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COST-EFFECTIVENESS ANALYSIS
DR AMIR NASIR MPH Semester II, IPHSS, KMU
Knowing what you get for what you pay
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Contents
• Economic Evaluation / analysis
• Types of economic analysis/ evaluations
• Differentiating between types of analysis
• Conducting a cost effectiveness analysis
• Summary
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Economic Evaluation
COST OUTCOME/ RESULT
Economic Evaluation
• Economic evaluation is the comparative
analysis of alternative courses of action in
terms of both their costs and results in order
to assist policy decisions
Rationale of economic evaluation
• To assess the efficiency and effectiveness
• Policy making, Planning & Management
• Prioritization and resource allocation
• Avoiding wasteful expenditure
• Cost minimization
• Accountability
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Types of Economic evaluations
• Cost Minimization analysis (CMA)
• Cost effectiveness analysis (CEA)
• Cost utilization analysis (CUA)
• Cost benefit analysis (CBA)
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Cost Minimization analysis
Outcomes of 2 actions is equal
Costs are different
Only costs are compared
Result: least cost alternative.
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Cost minimization example
Interventions Cost Outcome
Malaria treatment A Cost high same as Tx B Reject
Malaria treatment B Cost low same as Tx A Select
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Differentiation Example: cost minimization & Cost
effectiveness
Type of analysis Cost Outcome /Result Best
option
Cost minimizatio
n
Buying CT scan machine of XYZ company
Costs:Seller Agent A : $10Seller Agent B : $12Seller Agent C : $16
(Guarantee 10 years)
Outcome
A:CT machine of XYZ company B:CT machine of XYZ company C:CT machine of XYZ company
(Fixed outcome)
Agent ?
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Cost effectiveness analysis
•Outcome of 2 or more actions is unequal
•Costs are also different
•Cost per unit health outcome is calculated
and compared
•Compares Cost per unit health outcome
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Cost effectiveness analysis
Intervention A cost Outcome Cost/ unit outcome
Intervention B cost Outcome Cost/ unit outcome
Intervention C cost outcome Cost /unit outcome
Choose the most cost effective
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Cost effectiveness analysis
• defined by the National Institute for Health and Clinical Excellence (NICE)
“Economic study design in which consequences of different interventions are measured using a single outcome, usually in ‘natural’ units (for example, life-years gained, deaths avoided, heart attacks avoided or cases detected). Alternative interventions are then compared in terms of cost per unit of effectiveness.”
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Cost effectiveness analysis
• No monetary value assigned to outcome
• Outcome used:
– Cases (cost per cases detected/ prevented)
– Deaths (cost per death avoided)
– Years of life
– DALYs
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Cost-effectiveness Analysis
The most commonly CERs used are the: Average cost-effectiveness ratio (ACER)
Incremental cost-effectiveness ratio (ICER)
ICER=Cost B−Cost A
Effectiveness B−Effectiveness A
essBEffectivenCostB=ACER
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Incremental Cost effectiveness Ratio
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The Cost Effective Plane+ I
-
- +
Less effective and less expensive
More effective and more expensive
Less effective and more expensive
More effective and less expensive
IV
IIIII
Diff
eren
ce in
cos
t
Differences in effectiveness
Note: Origin is reference intervention
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B
A
D
C
Increased effectiveness
more costly
less costly
Intervention is less effective and more costly(Excluded)
Intervention is more effective and more
costly(Questionable)
Intervention is less effective and less
costly(Questionable)
Intervention is more effective and less costly
(Dominant)
Cost-effectiveness plane
Decreased effectiveness
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CEA; Applications • Planning and management
• Policy and decision making
• Resource allocation
• In Health services, when it’s inappropriate to
monetize health effect.
• Used in differernt study designs
• Not the only criteria for decision making
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CEA; Applications
• Identifying most cost-effective intervention
• To provide empirical justification for a program
• To identify & exclude program wasting resources
• To evaluate the interventions in terms of efficacy
(cost effective ratio), absolute health gain and
affordability (absolute cost)
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CEA; Applications
• For example, in the case of health care:
- What is the best way to prevent heart attacks?
- What drugs are most cost effective in the
treatment of illness?
- What is the least cost way of providing
nutrition to poor children?
