Economic evaluation in healthcare

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

Craig Mitton & Francois Dionne | Priority Setting & Resource Allocation | 3
 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

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 Basic premise

Economic evaluation is about comparing the

costs and benefits of an intervention with the
cost and benefits of an alternative intervention

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 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

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 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

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 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)

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 Nature of Economic
evaluation
Impact on health status Survival
Program A
Quality of life

Intervention costs
Impact on health care costs Hospitalisations
Drugs, procedures etc.
Target
patient
group
Impact on health status Survival
Quality of life

Intervention costs
Program B Impact on health care costs Hospitalisations
Drugs, procedures etc.

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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)

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 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

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 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

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 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

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Quality Adjusted Life Years (QALYs)
Full
1.0 Health

Final 0.8

Initial 0.6

0.4

0.2

0.0 Dead

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 Quality Adjusted Life Years (QALYs)

Intervention
0.8

0.6
Quality of Life

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

0 14 20
Life Years

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Results: Incremental Cost-Effectiveness Ratio

(Costnew Costold)
= ICER
(Effectivenessnew Effectivenessold)

ICER = C / E

Incremental Incremental health

resources required effects gained by using
by the intervention the intervention

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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

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 Grades of recommendation
$100,000/QALY
More Costly

E C
$20,000/QALY

B
Decrease in QALYs Increase in QALYs

F A

Less Costly

The Cost-Effectiveness Acceptability Plane

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A. Compelling evidence for adoption
$100,000/QALY
More Costly

E C
$20,000/QALY

B
Decrease in QALYs Increase in QALYs

F
A

Less Costly

New technology is equally or more effective & less costly

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 B. Strong evidence for adoption
$100,000/QALY
More Costly

E C
$20,000/QALY

B
Decrease in QALYs Increase in QALYs

F A

Less Costly

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

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 C. Moderate evidence for adoption
$100,000/QALY
More Costly

D
E C
$20,000/QALY

B
Decrease in QALYs Increase in QALYs

F
A

Less Costly

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

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 D. Weak evidence for adoption
$100,000/QALY
More Costly

E C
$20,000/QALY

B
Decrease in QALYs Increase in QALYs

F
A

Less Costly

New technology more effective, incremental cost/QALY > 22 $100,000

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 E. Compelling evidence for rejection
$100,000/QALY
More Costly

E C
$20,000/QALY

B
Decrease in QALYs Increase in QALYs

F A

Less Costly

New technology is less effective, or equally

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& Francois Dionne and
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23 Allocation
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 F. Less costly and less effective
$100,000/QALY
More Costly

E C
$20,000/QALY

B
Decrease in QALYs Increase in QALYs

$20,000/QALY F A

Less Costly

New technology is less effective, orCraig

equally effective,
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 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

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 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

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The many factors in funding decisions

Public expectations
Safety

Politics and public image Efficacy Productivity, satisfaction and QOL

Physician support

Effectiveness
DECISION
Cost-effectiveness Budget Impact

Moral and ethical Regulatory Issues

concerns
Societal values

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