He Workshop Victoria 19 Sept Power Point Presentation

8/14/2019 He Workshop Victoria 19 Sept Power Point Presentation

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Introduction to HealthIntroduction to HealthEconomicsEconomics

Gillian Currie, Craig Mitton,Gillian Currie, Craig Mitton,

Stuart Peacock, Alan ShiellStuart Peacock, Alan Shiell


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Session 1Session 1

Techniques of Economic EvaluationTechniques of Economic Evaluation


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The purpose of studying economics is notThe purpose of studying economics is not

to acquire a set of ready-made answersto acquire a set of ready-made answers

to economic questions, butto economic questions, but

to learn how to avoid being deceived byto learn how to avoid being deceived by

economists.economists.

Joan Robinson, 1955Joan Robinson, 1955


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The economic problemThe economic problem

Resources are scarce, wants or demands are infiniteResources are scarce, wants or demands are infinite Individuals have to make choices or trade-offsIndividuals have to make choices or trade-offs

Consumers have a budget constraintConsumers have a budget constraintbudget=disposable incomebudget=disposable income

balanced against prices and amount of goods/services consumedbalanced against prices and amount of goods/services consumed

Consumers have preferences - they know what they likeConsumers have preferences - they know what they likePreferences reflect well-being obtained through consumptionPreferences reflect well-being obtained through consumption

Preferences are endowed & well behaved - axioms of choice &Preferences are endowed & well behaved - axioms of choice &utility theory (utility theory (von Neumann & Morgenstern 1947)von Neumann & Morgenstern 1947)

All choices are risky expected utility theoryAll choices are risky expected utility theory

Economics is the science of choiceEconomics is the science of choice


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The health economic problemThe health economic problem

Demand for health care is derived from demand for healthDemand for health care is derived from demand for health

Demand for health care is infinite/or very large (with risingDemand for health care is infinite/or very large (with risingexpectations)expectations)

Finite health sector resources are insufficient to meet allFinite health sector resources are insufficient to meet allthe health care needs of individuals & populations (withthe health care needs of individuals & populations (withrising costs of new technologies)rising costs of new technologies)

Decision-makers need to determine:Decision-makers need to determine:

whatwhat health care services to providehealth care services to provide forforwhomwhom to provide servicesto provide services howhow to provide servicesto provide services wherewhere services should be providedservices should be provided


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Allocation of funds and facilities are nearly alwaysAllocation of funds and facilities are nearly always

based on the opinion of consultants but, more andbased on the opinion of consultants but, more and

more, requests for additional facilities will have tomore, requests for additional facilities will have to

be based on detailed arguments with hardbe based on detailed arguments with hard

evidence as to the gain to be expected from theevidence as to the gain to be expected from the

patients angle and the cost. Few could possiblypatients angle and the cost. Few could possiblyobject to this.object to this.

Cochrane AL. Effectiveness and Efficiency: randomCochrane AL. Effectiveness and Efficiency: random

reflections on health services. Nuffield Provincialreflections on health services. Nuffield ProvincialHospitals Trust, London, 1972.Hospitals Trust, London, 1972.


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If we are ever going to get the optimum resultsIf we are ever going to get the optimum resultsfrom our national expenditure on the NHS wefrom our national expenditure on the NHS we

must finally be able to express the results in themust finally be able to express the results in theform of the benefit and the cost to theform of the benefit and the cost to the

population of a particular type of activity, andpopulation of a particular type of activity, andthe increased benefit that would be obtained ifthe increased benefit that would be obtained if

more money were made available.more money were made available.

Cochrane AL. Effectiveness and Efficiency:Cochrane AL. Effectiveness and Efficiency:random reflections on health services. Nuffieldrandom reflections on health services. Nuffield

Provincial Hospitals Trust, London, 1972.Provincial Hospitals Trust, London, 1972.


