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Cost-benefit Analysis Abdur Razzaque Sarker
MHE (Health Economics), MSS (Economics)Health Economics and Financing Research,
icddrband
PhD Fellow in Strathclyde University, UKEmail: [email protected]
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What is Cost-Benefit AnalysisCost Benefit Analysis (CBA) is an economic
evaluation technique that both costs and consequences
(benefits) are measured in monetary unit.
Net benefit = Benefits - Costs
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An intervention should be undertaken if the benefits exceed the costs.
Choose the intervention with the highest net benefit if only one intervention can be funded
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Why using CBA Resources are limited
The intervention program should be economically viable
CBA adopts a broad societal perspective as it includes all costs and all benefits
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Economic evaluation methods at a glance
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Measuring cost of intervention
The cost of intervention will be calculated
in the same way as other economic
evaluation methods (Please see ‘cost
analysis’).
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Measuring benefits The ways to measure monetary
value of benefits from intervention
1. Cost of illness averted
2. Contingent valuation method (willingness to pay)
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1. Cost-of-illness averted
The cost of illness (COI) is defined as the value
of the resources that are expended or foregone
as a result of a health problem (like, diseases).
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Perspectives of COIPatient’s or household’s
perspectiveProvider’s perspectiveSocietal perspective
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Costs can be classified into three types
Direct Costs: Direct costs related to treating the patients (example, doctor’s visit, drugs, transport)
Indirect Cost: Loss of productivity of patients and care-givers
Intangible cost: Pain, anxiety, discomfort
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Information needs to be collectedDirect cost How much patients spend for medicine.
How much money was spent for transportation for each visit.
Did you spend any night away from home regarding treatment and spend money to buy food and lodging?
Did you spend any money for any diagnostic tests?
Did you pay consultation fee to the provider?
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Indirect cost
Examples:
At the time you got sick with cholera, were you employed?
How much time you waited before receiving this service?
What was your daily wage?
How many days had you been absent from work due to illness?
Did anybody take care of you during your illness?
How many days she/he had been absent from work for giving you care?
What was her/his daily wage?
more……
Information needs to be collected
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Intangible costDifficult to measure and often a limitation of
the study
Information needs to be collected
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Provider’s actual cost of illnessProvider actual cost of illness will be calculated as the provider’s cost for treatment excluding any fees received from the patients for hospitalization, drug, diagnostic tests etc.
If government implements vaccination against cholera. The cholera hospitals (wards) can be benefited by reducing their cost for treating cholera patients.
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It includes cost of providers, cost of patients orhouseholds and costs of insurance company (if applicable)
Cost of illness of society
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The cost of illness that can be averted, i.e.
benefits of the intervention will then be
adjusted for time differentials using
discount rate.
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Costs Parameters Average cost Standard deviation %of total cost
Direct Medical Diagnostic 9.6 (0.1) 75.7 (1) 9Medicine 148.7 (2) 246 (3.)Registration fee 26.1 (0.3) 130.6 (1.7)Paramedics home visit fee 2.8 (−) 21.5 (0.3)Bed/ Cabin charge 16.9 (0.2) 130.7 (1.7)
Direct Non- Medical
Transportation cost 140 (1.9) 122 (1.6) 15.6food items 63(0.8) 85 (1.1)Informal payment 0.7 (−) 9 (0.1)Caregivers payment 0.1 (−) 1 (−)Materials (mug/glass/coil etc) 10.6(0.1) 17 (0.2)Lodging 28 (0.4) 101 (1.3)Caregivers expenditure 113.2 (1.5) 172 (2.3)
Total direct cost 559.5 (7.4) 641.7 (8.5) 24.6In-direct Patients income loss 811 (11) 4,301 (57)
Caregivers income loss 908 (12.2) 3,701 (49)Total indirect cost 1,719 (23) 5,656 (75.4) 75.4Total cost of illness of household 2,278.5 (30.4) 5,668 (75.6) 100
Average household cost for cholera treatment
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Suppose in Mirpur area, every year 1200 patients are affected by Cholera diseases and it is estimated by our hospital record. A Cost of illness study conducted and estimate the average cost for treating cholera is $40 from societal perspective. We want to minimized the burden of cholera diseases and he initiated the following three intervention
A Only Vaccination B Vaccination & hand washing technique C Vaccine, hand washing & Water treatment procedure
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Intervention Total cost (C)Outcome
(No of case averted)
A (Vaccine) 10000 200B ( Vaccine & hand washing) 15000 650C (Vaccine, hand washing and water treatment) 18000 900
We want to know which intervention is sustainable based on cost benefit analysis?
