Professional Documents
Culture Documents
1
Objectives
• Students should be able to:
– Compare and contrast CEA and CBA
– Understand how to monetize healthcare benefits
– Understand how to calculate and interpret cost-
benefit ratios and net values
– Discern biases in methods to monetize healthcare
benefits
– Compare and contrast methods for eliciting
willingness to pay values
2
Cost-Benefit Analysis
Value of resources consumed (costs) from program/intervention
Value of outcome (benefits) from program/intervention
3
Questions CBA Address
• Will the benefits of a program exceed the
cost of implementing it?
– Can assess a single program
4
Criteria for
Cost-Beneficial Programs
Benefit Cost
>1 OR
<1
Cost Benefit
5
Which one would you choose?
Programs CE B/C
AIDS prevention $230,000/case prevented 8.4
Vaccinations for children $104,000/case prevented 0.3
Medical Non-medical
Costs ($)
Benefits ($)
Medical Non-medical
Productivity Patient Preferences
Pain
Suffering
Human Capital
WTP (Willingness to Pay) WTP 8
Cost-Benefit Analysis in the Literature
Costs
Direct Benefits Indirect Benefits Intangible Benefits
Yes
9
Typical CBA studies in the Literature
Least utilized method of all 4 PE methods
30 CBA/yr vs. 1000s CEA/yr
10
Typical CBA studies in the Literature
• Types
– Preventative strategies (58%)
• vaccination programs (influenza, hepatitis)
– Pharmaceuticals (25%)
• usually vaccines
– Education and counseling (21%)
• depression, diabetes, asthma
– Screening strategies (18%)
• prenatal, cancer, HIV/AIDS, gene therapy
11
Study Examples
• Cost-Benefit Analysis of Vaccination against Tick-Borne
Encephalitis among French Troops
13
Other Studies in the Literature
14
Study Examples
• HC
– A Review of Health-Related Workplace Productivity Loss
Instruments
– Workplace Productivity: A Review of the Impact of
Migraine and its Treatment
• WTP
– Measuring Treatment Preferences and Willingness to Pay
for Docetaxel in Advanced Ovarian Cancer
– Willingness to Pay for Inhaled Insulin: A Contingent
Valuation Approach
15
16
Journal of Rheumatology 2010: 37:1805-1814
Clinical Therapeutics 2010:32(8) 18
American Journal of Managed Care 2010: 16(8) 19
Health Expectations 2015; 18(6): 2252-2265. 20
21
Steps in Conducting CBA
1. Identify program or intervention
2. Identify alternatives
3. Identify and measure costs
4. Identify and measure benefits
5. Calculate results
22
Cost-Benefit Analysis
Case Study
• HealthSouth is an ambulatory care family practice
clinic located within a 150-bed county hospital.
• The practice serves about 1000 patients with
diabetes yearly.
• A recent inspection by Medicaid officials revealed
that only 20 percent of the patients with diabetes
received the basic level of care as recommended by
the American Diabetes Association (ADA)
guidelines.
• For the organization to continue to receive federal
funding, it had to improve the outcomes of its
patients with diabetes.
23
Cost-Benefit Analysis
Case Study
• Recently, a pharmacist proposed the development
of a diabetes disease state management clinic, but
the organization’s management felt that it would
not be economically feasible.
24
Cost-Benefit Analysis
Case Study
26
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http://www.tdctoolkit.org/wp-content/uploads/2014/05/02MinPracticeRec.pdf 28
Step 2: Identify Alternatives
• Alternatives
– No diabetes clinic (“do nothing”)
– Target all diabetes vs. high risk
• 1000 patients vs. 400 patients
– Alternative service (e.g., lipid clinic)
29
Cost Benefit Analysis
Medical Non-medical
Costs ($)
Benefits ($)
Medical Non-medical
Productivity Patient Preferences
Pain
Suffering
Human Capital
WTP (Willingness to Pay) WTP 30
Step 3:
Identify and Measure Costs
What are the medical and non-medical costs
with and without the program or intervention?