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cost effectiveness rather than clinicalcost effectiveness rather than clinical

excellence (efficiency over effectiveness)excellence (efficiency over effectiveness)

linking costs and benefitslinking costs and benefits

valuing human lifevaluing human life

The pursuit should beThe pursuit should be


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Please dont close the dialysis unit,Please dont close the dialysis unit,my wifes a nurse there. (UK,my wifes a nurse there. (UK,

1994)1994)

I hope your health is betterI hope your health is better

than your economy. (US, 1996)than your economy. (US, 1996)

Oh, so youre the finance person.Oh, so youre the finance person.(Canada, 2006)(Canada, 2006)


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Economic PrinciplesEconomic Principles

Opportunity costOpportunity cost When we choose to use resources to meet one need we give up theWhen we choose to use resources to meet one need we give up the

"opportunity" to use those resources to meet some other need"opportunity" to use those resources to meet some other need

The benefits associated with the best alternative use of thoseThe benefits associated with the best alternative use of those

resources is theresources is the opportunity costopportunity cost

The aim of economics is to ensure that we undertake activitiesThe aim of economics is to ensure that we undertake activitieswhere benefits outweigh opportunity costwhere benefits outweigh opportunity cost

We do the most beneficial things with resources at our disposalWe do the most beneficial things with resources at our disposal

The MarginThe Margin

Marginal Cost = cost of one more unit of output/consumptionMarginal Cost = cost of one more unit of output/consumption Marginal Benefit = benefit from one more unit of output/consumptionMarginal Benefit = benefit from one more unit of output/consumption

What does this mean?What does this mean?


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Who likes beer?Who likes beer?

Q. On a scale of 0 to 10Q. On a scale of 0 to 10

howhow

much does Harry like amuch does Harry like a

pint?pint?

10

0

Pint#1 Pint#2 Pint#3 Pint#4 Pint#5

9

10

0

8

10

0

6.5

10

0

4

10

0

Harry likes beerHarry likes beer


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Beer and CaviarBeer and Caviar Harry also likes CaviarHarry also likes Caviar

But his allowance has beenBut his allowance has been

curbed for staying out toocurbed for staying out too

late he haslate he has 3030

Beer costsBeer costs 5 a pint, caviar5 a pint, caviar

costscosts 7.50 a serve7.50 a serve

Harry thinks about his scoresHarry thinks about his scores

for beer and caviarfor beer and caviar

BeerBeer CaviarCaviar

Ben-Ben-efitefit

CostCost B/CB/C Ben-Ben-efitefit

CostCost B/CB/C

11 99 55 1.81.8 99 7.57.5 1.21.2

22 88 55 1.61.6 66 7.57.5 0.80.8

33 6.56.5 55 1.31.3 00 7.57.5 00

44 44 55 0.80.8

55 00 55 00

Harry chooses 3 pints ofHarry chooses 3 pints of

beer & 1 serve of caviar, hebeer & 1 serve of caviar, he

is indifferent between the 4is indifferent between the 4thth pint or the 2pint or the 2ndnd serveserve

If the ratio MB/MC is greaterIf the ratio MB/MC is greaterfor beer than for caviar thenfor beer than for caviar then

he chooses beerhe chooses beer

Total benefit is maximisedTotal benefit is maximised

when MB/MC beer = MB/MCwhen MB/MC beer = MB/MC

caviarcaviar


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Allocating health careAllocating health care

resourcesresources Allocating resources between health care programsAllocating resources between health care programs

If MBIf MBAA/MC/MCAA > MB> MBBB/MC/MCBB transfer resources from program B to Atransfer resources from program B to A

Getting more benefit per dollar spent at the margin in AGetting more benefit per dollar spent at the margin in A

Implications of opportunity cost and marginal analysisImplications of opportunity cost and marginal analysis to do more of some things, we have to take resources fromto do more of some things, we have to take resources from

elsewhere, by either doing the same things at less cost; orelsewhere, by either doing the same things at less cost; or

taking resources from areas of (effective) caretaking resources from areas of (effective) care

requires consideration of costs and benefits of health carerequires consideration of costs and benefits of health care


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Efficiency ConceptsEfficiency Concepts

Technical efficiencyTechnical efficiencyThe objective of an intervention is taken as givenThe objective of an intervention is taken as given

Technical efficiency is about how best to achieveTechnical efficiency is about how best to achieve

that objectivethat objective Allocative efficiencyAllocative efficiency All objectives have to fight with each other forAll objectives have to fight with each other for

implementationimplementation

It is aboutIt is about whetherwhether to do something rather thanto do something rather than howhowto do it (It can also be about how much to do)to do it (It can also be about how much to do)


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What is EconomicWhat is Economic

Evaluation?Evaluation?

