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School of Medicine, Health Policy & Practice, University of East Anglia
Health Economics(and Antimicrobial Resistance)
Richard SmithReader in Health Economics
School of Medicine, Health Policy and PracticeUniversity of East Anglia
School of Medicine, Health Policy & Practice, University of East Anglia
Economics is about …
Limited resources
Unlimited “wants”
Choosing between which ‘wants’ we can ‘afford’ given our resource ‘budget’
School of Medicine, Health Policy & Practice, University of East Anglia
Economics is about choice
Budget
Good ‘A’ Good ‘B’
School of Medicine, Health Policy & Practice, University of East Anglia
Opportunity cost
“The value of forgone benefit which could be obtained from a resource in
its next-best alternative use.”
School of Medicine, Health Policy & Practice, University of East Anglia
Implications of opportunity cost
Deciding to do A implies deciding not to do B (i.e. value of benefits from A>B).
Cost can be incurred without financial expenditure.
Value not necessarily determined by “the market”.
School of Medicine, Health Policy & Practice, University of East Anglia
Economists view of the world...
Pessimist: bottle ½ empty
Optimist: bottle ½ full
Economist: bottle ½ wasted
inefficient!
School of Medicine, Health Policy & Practice, University of East Anglia
Efficiency
Efficiency = maximising benefit for resources used
Technical = meeting a given objective Efficiency at least cost
Allocative = producing the pattern of Efficiency output that best satisfies the pattern of “consumer
wants”
School of Medicine, Health Policy & Practice, University of East Anglia
Topic versus discipline
Topic = area of study
Discipline = conceptual apparatus
Health economics is the discipline of economics applied to the topic of
health.
School of Medicine, Health Policy & Practice, University of East Anglia
Task of economics
Descriptive = quantification
Predictive = identify impact of change
Evaluative = relative preference over
situations
School of Medicine, Health Policy & Practice, University of East Anglia
Health economics ‘map’
B. What influencesHealth? (other than
health care)
B. What influencesHealth? (other than
health care)
E. Market Analysis
E. Market Analysis
A. What is Health? What is it’s value?
A. What is Health? What is it’s value?
D. Supply ofHealth Care
D. Supply ofHealth Care
G. Planning, budgeting,regulation mechanisms
G. Planning, budgeting,regulation mechanisms
H. Micro-Economic AppraisalH. Micro-Economic Appraisal
C. Demand forHealth Care
C. Demand forHealth Care
F. Macro-Economic Appraisal
F. Macro-Economic Appraisal
School of Medicine, Health Policy & Practice, University of East Anglia
Antimicrobial resistance (AMR)
AMR occurs where a micro-organism previously sensitive to an antimicrobial therapy develops resistance to its effect, rendering it ineffective
It is associated with antimicrobial usage (over & under use) and the interaction of micro-organisms, people and the environment
It is potentially irreversible once developed: some resistances are linked (therefore reduction in
all associated antimicrobials is necessary) the resistance mechanism/gene encoding may
provide an unrelated selective advantage to the organism
the 'genetic cost' to the organism of maintaining AMR in the absence of selection pressure may be minimal
School of Medicine, Health Policy & Practice, University of East Anglia
Importance of AMR
“Despite the multifactorial nature of antibiotic resistance the central issue remains quite simple: the more you use it, the faster you lose it” (The Lancet, 15/4/95)
“We may look back at the antibiotic era as just a passing phase in the history of medicine, an era when a great natural resource was squandered, and the bugs proved smarter than the scientists” (Cannon, 1995)
“We are further away from mastering infectious diseases than we were 25 years ago” The Times, 4/4/95
School of Medicine, Health Policy & Practice, University of East Anglia
Importance of AMR
School of Medicine, Health Policy & Practice, University of East Anglia
Application of economics to AMR
Economic conceptualisation of AMR Cost of resistance - country, hospital,
disease Micro-economic evaluation of
strategies to contain AMR Macro-economic evaluation of impact
of AMR and strategies to contain AMR
School of Medicine, Health Policy & Practice, University of East Anglia
Economic conceptualisation of AMR
Externality = Effect on those other than the immediate consumer (cross-sectional & temporal ext.)