NON-MEDICAL
• Travel (patients)
– .30cents/mile X 2 visits @ 10miles
• Time (patients)
– 2 visits/yr travel +wait time=1.5 hrs/visit-- $18/hr
• Administrative
– $10/hr—1 hr/wk
33
Step 4:
Identify and Measure Benefits
• Direct
• Indirect
• Intangible
34
Cost Benefit Analysis
Medical Non-medical
Costs ($)
Benefits ($)
Medical Non-medical
Productivity Patient Preferences
Pain
Suffering
Human Capital
WTP WTP 35
Benefits
Direct Indirect Intangible Benefits
Direct
36
Calculate the cost savings or direct benefit (difference between with vs. without).
Table 2. Direct medical benefits with vs. without (n=400)
Medical Service With Without Difference
Physician visits 192000 192000 0
ER visits 40200 107200 67000
Hospitalizations 155100 413600 258500
B/C = B/C =
37
Assumptions
• MD
– $160/visit 3 visits/yr
• ER
– $670/ER visit
• Without 20% of 400=80 patients with 2 visits/yr
• With 60 patients with 1 visit/yr
• Hospitalization
– $2585/hospital stay
• same as ER
38
Cost Benefit Analysis
Medical Non-medical
Costs ($)
Benefits ($)
Medical Non-medical
Productivity Patient Preferences
Pain
Suffering
Human Capital
WTP WTP 39
Indirect Benefits
Methods to assess
40
Human Capital
41
Human Capital
• Use discounted values of expected earnings
– Census estimates
• age, gender, education
– Gather data from individuals
– Labor income is estimated as before-tax income
• Non-labor income is excluded (interest, etc.)
– Use market values for non-market activities
• unpaid household work, child care, etc.
42
U.S. Census Bureau Income Estimates
Think/
Males Females
21-24 yrs $21,393 $19,108
< High school $17,170 $14,211
High school graduate
Some college
$21,078
$22,088 Pair/
$17,054
$19,104
Share
Bachelor degree $30,258 $25,881
Advanced degree $30,618 $25,998
44
Calculating Productivity
Using Human Capital Approach
• Wage rate
• Yearly (income/year)
• Daily (income/ # days worked per year)
• Number of days worked/yr range 240-365
• 365-vacation (14)- weekends (104)- sick days (7)=240
• Example
• Daily wage rate X # missed days
45
Calculating Productivity
Missed Days
• Missed Work/Housekeeping Days
• Daily wage rate X no. of missed days
• Caregiver Time
• School absenteeism (children 5-17 yrs)
• Daily wage rate X no. of missed days from school
• Bed days (children 0-4)
• Daily wage rate X no. of bed days 46
Calculate Productivity-Missed Work
Average No. of Days Daily Wage No. Missed Value of
Income Worked/yr Rate Days/yr Productivity
Medical Non-medical
Costs ($)
Benefits ($)
Medical Non-medical
Productivity Patient Preferences
Pain
Suffering
Human Capital
WTP WTP 48
Intangible benefits
Benefits
Direct Indirect Intangible
49
Intangible benefits
• Valuation of goods/services are easier for marketed
vs. non-marketed goods/services
– Health care vs. coffee or pair of jeans
50
Willingness to Pay
51
Willingness to Pay
Contingent Valuation/
Hypothetical Market
52
Hypothetical Market-Diabetes DSM
• Patients with diabetes have improved their condition by
learning more about their disease and by taking their
medications as directed. Pharmacists can help people with
diabetes understand their condition and the medications used
to treat it. In addition they can:
A. Open-Ended
C. Bidding Game
D. Payment Card
54
55
56
57
58
Payment Card Example
• Assume you had to pay for the initial assessment and
educational appointment with the pharmacist. This visit
would last approximately 1 hour. Your insurance would not
cover any costs. Assume that this consultation would result in
a 50% improvement in your diabetes. Below is a list of
possible fees for the initial consultation visit.
– What is the maximum amount that you would be willing to pay for a 1-
hour one-one consultation visit resulting in a 50% improvement in
your diabetes? Please circle your choice.