Economic evaluation is a set of scientific methods toEconomic evaluation is a set of scientific methods to

assist decision-makers in making choices betweenassist decision-makers in making choices between

alternative interventionsalternative interventions

Concerned withConcerned with efficiencyefficiency not just effectivenessnot just effectiveness

Based on principles of welfare economicsBased on principles of welfare economics Objective of the health system is to maximise the well-Objective of the health system is to maximise the well-

being of the community from a fixed budgetbeing of the community from a fixed budget

Opportunity costs choosing to provide one healthOpportunity costs choosing to provide one health

program means forgoing benefits from other uses of thoseprogram means forgoing benefits from other uses of thoseresourcesresources

Fair choices require a systematic comparison of costsFair choices require a systematic comparison of costs

(resources) and consequences (outcomes or benefits) of(resources) and consequences (outcomes or benefits) of

alternative health programsalternative health programs


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Nature of EconomicNature of Economic

EvaluationEvaluation

TargetTarget

patientpatient

groupgroup

SurvivalSurvival Quality of lifeQuality of life

Program AProgram A

Program BProgram B

Impact on health statusImpact on health status

Impact on health care costsImpact on health care costs

Impact on health statusImpact on health status

Impact on health care costsImpact on health care costs

SurvivalSurvival Quality of lifeQuality of life

HospitalisationsHospitalisations Drugs, procedures etc.Drugs, procedures etc.

HospitalisationsHospitalisations Drugs, procedures etc.Drugs, procedures etc.


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Types of EconomicTypes of Economic

EvaluationEvaluation

Cost-Effectiveness Analysis (CEA)Cost-Effectiveness Analysis (CEA) Benefits not explicitly valued - natural units used e.g. LifeBenefits not explicitly valued - natural units used e.g. Life

Years Gained (LYG) or cases detectedYears Gained (LYG) or cases detected

Difficult to compare across a wide range of programsDifficult to compare across a wide range of programs

Cost-Utility Analysis (CUA)Cost-Utility Analysis (CUA) Benefits valued typically based on LYG weighted by anBenefits valued typically based on LYG weighted by an

index of Quality of Life - Quality Adjusted Life Years (QALYs)index of Quality of Life - Quality Adjusted Life Years (QALYs)

Cost-Benefit Analysis (CBA)Cost-Benefit Analysis (CBA) Benefits valued - based on monetary valuations of healthBenefits valued - based on monetary valuations of health

improvements and expressed in dollarsimprovements and expressed in dollars


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Study PerspectiveStudy Perspective

Study question (& funding agency) determinesStudy question (& funding agency) determines

perspectiveperspective

Perspective determines costs/ consequences consideredPerspective determines costs/ consequences considered

e.g. societal, government, provider, third party payere.g. societal, government, provider, third party payer

Societal - widest possible range of costs/ consequencesSocietal - widest possible range of costs/ consequences

Provider - e.g. exclude time and transportation costsProvider - e.g. exclude time and transportation costs

Run societal perspective alongside other studyRun societal perspective alongside other study

perspectivesperspectives


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CostsCosts

Identify, measure and value all resources withIdentify, measure and value all resources with

+ve opportunity costs+ve opportunity costs

Direct health care costs (e.g. costs ofDirect health care costs (e.g. costs of

treatment)treatment) Direct personal costs (e.g. transportation)Direct personal costs (e.g. transportation)

Direct non-health costs (e.g. legal system)Direct non-health costs (e.g. legal system)

Indirect costs (e.g. productivity losses)Indirect costs (e.g. productivity losses) Valuation of opportunity costs - marketValuation of opportunity costs - market

prices/shadow pricesprices/shadow prices


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BenefitsBenefits

Cost-Effectiveness AnalysisCost-Effectiveness Analysis Measure benefits in natural units e.g. LYGMeasure benefits in natural units e.g. LYG

Addresses technical efficiency, difficult to compare across programsAddresses technical efficiency, difficult to compare across programs

Cost-Utility AnalysisCost-Utility Analysis

Measure benefits in terms of QALYsMeasure benefits in terms of QALYs

Addresses technical efficiency, easier to compare across programsAddresses technical efficiency, easier to compare across programs