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Decision tools:
Net Social Benefit (NSB) = B-C
If B > C we take the intervention, i.e. B-C >0, we accepted that program
If B< C i.e. B-C <0, we must rejected that intervention
If B = C , i.e. B-C =0, we are indifferent i.e. it may be accepted or rejected
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Intervention Total cost (C)Outcome
(No of case averted)
A (Vaccine) 10000 200B ( Vaccine & hand washing) 15000 650C (Vaccine, hand washing and water treatment) 18000 900
Intervention Total cost (C)
Outcome (No of case
averted)Total
Benefit (B)A (Vaccine) 10000 200 8,000B ( Vaccine & hand washing) 15000 650 26,000C (Vaccine, hand washing & Water treatment) 18000 900 36,000Since average COI is $40 for societal perspective
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Intervention Total cost (C)
Outcome (No of case
averted)
Total Benefit
(B)
Net Social Benefit
(NSB = B-C )
A (Vaccine) 10000 500 8,000 -2,000B ( Vaccine & handwashing) 15000 650 26,000 11000C (Vaccine, hand washing & Water treatment) 18000 900 36,000 18000 If we consider intervention A , here, B – C < 0, Rejected A In intervention B, here, B –C > 0, ie. NSB >0. Accepted BIn intervention C, here, B – C > 0, i,e. NSB >0. Accepted cIf we compare all that program, only one intervention can be funded than alternative C is better, causes it gives higher net social benefit.
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Assigning Money Values in health outcomes
Human Capital Approaches Cost of illness
Contingent valuation method (CVM)
Willingness-to- Pay (WTP) MethodWillingness –to- Accept (WTP) Method
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CVM is a direct method which involves asking a sample of the relevant population question about their willingness to pay (WTP) for a certain product (health intervention program)
Willingness to pay (WTP) is the maximum amount aperson would be willing to pay, sacrifice or exchange in order to receive a good or to avoid risk
If individuals answer truthfully, their answers will exactly correspond to the utility change
2. Contingent valuation method (CVM)
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CV question can be divided into open-ended and discrete choice.
Open-endedUsing bidding game technique
respondents are asked to state their maximum WTP for the benefit of a specific intervention.
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To introduce the cholera vaccine we asked to all household head to know what they willing to pay (max. WTP) to avoidable this loss (COI).
Did you agree to pay for two doses cholera vaccine Yes…..(1) No….(2)
How much you want to pay for two doses oral Cholera vaccine ?BDT……………………
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In bidding game (like an auction), respondents are offered with a bid for acceptance or rejection. Depending on respondent’s answer, the bid is then lowered or increased until respondent’s maximum WTP is reached.
We bid a price to household head and know about his WTP which may be increasing or decreasing. And finally we select final WTP.
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Discrete Respondents are offered a bid and asked
for either accepting or rejecting. Using different bids in different sub-samples, it is possible to calculate the percentage of respondents who are willing to pay as a function of price (bid).
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Did you agree to pay for two doses cholera vaccine Yes…..(1) No….(2)
If Yes, then which price …
3*2 = 6 USD per family member….....(1)4*2 = 8 USD per family member…….(2)4.5*2= 9 USD per family member…….(3)5*2 =10 USD per family member…….(4)5.5*2 =11 USD per family member…….(5)
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Survey for contingent valuation
Creating a survey instrument for capturing individuals' WTP
(a) designing the hypothetical scenario;(b) creating a scenario about the means of
payment
Use the survey instrument with a sample of the population of interest
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Where, i= indexes respondentsY= IncomeE= EducationA = AgeD=disease or health risk exposure experience
WTPi= f (
Yi, Ei, Ai, Di, ... )
Total WTP is achieved by deriving the population average WTP from the data and multiplying it by the population size, N.
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Note to interviewer:Describe the cholera vaccine, dose and effectiveness both for adult and child to the respondents following the structured description of the product.
Would you be willing to pay X Taka for full vaccination for you?
YesNo
If yes, please explain your reasons for agreeing to pay? 1. The amount is affordable2. I don’t want to suffer from cholera Other, specify ___________
If no, pls explain your reasons for not wanting to pay? 1. Too expensive2. Unable to pay Other, specify ____________
Would you be willing to pay XX Taka for full vaccination for other members of your family?
YesNo
If yes, please explain your reasons for agreeing to pay? 1. The amount is affordable 2. I don’t want to suffer from cholera Other, specify ___________
If no, pls explain your reasons for not wanting to pay? 1. Too expensive2. Unable to pay Other, specify ____________
What would be the maximum amount you would be willing to pay for yourself?
______________________ Tk
What would be the maximum amount you would be willing to pay for other family members?
______________________ Tk
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Total benefit of the proposed intervention can be calculated by
multiplying average WTP with total number of population in interest group.
Benefits of the intervention (WTP) will then be adjusted for time
differentials using discount rate.
Example,
Total WTP = 10,000 Taka (after discounting)Total cost of intervention = 8,000 Taka (after discounting)Net benefit = 10,000 – 8,000 Taka = 2,000 Taka
Conclusion: If net benefit is higher than zero, then intervention
program is acceptable