Resistance = Negative externality (i.e. cost) associated with consumption
of antimicrobials now
Implication = Sub-optimal (over) consumption of antimicrobials
School of Medicine, Health Policy & Practice, University of East Anglia
Equilibrium with a negative externality
Quantity
Price/Cost
School of Medicine, Health Policy & Practice, University of East Anglia
Equilibrium with a negative externality
Quantity
Price/ Cost
D (MPB/MSB)
S (MPC)
School of Medicine, Health Policy & Practice, University of East Anglia
Equilibrium with a negative externality
Quantity
Price/Cost
A
D (MPB/MSB)
S (MPC)
QA
EquilibriumPrice PA
School of Medicine, Health Policy & Practice, University of East Anglia
Equilibrium with a negative externality
Quantity
Price/ Cost
A
D (MPB/MSB)
S (MPC)
MSC
QA
EquilibriumPrice PA
School of Medicine, Health Policy & Practice, University of East Anglia
Equilibrium with a negative externality
Quantity
Price/ Cost
B
A
D (MPB/MSB)
S (MPC)
MSC
QB QA
EquilibriumPrice PA
School of Medicine, Health Policy & Practice, University of East Anglia
Equilibrium with a negative externality
Quantity
Price/ Cost
B
A
D (MPB/MSB)
S (MPC)
MSC
Equilibrium Output
QB QA
EquilibriumPrice PA
School of Medicine, Health Policy & Practice, University of East Anglia
Equilibrium with a negative externality
Quantity
Price/ Cost
B
A
D (MPB/MSB)
S (MPC)
MSC
Economically Efficient Output Equilibrium Output
QB QA
EquilibriumPrice PA
School of Medicine, Health Policy & Practice, University of East Anglia
A difficult balance
The best interests of the individual
Society’s need for sustainable
antimicrobial use
School of Medicine, Health Policy & Practice, University of East Anglia
Form of negative externality
ERt = f(At, Xi
t)
ERt = extent of externality (AMR) in time t
At = quantity of AMs consumed in time t
Xit = vector of exogenous factors
School of Medicine, Health Policy & Practice, University of East Anglia
Form of positive externality
EPt = f(At, ER
t, Xit,)
EPt = externality associated with reduced
transmission of disease during time t
At = quantity of AMs used in time t
ERt = extent of externality (AMR) in time t
Xit = vector of exogenous factors
School of Medicine, Health Policy & Practice, University of East Anglia
Optimisation of AM use
NBAt = f(Bt, Ct, St, Dt, EP
t, ERt, At, Xi
t)
NBAt = net benefit from AMs used in time t
Bt = direct benefit to patient of AMCt = drug (+ administration) costSt = cost associated with side-effectsDt = represents difficulties in diagnosis(EP
t, ERt, At, Xi
t as before*)*EP
t = externality associated with reduced transmission during time t; At = quantity of AMs used in time t; ER
t = extent of externality (AMR) in time t; Xit = vector of exogenous factors
School of Medicine, Health Policy & Practice, University of East Anglia
Implications of AMR as externality
NOT eradication, but containment of AMR
Importance of optimisation over time - use (and benefit from) AMs now and in future
Importance of assessing costs and benefits of AM use and strategies to contain AMR
School of Medicine, Health Policy & Practice, University of East Anglia
Cost of AMR
Additional investigations Additional treatments Longer hospital stay Longer time off work Reduced quality of life Greater likelihood of death Impact on wider society (health and
economic)
School of Medicine, Health Policy & Practice, University of East Anglia
Cost of AMR
By country (e.g. USA) $4-7bn pa to medical care sector (American
Soc. for Microbiology, 1995; John & Fishman, 1997)
By institution (e.g. hospital) ~£500,000 to contain 5 week outbreak of MRSA
in general hospital (Cox et al, 1995) By disease (e.g. Tuberculosis)