Cannot be used to determine optimal size of health programsCannot be used to determine optimal size of health programs

Cost-Benefit AnalysisCost-Benefit Analysis

Measure benefits in terms of dollar valuationsMeasure benefits in terms of dollar valuations

Addresses allocative efficiency, easier to compare across programsAddresses allocative efficiency, easier to compare across programs Can be used to compare health and non-health programsCan be used to compare health and non-health programs

Qualit Adjusted Life YearsQuality Adjusted Life Years


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0.0

1.0

0.4

0.2

0.6

0.8

Initial

Final

Quality Adjusted Life YearsQuality Adjusted Life Years

(QALYs)(QALYs)Full

Health

Dead


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DialysisDialysis

TransplanTransplan

tt

Life Years Gained= 6Life Years Gained= 6

QALYs Gained = 8.8QALYs Gained = 8.8

00 1414 2020

Life YearsLife Years

0.80.8

0.60.6

QualityofLif

e

QualityofLif

e

Quality Adjusted Life YearsQuality Adjusted Life Years

(QALYs)(QALYs)


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Incremental Cost-EffectivenessIncremental Cost-Effectiveness

Ratio (ICER)Ratio (ICER)

(Cost(Costnewnew Cost Costoldold ))

(Effectiveness(Effectivenessnewnew Effectiveness Effectivenessoldold ))

IncrementalIncremental

resources requiredresources requiredby theby the

interventionintervention

Incremental healthIncremental health

effects gained byeffects gained byusing theusing the

interventionintervention

ICER =ICER = C /C / EE

= ICER= ICER


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A simple decision ruleA simple decision rule

ICER for new program $50,000/QALYICER for new program $50,000/QALY

Decision:Decision: adopt new programadopt new program

ICER for new program> $50,000/QALYICER for new program> $50,000/QALY

Decision:Decision: do not adopt new programdo not adopt new program


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$20,000/QALY$20,000/QALY

$100,000/QALY$100,000/QALY

CC

BB

DD

EE

AA

Decrease in QALYsDecrease in QALYs Increase in QALYsIncrease in QALYs

More CostlyMore Costly

Less CostlyLess Costly

Grades of recommendation for new technologiesGrades of recommendation for new technologies

The Cost-Effectiveness Acceptability PlaneThe Cost-Effectiveness Acceptability Plane


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$20,000/QALY$20,000/QALY

$100,000/QALY$100,000/QALY

CC

BB

DD

EE

AA




New technology is as/more effective & less costly: incremental cost/QALY


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$20,000/QALY$20,000/QALY

$100,000/QALY$100,000/QALY

CC

BB

DD

EE

AA




New technology more effective, incremental cost/QALY$20,000New technology more effective, incremental cost/QALY$20,000

B. Strong evidence for adoptionB. Strong evidence for adoption


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$100,000/QALY$100,000/QALY

CC

BB

DD

EE

AA

New technology more effective, incremental cost/QALY $100,000New technology more effective, incremental cost/QALY $100,000

C. Moderate evidence for adoptionC. Moderate evidence for adoption

Increase in QALYsIncrease in QALYs



Decrease in QALYsDecrease in QALYs

$20,000/QALY$20,000/QALY


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$20,000/QALY$20,000/QALY

$100,000/QALY$100,000/QALY

CC

BB

DD

EE

AA




New technology more effective, incremental cost/QALY > $100,000New technology more effective, incremental cost/QALY > $100,000

D. Weak evidence for adoptionD. Weak evidence for adoption


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$20,000/QALY$20,000/QALY

$100,000/QALY$100,000/QALY

CC

BB

DD

EE

AA




New technology is less effective, or as effective, and more costlyNew technology is less effective, or as effective, and more costly

E. Compelling evidence for rejectionE. Compelling evidence for rejection


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Why is Economic EvaluationWhy is Economic Evaluation

important?important?