$150 $90 $30
$130 $70 $10
$110 $50 $0
59
Willingness to Pay
• Problems
– What people say vs. what they
will really pay
– Can the average person answer
questions
60
Willingness to Pay
• Bias Issues
–Compliance
–Strategic
–Starting Point
–Income
61
Assume that you have an uncontrollable cough that continues to keep you
awake at night. You have tried all forms of Robitussin, as well as cough
formulations containing codeine, and nothing works. A new product has
been developed that will cure your cough 50 percent of the time. This new
medication can be taken in a tablet once a day without any side effects. Your
insurance company will not pay any of the costs.
What is the maximum amount that you would be willing to pay
for a 30 day supply of this medication?
1. $100
2. $80
3. $60
4. $50
5. $40
6. $30
7. $20
8. $10
9. $0
62
Assume that you could hire someone to attend your least favorite class
this semester and take notes for you. This individual is an expert at
taking notes and can guarantee you 100 percent that you will get an A
in the course if you read and study his notes.
What is the maximum amount
per hour that you would be
willing to pay this notetaker?
1. $5.00/hr
2. $8.00/hr
3. $10.00/hr
4. $12.00/hr
5. $15.00/hr
6. $20.00/hr
7. $25.00/hr
8. $30.00/hr
63
Alternate form starting with $50
Assume that you have an uncontrollable cough that continues to keep you
awake at night. You have tried all forms of Robitussin, as well as cough
formulations containing codeine, and nothing works. A new product has
been developed that will cure your cough 50 percent of the time. This new
medication can be taken in a tablet once a day without any side effects. Your
insurance company will not pay any of the costs.
What is the maximum amount that you would be willing to pay
for a 30 day supply of this medication?
1. $50
2. $40
3. $30
4. $20
5. $10
6. $0
64
Notetaker
10
9 8.6
7.91
8
7
5.91
6
Mean
5
$
SD
4
3.2
3
2
1
0
No Range Range 5-30
65
Cough Medicine
40
36.36
35 33.18
30 28.75
25
22
19.09 Mean
20
$
15.49 SD
15 12.86 12.21
10
5
0
No Range Range 0-50 Range 0-100 Classmate 100
Starting Point 66
Bias
Intangible Benefits-Diabetes DSM
• On average, patients were willing to pay
$50 for a 1-hour consultation and $25 for
follow-up visits with the pharmacist.
Table 4. Intangible benefit (n=400)
Service Estimates With Without
Initial consultation 50 20000 0
Follow-up 25 10000 0
Total 30000
Total intangible benefit 30000
67
HC vs. WTP
HC WTP
68
Indirect /Intangible Benefits
Issues to consider
• What is the impact on productivity?
– Are there potential biases with any group?
• Prostate vs. breast cancer
• Diabetes vs. hypertension
70
Example
• Option A
– costs $1000: saves $2000
• Option B
– costs $5000: saves $7500
• Benefit-Cost
– A = $2000/ $1000 = 2:1
– B = $7500/ $5000 = 1.5:1
72
Step 5. Calculate Results of
Costs and Benefits
73
Net Present Value (NPV)
• Present value of a stream of costs and benefits
74
NPV Example
• Pharmaceutical care program costs
– $5000 per year for the next three years
– Discount rate is 5 percent
• Present value of costs
– $14,297 = [$5000 (yr 1) + $5000/1.05 (yr 2) + $5000/(1.05)2 (yr 3)]
• Program benefits
– $5,000 (yr 1), $10,000 (yr 2), $15,000 (yr 3)
• Present value of benefits
– $ 28,129 = [ $5000 (yr 1) + $10,000/1.05 (yr 2) + $15,000/(1.05)2 (yr 3)]
76
IRR Example
• IRR for pharmaceutical care program described
above is 6.3 percent
77
Cost Benefit Analysis
• Are you able to…?
– Compare and contrast CEA and CBA
– Monetize healthcare benefits
– Calculate and interpret cost-benefit ratios and net
values
– Compare and contrast methods for eliciting
willingness to pay values
– Detect biases in methods to monetize healthcare
benefits
– Determine when it may be important to
incorporate indirect and/or
78 intangible benefits