Double cost of standard treatment ($13,000-$30,000) (Wilton et al, 2001)
School of Medicine, Health Policy & Practice, University of East Anglia
Micro-economic evaluation of strategies to contain AMR
Systematic review of strategies (GFHR/ WHO)
Specific economic policies (WHO, CMH, UNDP, CIDA/Health Canada, US NAS)
Development of WHO ‘Global Strategy’
School of Medicine, Health Policy & Practice, University of East Anglia
Strategies to contain AMR
FOCUS OF STRATEGYLEVEL OFSTRATEGY Reduce transmission Prevent emergence
Micro E.g. handwashing inhospitals
E.g. ‘cycling’ drugswithin hospitals
Macro E.g. restrictinginternational travel
E.g. restriction policies(eg taxation, permits)
School of Medicine, Health Policy & Practice, University of East Anglia
Strategies to contain AMR
Objective Strategy Intervention Selection Pressure* Antimicrobial use in
humans and agriculture
Education of professionals Education of patients Rapid diagnosis of bacterials Control of sensitivity data released
to prescribers Antibiotic policies Restriction of availability Financial incentives/disincentives Antimicrobial cycling Regulation on the use of
antibiotics in agriculture Opportunity forResistance Emerging*
Optimal use of existingagents
Ensuring optimal agent, dose anddose frequency for each infection
Removal of potential septic foci Emphasising/ensuring compliance Use of antibiotic combinations
Range of AgentsAvailable
Consider use ofalternative treatmentoptions
Antiseptics Cranberry juice for UTI Probiotics
Requirement forAntimicrobials
Immune competence Vaccination Nutrition Minimise time patient is
immunocompromised
School of Medicine, Health Policy & Practice, University of East Anglia
Strategies to contain AMR
Objective Strategy Intervention Transmission Early recognition of
resistant organisms• More rapid techniques• Surveillance• Screening patients/staff
Infectivity Use of antimicrobials OPPORTUNITIESFOR TRANSMISSION
Isolation Handwashing General Hygiene Patient/Staff ratios Bed spacing
Susceptibility toinfection
Immunity Nutrition
3. DEVELOP NEW ANTIMICROBIALS Range of AgentsAvailable
Discover/develop newagents
1. Modification of existing agents/discovery of new antimicrobials
2. Discovery of new drug targetsthrough microbial gene analysis
4. Genetic manipulation5. Computer modelling
School of Medicine, Health Policy & Practice, University of East Anglia
Evidence: literature review
127 studies of strategies to contain AMR. Most are:
of poor methodological quality (high risk of bias)
from developed nations (principally the USA) not measuring the cost impact of AMR micro (institution) not macro (community) concerned with transmission not emergence
School of Medicine, Health Policy & Practice, University of East Anglia
Importance of transmission versus emergence
Equilibrium resistance
X X+n
% of organism resistant to an anti-microbial
Time
Lag phase
0
School of Medicine, Health Policy & Practice, University of East Anglia
Importance of time
Because of uncertainty, evaluation of strategies to reduce transmission easier to undertake than evaluation of strategies to control emergence
Because of discounting of future benefits, strategies to reduce transmission likely to appear to be more cost-effective than strategies to control emergence
School of Medicine, Health Policy & Practice, University of East Anglia
The problem
Micro policies – generally to contain transmission – are more likely to be rigorously evaluated ...
BUT ... macro policies – generally to contain emergence – are more likely to be socially optimal (and) in the long-term.