SafetySafety Cost-Cost-

EffectivenessEffectiveness

QualityQualityEfficacyEfficacy

The Fourth HurdleThe Fourth Hurdle


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Economic Evaluation forEconomic Evaluation for

reimbursement decisionsreimbursement decisions

Many jurisdictions now require economic evaluation forMany jurisdictions now require economic evaluation for

reimbursement decisions (primarily for drugs)reimbursement decisions (primarily for drugs)

Accompanied by guidelines for pharmaceutical companiesAccompanied by guidelines for pharmaceutical companies

Pricing decisions may or may not be linked with reimbursement decisionsPricing decisions may or may not be linked with reimbursement decisions

Australia: Pharmaceutical Benefits Advisory Committee (PBAC)Australia: Pharmaceutical Benefits Advisory Committee (PBAC) England and Wales: National Institute for Health and ClinicalEngland and Wales: National Institute for Health and Clinical

Excellence (NICE)Excellence (NICE)

Based on Acceptable Incremental Cost-Effectiveness RatiosBased on Acceptable Incremental Cost-Effectiveness Ratios

(ICERs)(ICERs)


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Economic Evaluation in EuropeEconomic Evaluation in EuropeNorway:

Pharmacoeconomic data

required for reimbursement;

official guidelines inoperation.

Finland:

Pharmacoeconomic evidence mandatory for evaluating new

therapies for reimbursement and may also be requested for

existing therapies.

Sweden:

Cost-effectiveness data required

for reimbursement.

Denmark:

Cost-effectiveness data may be requested

for reimbursement decisions.

Britain:

NICE evaluates the cost

effectiveness of medicines.Guidelines updated April 2004.

Germany:

Guidelines prepared.

Institute for Quality and

Efficiency in the Health

Service established in

2004.

France:

Not a formal requirement but

increasingly used in

reimbursement decisions.

Guidelines prepared.

Spain:

Health technologyassessment at a

regional level.

Portugal:

Cost-effectiveness data

incorporated

into reimbursement decisions.

Italy:

Cost-effectiveness considered in

pricing and reimbursement

decisions. Greece: Guidelines for pharmacoeconomic studies

prepared; cost-effectiveness data may be requested.

Belgium:Formal requirement for economic

evaluation.

Netherlands:

Pharmacoeconomic evidence explicitly

required for reimbursement of new

products.

Ireland: Guidelines for

pharmacoeconomic

studies prepared; cost-

effectiveness data may

be requested.

Source: National Centre for Pharmacoeconomics, Ireland


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How high do you have toHow high do you have to

jump?jump?

$20,000/$20,000/

QALYQALY

$50,000/$50,000/

QALYQALY

$60,000/$60,000/

QALYQALY

$100,000/$100,000/

QALYQALY


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ICERs and Cancer ControlICERs and Cancer Control

Source: Rawlings. 2007


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National cost-effectiveness guidance has only madeNational cost-effectiveness guidance has only made

a limited or moderate impact on real-world decisionsa limited or moderate impact on real-world decisions Demonstration of clinically-important benefit is stillDemonstration of clinically-important benefit is still

paramountparamount

Economic analysis is more important when there isEconomic analysis is more important when there is

substantial budgetary impactsubstantial budgetary impact

Lack of available and transferable economic evidence is aLack of available and transferable economic evidence is a

challenge, but it is not the most important challengechallenge, but it is not the most important challenge

There are broader contextual factors (systems,There are broader contextual factors (systems,

organizational and ethical considerations) that influenceorganizational and ethical considerations) that influence

priority setting decisionspriority setting decisions

What lessons have we learned?What lessons have we learned?


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Local health care organizations, clinicians and managersLocal health care organizations, clinicians and managers

bear the opportunity cost of priority setting decisionsbear the opportunity cost of priority setting decisions

Priority setting decisions are typically made at the local levelPriority setting decisions are typically made at the local level

National cost-effectiveness guidance does not consider the limitedNational cost-effectiveness guidance does not consider the limited

budgets of local decision-makersbudgets of local decision-makers

Cost-effectiveness thresholds are set arbitrarily byCost-effectiveness thresholds are set arbitrarily bynational bodiesnational bodies

Economic evidence is context freeEconomic evidence is context free

Most economists are unconcerned with implementation issuesMost economists are unconcerned with implementation issues

Local decision-making processes are assumed to be a black box inLocal decision-making processes are assumed to be a black box in

reality they are deliberative processesreality they are deliberative processes

What lessons have we learned?What lessons have we learned?


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Who has the ethical authority?Who has the ethical authority?

