in this way will be an underestimate of those we would calculate if we had actual costs. We take two relatively simple approaches to calculate the overall excess cost of smoking to Vote Health and the results of these are presented in Table 2. The first is to simply apply the proportion of spending associated with smoking to Vote Health to estimate total excess spending associated with smoking. The second is to exclude the Ministry of Health Operational, National Health Services and Training and Capital Expenditure from Vote Health Budget and then apply the proportion to the remaining expenditure. Our choice of an estimate with the Operational, Capital and Training Expenditure excluded was based around an assumption that these would be fixed costs in any year least affected or associated with poorer health status and hence higher costs relating to smoking status.
The first method estimates total excess spending associated with smoking status between $2.03-$2.34 billion dollars in 2006/07 and the second method $1.91-$2.24 billion in 2007/08.
Table 2 Estimates for each method of total excess cost associated with smoking Proportion of spending associated with smoking status (all ages) Vote Health Budget Vote Health Budget (excl. OP./TRAI N/CAP.) Estimate of total Vote Health (excl. OP./TRAI N/CAP.) associated with smoking $2.03 billion Estimate of total Vote Health associated with smoking
Method 1: Health Service Utilisation population Method 2: Linked New Zealand Health Survey 2006/07 cohort
$10.4 billion (2006/07)
18.7% (estimated by weighted survey data)
$12.0 billion (2007/08)
Conclusion We have used two different methods to derive direct excess health system costs attributable to smoking status in New Zealand in 2006/07 and 2007/08. They both estimate similar amounts of excess costs attributable to smoking. Method 1 has the advantage of looking at all resident New Zealanders irrespective of living circumstances or health status but suffers from incomplete capture of smoking status. Method 2 has the advantage of using a complete capture of self-reported smoking status, a significantly higher proportion of Vote health costs linked to the analysis but the disadvantages of a much smaller sample size and an exclusion of people in institutions. This method also relies on the assumption that the survey respondents and their responses are representative of the New Zealand population – this may not be true in terms of people living in institutions but for the remaining population we feel the robust survey methodology and re-weighting of survey results to the Statistics
New Zealand usually resident census population for 2006 means on the whole the results will be representative. When we applied the estimated percentages of excess linked costs associated with smoking status from the two methods to two levels of Vote Health we get figures ranging from $1.91 - $2.34 billion. In conclusion, on the basis of the proceeding analyses, we suggest that the figure of $1.91 billion of the $12.0 billion 2007/08 Vote Health budget is the most reliable estimate of the direct excess health system costs attributable to smoking status in New Zealand. Firstly, on the basis of a preference for method 2 as the more robust analysis and secondly for the reason that the upper limit includes expenditure relating to categories that will not be affected in the short term by changes in excess costs associated with smoking status.