HEALTH ECONOMICSDr Dipesh Tamrakar
Junior ResidentSPH & CM
Topics discussion
Health Economics- introduction- Economics-Importance of economics on health- health economics - how health care market is different
Economic Evaluation- Definition-Concepts of cost-Valuing outcome-Methods
What is economics
“Economics is the study of how people and society end up choosing, with or without the use of money, to employ scarce productive resources that could have alternative uses, to produce various commodities and distribute them for consumption, now or in the future, among various persons and groups in the society. It analyses the costs and benefits of improving patterns of allocation of resources
“(Samuelson, 1976)
Branches of economics
Macro Economics: deals with the behavior of economy as a whole( Growth rate, level of employment)
Micro Economics: deals with individual players in the field, such person, hospitals, firms etc
Importance of economics to health
Demand for health activities are unlimited
Resources , in contrast, are always scarce in supply. so have to choose which resources to use for which activities
Health Economics?
broadly, defined as ‘the application of the theories, concepts and techniques of economics to the health sector’
concerned with matters : -the allocation of resources between various health
promoting activities, -the quantity of resources used in health services
delivery; -the efficiency with which resources are allocated
and used for health purposes, and -the effects of preventive, curative and rehabilitative
health services on individuals and society
Health Economics
Health Economic
s
Is health care different? Presence and extent of
uncertainty Uncertainty in demand – consumers are
uncertain about their health status and need for health care in coming days – means
demand for health care is irregular.
Is health care different? Problems of information Sometimes information is unavailable to all
parties (consumers and providers) concerned. For example neither gynecologists nor their patients may recognize the early stages of cervical cancer without a pap smear.
At other times, the information in question is known to some parties(providers) but not to all(consumers) – information asymmetry a problem – the provider offers both the information and the service, leading to the possibility of conflicting interests.
Is health care different?
Lack of competition
Licensure requirements for providers
Restrictions in producing health manpower
Regulation to promote quality
Is health care different? Role of equity In a pure market system the market
distributes output based on demand however, given our social nature and
caring externalities , there raises the voice of equity (fairness) in health sector because of correlation between poverty and ill health
Is health care different?
incomplete market Markets is said to complete if the costs and
benefits of the consuming or producing the particular goods is restricted to those engaged in trading. However in health care , it is not always case.
Positive externalities: vaccination, planting forest
Negative externalities: passive smoking, air pollution
Economic evaluation
Economic evaluation
The identification, measure and comparison of the costs(resourced consumed) and outcomes(clinical, economic and humanistic) of intervention
It is multidisciplinary and involves economics, epidemiology, biostatistics, medicine, pharmacy etc
Concepts of Cost
Cost is the value of resources used to produce something, including specific health services.
Types of Cost: Fixed cost: the costs associated with operating a
particular programme or intervention that do not vary with the scale of provision such as the number of patients treated or the number of tests performed, Eg rent,
property tax, insurance, cost of setting clinics. Variable cost:
the cost associated with a programme or intervention that varies with the size of the programme or the number of patients treated with the intervention. Eg drugs, blood products
Types of cost contd…
Total costs : the sum of all the fixed and variable costs associated with a particular scale of provision of a programme or intervention. The greater the scale of provision, the larger will be the total costs.
Average cost: the cost per unit of output. Each of the three cost concepts discussed above can be expressed as an average cost: average fixed costs, average variable costs and average total costs, by dividing cost by the measure of output (patient Days, hospital admissions, diagnostic tests performed, etc).
Types of cost contd…
Marginal cost is the cost of producing one extra unit.
marginal cost = the change in total costs
Opportunity cost: The cost of passing up the next best choice when making a decision. For example, if an asset such as capital is used for one purpose, the opportunity cost is the value of the next best purpose the asset could have been used for
Cost categories
Direct Costs direct health care costs direct non-health care costs
Indirect Costs
Intangible costs:
Contd..
Direct Costs represent the value of all goods, services ,other resources ,consumed
in providing health care direct health care costs
include costs of physician services, hospital services, drugs, etc. involved in delivery of health care
direct non-health care costs are incurred in connection with health care, such
as for care provided by family members and transportation to and from the site of care.
Contd…
Indirect Costs. "productivity losses." include the costs of lost work due to
absenteeism or early retirement, impaired productivity at work, and lost or impaired leisure activity.
include the costs of premature mortality
Intangible cost: non-financial costs such as anxiety, pain or depression, which the patient has to face due to sickness
VALUING OUTCOMES
Health utility: a measure of strength of preference that people have for particular health states.
1: a year of full health 0:death(extremely bad health) Health states that lie somewhere
between these two anchor points will have a utility value that lies somewhere between zero and one.
Assessment done with TTO, SG , VAS
Standard gamble: a method of establishing the utility of a specified health state.( chronic Disease)
- P = Probability of restoration to full health- 1-p= complementary probability of
immediate death The utility of the specified health state is
then given by p
Time trade off: an alternative approach to establishing health utilities
- Given period of time in chronic condition = t
- Shorten period of time in full health= x- The value of the health state is then
given by (x/t).
QALYs
a summary measure of health gain that combines (changes in) life expectancy and quality of remaining life years.