School of Medicine, Health Policy & Practice, University of East Anglia
Macro-economic strategies to contain AMR
Charges/taxes (equal to marginal external cost of AMR) – changes private cost to equal social cost
Regulation of overall quantity (rationing)
Tradable permits (licences) - set quantity and let price adjust in market through physician ‘trading’
School of Medicine, Health Policy & Practice, University of East Anglia
Macro-economic impact of AMR
Requires macro-economic model – Computable General Equilibrium (CGE) is most ‘popular’.
Model solved to find prices at which quantity supplied equals quantity demanded across all markets (sectors)
Describes economy using representative agents: consumers, producers, and government Consumers allocate time to employment/leisure
and income to consumption/saving to max utility Producers combine labour/capital inputs to max
profit Government collects tax revenue to finance
expenditure & redistribute as benefits
School of Medicine, Health Policy & Practice, University of East Anglia
Macro-economic impact of AMR
AMR is a (negative) exogenous shock on the labour supply and productivity of inputs, and a (positive) shock (cost) to healthcare delivery
No UK data of impact on productivity or labour supply so use data from other areas/countries
Assumptions: Prevalence of AMR ~20% in UK AMR reduces labour supply by 0.1% to 0.8% AMR reduces productivity by 0.5% to 10% AMR increases healthcare cost by 0.5% to 10%
School of Medicine, Health Policy & Practice, University of East Anglia
Macroeconomic impact of AMR in UK
Change in: Different Scenarios Productivity (%) -0.5 -0.5 -1.0 -1.0 -0.5 -1.5 -1.5 -2.0 -2.0 Healthcare delivery cost (%) +0.5 +0.5 +1.0 +1.0 +0.5 +10 +5.0 +5.0 +10 Labour supply (%) -0.1 -0.8 -0.2 -0.8 -0.5 -0.2 -0.1 -0.8 -0.8 Impacts on macroeconomic indicators in percentage Household income -0.070 -0.098 -0.140 -0.174 -0.085 -0.234 -0.257 -0.327 -0.327 Government transfers +0.740 +0.721 +1.690 +1.407 +0.753 +2.092 +2.119 +2.802 +2.817 Tax Revenues -0.081 -0.110 -0.160 -0.196 -0.086 -0.216 -0.269 -0.352 -0.324 Unemployment +4.210 +4.919 +9.630 +9.159 +4.644 +12.98 +13.66 +17.71 +17.80 Household utility -0.590 -0.612 -1.200 -1.211 -0.600 -1.816 -1.821 -2.413 -2.425 Real GDP -0.400 -0.381 -0.810 -0.776 -0.387 -1.199 -1.174 -1.574 -1.582 Welfare (EV/GDP) -0.270 -0.282 -0.560 -0.559 -0.276 -0.834 -0.841 -1.121 -1.121 Inflation (CPI index) +0.004 +0.004 +0.010 +0.008 +0.004 +0.013 +0.013 +0.017 +0.017 Total Savings -0.500 -0.531 -1.000 -1.017 -0.525 -1.449 -1.512 -1.990 -1.980 Healthcare and social -0.566 -0.585 -1.131 -1.156 -0.575 -2.621 -2.105 -2.613 -3.139 Services (average) Social services -0.537 -0.558 -1.074 -1.100 -0.547 -1.803 -1.717 -2.242 -2.344 Health administration -0.575 -0.594 -1.150 -1.174 -0.584 -2.894 -2.234 -2.736 -3.404 Hospitals -0.576 -0.594 -1.150 -1.175 -0.584 -2.894 -2.235 -2.737 -3.405 Family health services -0.575 -0.594 -1.150 -1.174 -0.584 -2.892 -2.234 -2.735 -3.403
School of Medicine, Health Policy & Practice, University of East Anglia
Summary results
GDP loss = ~£3-11 billion (~ 6-20% of total NHS expenditures) Welfare losses imply society willing to pay ~ £8 billion to avoid
AMR
Parameter of interest Impact of MRSA (% change) Household Income -0.070 to -0.327 Government Transfers +0.721 to +2.817 Tax Revenues -0.081 to -0.352 Unemployment +4.210 to +17.800 Household Utility -0.590 to -2.425 GDP (real) -0.381 to -1.582 Welfare(EV/GDP) -0.270 to -1.121 Inflation(CPI) +0.004 to +0.017 Total National Savings -0.500 to -1.990 Health and Social Services Social Services -0.537 to -2.344 Health Administration -0.575 to -3.404 Hospitals -0.576 to 3.405 Family Health Services -0.575 to -3.403
Note: All results are relative to 1995 economy in the absence of MRSA.