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Cost Benefit Analysis
Costs – Monetary terms (e.g. Dollars)
Outcome - monetary terms (e.g. dollars)
Result: Net benefit or cost-benefit ratio.
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CEA & CBA; DifferenceType of analysis Cost Result/ outcome
Cost Effectiveness
Cost Benefit
Cost utility QALY
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CEA & CBA example
Type of analysis Cost Outcome /Result
Cost effectiveness
• Spend 1 dollar , • Buy Haemophilus
vaccine• (Unit: Dollar)
Avert infectionDecrease by 1 case
(Unit: Health outcome)
Cost Benefit
• Spend 1 dollar • Buy Haemophilus
Vaccine • (Unit: Dollar)
Earns 5 dollars avoid work leave by
averting infection(Unit: Dollar)
HEA PTP: M212 Economic Evaluation
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Benefit Categories
Intervention
Direct Benefits Indirect Benefits
Savings in productivity.
Improved patient health status / utility.
Reduced health
services resource use
eg. LoS.
Family and friends quality
of life.
COST-BENEFIT ANALYSIS
Benefits
• Direct Benefits
• Indirect Benefits
• Intangible Benefits
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Cost benefit analysis
– Use of dollars as the common metric– No use of health outcome– Results expressed in benefit-cost ratio
• Advantages– Useful in describing non health outcomes – Comparisons with non health programmes– Long term projects
COST-BENEFIT ANALYSIS
• Disadvantages– Controversial– Assigns a value to human life– Not widely acceptable for health care
assessment
Ratio approachCost benefit ratio =
Cost/Benefit
Net
benefit approachNet
Benefit = Total Benefit – Total Cost
Approaches of Cost Benefit Analysis
Cost benefit analysis
Purposes of Cost Benefit Analysis
• To assess the economic efficiency
• To decide whether to implement a specific
program
• To select among competing/alternative
options
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Cost utility analysis
• Subset of cost effectiveness analysis
• Cost is in monetary terms
• Outcome is in terms of QALY or DALY
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QALY• The quality-adjusted life year is a generic
measure of disease burden, including both the
quality and the quantity of life lived.
• It is used in economic evaluation to assess the
value for money of medical interventions.
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QALY• 1 QALY = 1 year of life lived in perfect health
• 0 QALY = dead
• 1 year of life lived with chronic disease = 0.5
QALY
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Cost Effectiveness Methodology
• Define Objectives
• Structure Alternative interventions/actions
• Calculate Costs
• Observe outcome
• Calculate unit outcome
• Calculate cost per unit outcome
• Compare
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Cost effective Analysis on Antenatal Visits
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Limitations of traditional cost-effectiveness studies
• Different horizons
• Different types of costs included
• Different costing methods
• Different discounting rates
• Different outcome measures
• One dimension
• May not address variations by regions
• Conflicts of interests
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Other criteria to chose an intervention
• Feasibility
• Ethics
• Equity
• Sustainability
• Acceptability
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Some terminologiesAnalytic horizons the time period over which the costs and benefits
of health outcomes that occur as the result of an intervention are considered
Annual discount rate Adjustment made to the value of future costs
and benefits to account for time preference and opportunity cost
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Some terminologies Dominant choice Choice which both lowers the costs and higher
benefits than all other options
Sensitivity analysis Mathematical calculations that isolate factors
involved in an analysis to indicate the degree of influences each factor has on the outcome of the analysis
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Strengths & weaknesses
Strength Weakness
CME Easy to perform Effectiveness not assessed
CEA•Natural units of outcome•Compares actions with same outcome
Cannot assess actions with different outcomes
CUA Compares actions with different outcomes
QALY comparison may not be well defined
CBA Compares widely differernt interventions
Monetary terms some times controversial & not well accepted
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SummaryType of
analysis Cost Consequences Result
Cost minimization Money Identical in all respects Least cost
alternative
Cost effectiveness Money
Different magnitude of a common measure eg., LY’s
gained, blood pressure reduction.
Cost per unit of consequence eg.
cost per LY gained
Cost utility Money Single or multiple effects not
necessarily common. Valued as “utility” eg. QALY
Cost per unit of consequence eg. cost per QALY.
Cost benefit Money As for CUA but valued in money.
Net £ cost: benefit ratio.
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THANK YOU