It uses health utilities to weight improvements in life expectancy according to the quality of life experienced
Definition:” Number of years at full health that would be valued equivalently to the number of life years as experienced”
QALY
Suppose, dialysis treatment extends life by 15 years.
If individuals valued the first 10 years at 0.75 on the scale of zero to one and last 5 years at 0.50 on the same scale
Dialysis generated QALYs=10.0 ( 10 x 0.75 + 5 x 0.5)
Quality of life measurement
Typically done with questionnaires- Disease specific
. International prostate symptom score, LC-13
- Generic( SF-36 , NHP)- Utility ( EQ-5D, HUI Utility Assessment- TTO , SG, VAS
DALYs
Measures healthy time lost from specific diseases and injuries in a population
DALYs for a disease are the sum of the years of life lost due to premature mortality(YLL) in the population and the years lived with disability(YLD) for incident cases of the health condition.
One DALY is one lost year of healthy life
Contd..
Example : A woman is blind since 5 years and she died at the age of 50. What is DALY?( weight factor for blindness = 0.33)
5 x o + 45 X 0.33 + 30 x 1 = 34.85
Contingent valuation: is a method of valuing the benefits of health services based on estimates of the maximum amount that people would be willing to pay for the availability of a service or the minimum amount that they would accept as compensation for not having the service available
Methods of Economic Evaluation
Cost-Minimisation Analysis (CMA)Cost-Benefit Analysis (CBA)Cost-Effective Analysis (CEA)Cost-Utility Analysis (CUA)
Cost Minimizing Analysis
it compares two or more options that achieve the same effect(similar outcome).
Looks for lowest cost for existing service provision (no benefits considered)
Cost Effectiveness Analysis .. is a method to determine which
program or treatment accomplishes a given objective at the least cost
benefits are expressed in natural units E.g.: reduced mortality or live-years gained
death averted , points of blood pressure reduced, reducing the risk of a health problem
Example
Dr Do good wants to compare two different strategies of for preventing the spread of malaria which is endemic in district, to see which one offers the best value for money. Options: spray mosquitoes sites with insecticides. Another is to provide impregnated bed nets for households. What measure of benefit should he use to compare them. What information does he need to calculate it?
Contd..
Cost per death aveted= cost/ (efficacy x no. treated x prob. contracting x CFR
Spraying breeding site
Impregnated bdnets
Annual program cost
$10000 $10000
efficacy of Rx
15% 85%
Number treated
10000 1000
Prob of cont -racting disease
80% 80%
CFR 5% 5%
Death averted( 2x3x4x5)
64 34
Cost/death averted(1/6)
$156 $118
Points on CEA
CEA cannot be used to compare interventions with different health outcomes
If the quality of life is the health outcome, then CUA should be considered or if the productivity increases are significant benefit, then CBA may be better
Cost Benefit Analysis
CBA is an evaluation method for comparing the monetary value of all resources consumed(costs) in providing a program or intervention with the monetary value of the outcome(benefit) from that praogram or intervention
Benefits and costs are expressed in monetary units!
Advantages: allows comparison of programs of entirely different outcomes
Cost Benefit Analysis
To value benefits in health care in monetary units is difficult
Solution: individuals willingness-to-pay approaches Human capital approaches
Benefit- cost>0 or Benefit/cost>1
Cost Utility Analysis
a form of cost-effectiveness analysis that compares costs in monetary units with outcomes in terms of the quantity and quality of life e.g., in QALYs, DALYs
Eg $ per DALYs gained, $ per QALY
Example Average no of life years
gained per death averted =40 Case morbidity rate=20 Average length of illness=1
mo Degree of disability during
illness=80 DALY gained=(deaths averted
x discoiunted average number of life years lost by 1 death) + ( case morbidity rate x probability of contracting disease x number treated x efficacy x lenth weighting x disability weighting)
For spraying option: 10000/ (64 x 40) +(0.2x
0.8x 10000x 0.15x 0.083x 0.8) = just under $ 4 / DALY gained
For bed nets: 10000/ (34 x 40) +(0.2x
0.8x 1000x 0.85x 0.083x 0.8) = just under $ 3 / DALY gained
contd
Limitation of CUA- Measurement of utility is very time and
resource intensive- Lack of consensus on which
measurement methods
Economic evaluation and Decision making?
Carrying out an economic evaluation is not just about producing a final figure for the cost effectiveness of a particular strategy
Decision making required- Marginal cost and benefit information- Affordability- Flexibility- Health service capacity and attitude
Contd..
Patient attitude Connecting different options Generalization of the result Opportunity cost
Thank You
References
Health Economics for DevelopingCounries: A Practicle Guide, The university of York
Oxford Textbook of Public Health , 6th edition, oxford publication
Park textbook of Preventive and Social Medicine, 21st edition
A shiel, E Donaldcon and C. Milton et al “Health Economic Evaluation” J. Epidemio & Community Health 2002 56; 85-88
Anne Mills and Lucy Gilson “Health Economics for Developing Countries: A Survival Kit” HEFP working paper 01/88, LSHTM, 1988
Himanshu sekhar rout and Narayana chandra nayak“HEALTH AND HEALTH ECONOMICS: A CONCEPTUAL FRAMEWORK” “Health Economics in India” New Century Publications, New Delhi, 2007, pp. 13-29.
Classes of health economics by pramod GC Class on economic evaluation in ERT vellore