If economists could manage to getIf economists could manage to get

themselves thought of as humble,themselves thought of as humble,

competent people, on a level withcompetent people, on a level with

dentists, that would be splendid!dentists, that would be splendid!

John Maynard Keynes, 1931John Maynard Keynes, 1931


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Session 2Session 2

Measuring costs and benefitsMeasuring costs and benefits


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OverviewOverview

An example to highlight basic principlesAn example to highlight basic principles

CostingCosting

Some definitionsSome definitions

Some rulesSome rules

Discounting and Sensitivity AnalysisDiscounting and Sensitivity Analysis

BenefitsBenefits

What are the benefits of health interventions?What are the benefits of health interventions?

Measurement and valuatio of benefitsMeasurement and valuatio of benefits


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Thinking at the margin: screeningThinking at the margin: screening

for cancer of the colonfor cancer of the colon

Stool is tested for the presence of occult bloodStool is tested for the presence of occult blood

Proposal was for six sequential testsProposal was for six sequential tests

Neuhauser and Lewicki analysed the proposal, onNeuhauser and Lewicki analysed the proposal, onthe basis of:the basis of: a population of 10,000 of whom 72 have colonica population of 10,000 of whom 72 have colonic

cancercancer

each test detects 91.67 per cent of caseseach test detects 91.67 per cent of cases

undetected by the previous test.undetected by the previous test.


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Screening for cancer of theScreening for cancer of the

coloncolon

Cases detected and costs of screening with sixCases detected and costs of screening with sixsequential testssequential tests

No. of testsNo. of tests No. of casesNo. of cases Total costs($)Total costs($) Av. Cost($)Av. Cost($)

11 65.946965.9469 77,51177,511 11751175

22 71.442471.4424 107,690107,690 15071507

33 71.900371.9003 130,199130,199 18111811

44 71.938571.9385 148,116148,116 20592059

55 71.941771.9417 163,141163,141 2268226866 71.942071.9420 176,331176,331 24512451


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Marginal analysis of screeningMarginal analysis of screening

for cancer of the colonfor cancer of the colon

Incremental cases detected and incremental (and marginal) costs ofIncremental cases detected and incremental (and marginal) costs of

screening with six sequential testsscreening with six sequential tests

No. of testsNo. of tests IncrementalIncremental IncrementalIncremental MarginalMarginal

cases detectedcases detected costs ($)costs ($) costs ($)costs ($)

11 65.946965.9469 77,51177,511 11751175

22 5.49565.4956 30,17930,179 54945494

33 0.45800.4580 22,50922,509 49,15049,150

44 0.03820.0382 17,91717,917 469,534469,534

55 0.00320.0032 15,02415,024 4,724,6954,724,695

66 0.00030.0003 13,19013,190 47,107,21447,107,214

li i f i


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Implications of opportunityImplications of opportunity

cost and marginal analysiscost and marginal analysis

to do more of some things, we have to taketo do more of some things, we have to takeresources from elsewhere:resources from elsewhere: by doing the same things at less cost (technical efficiency)by doing the same things at less cost (technical efficiency) by taking resources from an effective area of care because a newby taking resources from an effective area of care because a new

proposal is more effective per $ spent (allocative efficiency)proposal is more effective per $ spent (allocative efficiency)

measure costs and benefits of health caremeasure costs and benefits of health care

often aboutoften about how muchhow much rather thanrather than whetherwhether


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AlwaysAlways

..identify..identify

..measure..measure

..value..value

Have we included everything that is relevant?Have we included everything that is relevant?

Have we counted it?Have we counted it?

Have we converted it to a common currency?Have we converted it to a common currency?

Costs and benefits: threeCosts and benefits: three

important stepsimportant steps


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Total costTotal cost = sum of all the costs of producing a particular quantity of= sum of all the costs of producing a particular quantity of

outputoutput

Average costAverage cost= total cost/quantity e.g. cost per patient, cost= total cost/quantity e.g. cost per patient, costper diemper diem

Marginal costMarginal cost= the= the extraextra cost of producing onecost of producing one extraextra unit of outputunit of output

Fixed costsFixed costs = costs which do not vary with the quantity of output in the= costs which do not vary with the quantity of output in the

short run (about 1 year) e.g. rent, equipment lease payments, someshort run (about 1 year) e.g. rent, equipment lease payments, somewages and salaries.wages and salaries.