School of Medicine, Health Policy & Practice, University of East Anglia
Evaluation of strategies
Impact of Impact of Impact of
Parameter of interest Regulation Taxation Permits Household Income +0.014 +0.005 +0.015 Government Transfers -0.150 -0.048 -0.151 Tax Revenues +0.017 +0.005 +0.017 Unemployment -0.862 -0.278 -0.870 Household Utility +0.119 +0.039 +0.120 GDP (real) +0.078 +0.025 +0.079 Welfare(EV/GDP) +0.055 +0.018 +0.055 Inflation(CPI) +0.000 +0.000 +0.000 Total Savings +0.101 +0.033 +0.102 Health and Social Services Social Services +0.108 +0.035 +0.109 Health Administration +0.115 +0.037 +0.116 Hospitals +0.115 +0.037 +0.116 Family Health Services +0.115 +0.037 +0.116 CAM and MRSA CAM (%) -10.00 -0.968 -10.00 MRSA Level (%) -10.00 -0.968 -10.00
Note: All results are relative to 1995 model that includes the adverse impacts of MRSA on the economy in the absence of any intervention.
School of Medicine, Health Policy & Practice, University of East Anglia
Key conclusions of macro approach
AMR substantially affects wider economy, not just healthcare
Concentrating on healthcare sector alone may therefore underestimate the societal impact of AMR/strategies
Of ‘macro’ strategies, taxation appears to be the least efficient & tradable permits the most efficient
School of Medicine, Health Policy & Practice, University of East Anglia
Conclusions – applying economics to the analysis of AMR
Conceptualisation of problem: Optimisation and balance Importance of temporal factors (trade-off now
vs future) Technical analysis:
Micro-economic evaluation of strategies Macro-economic assessment
Strategies: Financial incentive structures (e.g. permits) Tackling ‘public good’ issues globally
School of Medicine, Health Policy & Practice, University of East Anglia
Further references
Externality & micro-economic evaluation: Coast J, Smith RD, Miller MR. Superbugs: should antimicrobial resistance be
included as a cost in economic evaluation? Health Economics, 1996; 5: 217-226.
Coast J, Smith RD, Karcher AM, Wilton P, Millar MR. Superbugs II: How should economic evaluation be conducted for interventions which aim to reduce antimicrobial resistance? Health Economics, 2002; 11(7): 637-647.
Wilton P, Smith RD, Coast J, Millar MR. Strategies to contain the emergence of antimicrobial resistance: a systematic review of effectiveness and cost-effectiveness. Journal of Health Services Research and Policy, 2002; 7(2): 111-117.
Macro policies & macro-economic analysis: Coast J, Smith RD, Millar MR. An economic perspective on policy for
antimicrobial resistance. Social Science and Medicine, 1998; 46: 29-38. Smith RD, Coast J. Controlling antimicrobial resistance: a proposed
transferable permit market. Health Policy, 1998; 43: 219-32. Smith RD, Coast J. Antimicrobial resistance: a global response. Bulletin of the
World Health Organisation, 2002; 80: 126-133. Smith RD, Coast J. Resisting resistance: thinking strategically about
antimicrobial resistance. Georgetown Journal of International Affairs, 2003; IV(1): 135-141.
Yago M, Smith RD, Coast J, Millar MR. Assessing the macroeconomic impact of a healthcare problem: the application of computable general equilibrium analysis to antimicrobial resistance. Journal of Health Economics (in press).