Economic Evaluation of Healthcare Programmes

D. A Adewole
MBChB, MPH, DLSHTM, MSc, PhD, FMCPH
Department of Health Policy & Management, College of Medicine, University of Ibadan Nigeria
7th November 2022
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 Lecture Outline
 What is Health Economics

 Economic Evaluation of Health Care Programmes

 Evaluation Methods

 Valuing Health; Concept of Utility, CUA, DALYs & QALYs

 Costing in Health Economic Evaluation

 Health Care Market: characteristics

 References

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Health Economics - Definition

Application of the theories, concepts, and techniques of economics to the health

sector

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 Goal of Health Economics
 Allocation of resources between various health promoting activities

 The quantity of resources used in health delivery

 The organization and funding of health institutions

 The efficiency with which resources are allocated and used for health purposes

 The effect of preventive, curative, and rehabilitative health services on the

individual and national productivity

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 Framework of Health Economics - 1

 What determines health status

 What is the value of health e.g Health utility, QALYs, DALYs etc

 Demand for healthcare and influencing factors: Health care market

 Supply of healthcare (available resources and costs)

 Micro- economic evaluation of healthcare services/programmes

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Framework of Health Economics - 2
 Healthcare markets
 Macro-economic evaluation of healthcare
services/programmes
 Planning, budgeting and monitoring mechanisms in health
 Pharmaceutical economics

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Economic Evaluation of Health
Care Programmes and Services

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Importance of Economic Evaluation

 Resources (people, time, facilities, equipment, etc) are scarce

 Choices must be made concerning deployment of scarce resources

 Educated guesses, conventional guesses are usually not reliable compared to

choices made by systematic assessment

 Systematic assessment through EA is necessary to identify relevant

alternatives

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Meaning of Economic Evaluation

 It deals how inputs and outputs i.e costs and consequences are linked for
decision making

 Scarcity of resources and our inability to produce all desired outputs

necessitates that choices must be made

 The basic task of economic evaluation are to identify, measure, value, and
compare the costs and consequences of the alternatives being considered.

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Definition of Economic Evaluation

The comparative analysis of alternative courses of action in terms of both their

costs and consequences

NB; Economic Evaluation always involves a comparative

analysis of alternative courses of action

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Comparative Analysis of Health Intervention

Consequence
Programme A
Cost A s
Choice
Cost B
Comparator Consequence
B s

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 Types of Health Economic Evaluation
 Cost Minimisation Analysis

 Cost Effectiveness Analysis

 Cost Utility Analysis

 Cost Benefit Analysis

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 Evaluation Methods

 Efficacy – Can it work? i.e does the health intervention do more good
than harm to people who fully comply with associated recommendations
or treatments

 Effectiveness - Does it work? This form of health care evaluation

considers both efficacy of a service and its acceptance by those to whom
it is offered

 Availability – Is it reaching those who need it? i.e is the procedure,

service or programme accessible to all people who could benefit from it

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 TYPES OF ECONOMIC EVALUATION

The evaluation covers the costs and consequences of the alternative

proposals?
No No Yes
Examines only
Examine only costs
more alternatives being

consequences
1A Partial evaluation 1B Partial evaluation 2 Partial evaluation

No
Outcome description Cost description Cost-outcome description
compared?

3A Partial evaluation 3B Partial evaluation 4 Full economic evaluation

Efficacy or effectiveness Cost analysis Cost-effectiveness analysis

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 Explanations
Cell 1A – Only the consequences of the service or
programme are examined

Cell 1B - Only the costs of the programme are examined

Cell 2 - Both outcomes and costs of a single service or programme are

described

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 Explanations (Cont’d)
Cell 3A and 3B - contain evaluation situations in which two or more alternatives
are compared but in which the costs and consequences of each alternatives are not
examined simultaneously

Cell 3A – Only the consequences of the alternatives are compared, and thus termed
efficacy or effectiveness evaluations

NB; Most randomized clinical trials fall in this cell

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Cost-Effectiveness Analysis
Example:

1. Bivalent Polio Vaccine vs Trivalent Polio Vaccine

2. Kidney transplantation vs heart surgery

NB; Common outcome measure

= Reduction/minimise incidence of polio paralysis among potential victims

= No of life years gained

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 CEA (Cont’d)
Result of interventions are compared in terms of effect/unit of cost i.e Life years
gained per naira spent.

Cost Minimization Analysis (CMA) i.e If the two alternatives achieve the given
outcome to the same extent

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Cost Effectiveness Plane (Cont’d)
 CEP is a useful construction for comparing 2 or more interventions

 The horizontal axis by convention measures differences in effectiveness

 The vertical axis measures differences in costs

NB; Attention is usually on NE & SW quadrants

 NE quadrant – how does the additional effect compares to the

additional cost

 SW quadrant – how does the cost saving compare to the loss of

effectiveness

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 The Concept of Utility
 Marks the point of interaction between basic medical sciences (especially the CNS)
and social sciences especially market behavior

 Enables an understanding the why people choose to buy a good or service and
why they stop buying

 Value ranges from 0 (state of dead) to 1(max level of health

status)

 Is there any difference between measuring health and valuing health?