Variable costsVariable costs = costs which vary with the level of output, e.g. food,= costs which vary with the level of output, e.g. food,

medical/surgical suppliesmedical/surgical supplies

Definitions of costDefinitions of cost


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Hospital inpatient day

Av. cost = 1,000

Day in non-hospital setting

Av. cost = 400

Allocated

overhead (fixed)cost per day

= 700

Variable /

marginal costs

= 300

Set up = 400

Marginal costs: an exampleMarginal costs: an example


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Marginal costs: an example

Hospital inpatient day

Av. cost = 1,000

Day in non-hospital setting

Av. cost = 400

Allocated

overhead (fixed)cost per day

= 700

Variable /

marginal costs

= 300

Set up = 400

Extra cost = 100


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Get the question right!Get the question right!

What is the cost of a delivery in a ScottishWhat is the cost of a delivery in a Scottishmaternity unit?maternity unit?

Unit cost = 540Unit cost = 540

Cost if assume beds have to be increasedCost if assume beds have to be increased

= 510= 510 Cost if bed numbers remain fixed (i.e. there is spare capacity)Cost if bed numbers remain fixed (i.e. there is spare capacity)

= 210= 210

So,So, marginal costsmarginal costs are importantare important


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It is uses of resources which have opportunityIt is uses of resources which have opportunity

costs. Therefore, in evaluating an intervention,costs. Therefore, in evaluating an intervention,

we want towe want to identifyidentify,, measuremeasure andand valuevalueresource use.resource use.

Some things usually thought to be costs areSome things usually thought to be costs are

not so in an economic evaluation.not so in an economic evaluation.

Rules for costingRules for costing


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We are interested inWe are interested in resourceresource useuse

Main items of cost are:Main items of cost are:


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We are interested inWe are interested in resourceresource useuse

Main items of cost are:Main items of cost are: capital (buildings/equipment)capital (buildings/equipment)

labourlabour

consumablesconsumables non-patient related costsnon-patient related costs

costs falling on other sectorscosts falling on other sectors

costs incurred by patients/familiescosts incurred by patients/families


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Eg. - Costing an interventionEg. - Costing an intervention


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Indirect costs:Indirect costs: Time lost from work (production effects)Time lost from work (production effects)

Production effects arise from working in the labour force andProduction effects arise from working in the labour force and

houseworkhousework

Indirect costs arise because health care may result in lostIndirect costs arise because health care may result in lost

productionproductionValue of indirect cost is the value of the lost productionValue of indirect cost is the value of the lost production

Is this an input to treatment or an output? (Will return)Is this an input to treatment or an output? (Will return)

Take a societal perspective.Take a societal perspective.

Indirect costs: a controversyIndirect costs: a controversy


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Double counting: including the same cost more than onceDouble counting: including the same cost more than once

e.g. including time costs and fees and then adding theme.g. including time costs and fees and then adding themtogether (often the fee reflects time spent on activities)together (often the fee reflects time spent on activities)

e.g. detailed costing of staff time in an operatinge.g. detailed costing of staff time in an operating

theatre and then adding the hourly cost of theatre timetheatre and then adding the hourly cost of theatre timewhich may already include costs for staff time as well aswhich may already include costs for staff time as well asamounts for drugs, supplies, equipment etc.amounts for drugs, supplies, equipment etc.

Double countingDouble counting


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Evaluate the evaluationEvaluate the evaluation

Whose perspective?Whose perspective?

Where do we draw the line?Where do we draw the line?

Use common senseUse common sense

The extent of the analysisThe extent of the analysis


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Use naturally occurring unitsUse naturally occurring units

e.g. staff costs measured in units of timee.g. staff costs measured in units of time

drugs measured in amounts such as gramsdrugs measured in amounts such as grams

MeasurementMeasurement


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Costing non-market labourCosting non-market labour

No market values for housework and voluntaryNo market values for housework and voluntary

workwork

Where possible, impute values from anWhere possible, impute values from ananalogous marketanalogous market

P ti t b dPatient based ersus diper diem


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When comparing groups of patients, ideal is to measure each patientsWhen comparing groups of patients, ideal is to measure each patients

consumption of health care and other resources - patient basedconsumption of health care and other resources - patient based

costingcosting

Alternative is to calculate aAlternative is to calculate aper diemper diem cost and multiply by period ofcost and multiply by period of

consumptionconsumption

Problem withProblem withper diemper diem costing?costing?