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 Value of a unit of currency and a unit of a product
 In a hot sunny day, sweating, the cells are dehydrated

 Control mechanism relay it to the thirst centre

 Urge to drink water, start from point zero (0)

 Sense of satisfaction increases at a decreasing rate

 At a point the urge to drink water reaches a max point then a plateau and start
falling again to reach point zero (0)

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 Utility (Cont’d)
 Value attached to the 1st cup and the 1st Naira is highest followed by the
subsequent cups and the unit of money

 The values of subsequent cups of water and the naira decreases with each cup of
water consumed

 Has the cup of water or the naira note lost its value? No

 The value is stored, and it is called ‘potential/stored value’

 The last unit of cup of water and naira note may assumed the highest value in
subsequent episode depending on the position it assumed in the next (episode)

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Utility Curves

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 Utility (Cont’d)
 Total amount of utility gained increases with increase in water consumed

 Marginal utility usually decreases with each additional increase in the consumption of water

 This decrease demonstrates the law of diminishing marginal utility

 There is a certain maximum threshold of satisfaction, the consumer will no longer receive the
same pleasure from consumption once that threshold is crossed

 In other words, total utility will increase at a slower pace as an individual increases the
quantity of water consumed

 For example, the pleasure of drinking the first cup of water is much greater than the pleasure
received from drinking the tenth or eleventh cup of water

 NB: Displeasure may actually set in after a point (? Nausea, vomiting etc etc )
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 Utility of water consumption
Cups of water Marginal water utility Total water utility
consumed
0 0 0

1 70 70

2 10 80

3 5 85
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 Utility (Cont’d)
Summary
 The value attached to a unit of a good or service or monetary unit is dictated by
the need of the individual and therefore the value of say a N1, in an event is not
the same, it varies by events. However, the magnitude in terms of measurement
remains the same

 Magnitude of the units remains the same, while the value may vary as dictated by
circumstances

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Methods of Valuing Health
 Disease specific
 Time Trade – Off (TTO)
 Visual Analogue Scale (VSA)
 Person Trade – Off (PTO)
 Standard Gamble

 Generic (Generalised)
 WHO QoL
 Short Form 36 (SF 36)
 European Quality of Life 5 Dimensions (Eurol QoL 5D)

 NB: Discounting (values of an amount of money in different times compared)

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Measuring Health Outcomes
Examples – (i) length of years lived, (ii) proportion of people who survived
an illness or any health episode etc etc

What is the rational for measuring health?

2 perspectives;

 Clinician;
- to inform clinical decision for care of
individual patients

 Health Economist;
- to inform resource allocation decisions

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Cost-Utility Analysis (CUA)
 A broader measure of the benefits of health care programmes

 Unit of measurement is in utils

 Utility of an outcome, effect, or level of health status is different from the

outcome, effect, or level of health status

 Example; Identical twins sustained fracture of their arms or

contract conjunctivitis

 Painter vs language translator

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 CUA (Cont’d)

 State of having a broken arm on a scale of 0 (dead) to 1 (perfect health)

 Will be ranked/assessed differently between them because of the significance each

one attaches to arm movement bcos of their occupations

 Likewise, an assessment of the utility of treatment i.e the state to which treatment
of fractures improve the quality of their lives would also differ

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 CUA (Cont’d)
CUA

 Simultaneously provides a generic outcome measure for comparison of costs and

outcomes in different programmes

 This generic outcome is called Quality – Adjusted Life Years (QALYs)

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 CUA (Cont’d)

 DALYs and QALYs - composite measures

 DALYs - A summary measure that combines years of life lost due to premature
death and years of life lived with disability i.e in states less than full health

 QALYs - Captures gains from reduced morbidity (quality gains) and reduced
mortality (quantity gained) and integrate these into a single measure

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 Cost Benefit Analysis (CBA)

 CBA is an analysis that measure both the costs and consequences of alternatives in
monetary units

 i.e what does the QALYs translate to in earned income?

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Costing in Health Economic Evaluation

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Costing in Health Economic Evaluation

Quantities (q) of resources consumed are measured and the total cost calculated
by multiplying the quantities by the relevant prices (p).

QxP

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Consumed Items
 Drugs

 Equipment – wear and tear and its costing

 Hospitalization

 Physician visits

 Continue care costs

 Treatment of infections (where there is any e.g nosocomial infection)

 Nursing home care esp in Geriatrics care

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 Consumed Items (Cont’d)
 Time

 Patient’s time seeking and receiving care

 Relatives time spent visiting, caring for patient etc

*Productivity time has to be measured and valued in

monetary terms

 Out-of-pocket expenses e.g transportation fare to and fro hospital by patient and
relatives
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 Market Characteristics

Market is an institution where individual consumers (buyers) and producers (sellers) interact within a
given time period

The market allocates commodities (goods and services) such that there is no excess (quantity of)
demand or excess (quantity of) supply in any given time period.

Allocation where demand matches supply, at a given price is termed equilibrium

Quantity demanded by consumers = quantity supplied by the producer at an agreed price.

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 Social Market vs Healthcare market

 Large number of buyers and sellers

 Small number of sellers
 Externalities
 No externalities
 Public good exists
 No public goods  Difficult to enter and exit
 Easy to enter and easy to exit  Asymmetry of information

 Perfect information

People control Govt control

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 References
1. Methods for the Economic Evaluation of Health Care
Programmes 3rd Edition 2005 Oxford University Press
Drummond M.F et al, 2005

2. Economic Evaluation 2009 Open University Press England

Fox-Rushby J and Cairns, J

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Thank you

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