Too generalToo general

Possible half-way-house solution -Possible half-way-house solution -per diemper diem costing at the ward levelcosting at the ward level

Patient-based versusPatient-based versusper diemper diemcostingcosting


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Can be a challengeCan be a challenge

Do overheads represent a marginalDo overheads represent a marginal

opportunity cost? (Remember fixedopportunity cost? (Remember fixedversus variable costs.)versus variable costs.)

Depends upon their magnitudeDepends upon their magnitude

Allocation of overheadsAllocation of overheads


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Capital costs tend to occur at a single point in timeCapital costs tend to occur at a single point in time

However, capital assets are used over time and can beHowever, capital assets are used over time and can be

sold at any timesold at any time

Opportunity cost of capital is spread over timeOpportunity cost of capital is spread over time

Calculate an annual equivalent cost (like a mortgage)Calculate an annual equivalent cost (like a mortgage)

Costing capitalCosting capital

Unthinking acceptance ofUnthinking acceptance of


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Be careful!!Be careful!!

Unthinking acceptance ofUnthinking acceptance of

market valuesmarket values


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Costing study alongside clinicalCosting study alongside clinical

trial: exampletrial: example


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Croup studyCroup study

Trial was of a single dose of oral dexamethasone forTrial was of a single dose of oral dexamethasone forchildren with mild croupchildren with mild croup

Mild was defined according to a validated croup scoringMild was defined according to a validated croup scoringsystemsystem

Trial examined differences in:Trial examined differences in:

Return to medical care provider for croup within 7 days ofReturn to medical care provider for croup within 7 days oftxtx

Presence of ongoing croup symptoms on days 1,2, 3 postPresence of ongoing croup symptoms on days 1,2, 3 posttxtx

CostsCosts Hours of sleep lost by childHours of sleep lost by child

Parental stressParental stress


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The trial showedThe trial showed

The group treated with dexamethasone had:The group treated with dexamethasone had: Fewer patients who returned to medical care withinFewer patients who returned to medical care within

seven daysseven days

Quicker resolution of croup symptomsQuicker resolution of croup symptoms

Less lost sleepLess lost sleep Less stress on the part of parentsLess stress on the part of parents


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What cost data would you collect?What cost data would you collect?

How would you collect dataHow would you collect data


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How would you collect dataHow would you collect data

on:on:

Capital/equipment?Capital/equipment?

Staff?Staff?

Consumables?Consumables?

Other costs?Other costs?


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The cost study is trial basedThe cost study is trial based

Therefore, we need to decide:Therefore, we need to decide:

What data to collect outside of the trialWhat data to collect outside of the trial

What data to collect within the trialWhat data to collect within the trial


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Data collected outside theData collected outside the


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Data collected outside theData collected outside the

trialtrial

Costs of physician visitsCosts of physician visits

Costs of emergency and inpatient visitsCosts of emergency and inpatient visits

Costs of (some) patient costsCosts of (some) patient costs

Average daily wageAverage daily wage


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FindingsFindings

Total average societal costs per case:Total average societal costs per case: $93 for placebo vs $72 for treatment$93 for placebo vs $72 for treatment

Payer costsPayer costs $25 vs $18$25 vs $18

Mainly driven by RHA costsMainly driven by RHA costs

Family costsFamily costs $68 vs $54$68 vs $54

Mainly lost days of workMainly lost days of work


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Sensitivity analysisSensitivity analysis

To test SENSITIVITY of the results to variationsTo test SENSITIVITY of the results to variationsin assumptions or data about which you arein assumptions or data about which you areunsureunsure

In the croup study, sensitivity analysis wasIn the croup study, sensitivity analysis wasconducted around the productivity costsconducted around the productivity costs

Most of the overall cost difference was driven by lostMost of the overall cost difference was driven by lostproductivityproductivity

Excluding productivity costs, overall costs still lowerExcluding productivity costs, overall costs still lower

with treatment $38 vs $31with treatment $38 vs $31

Combining costs andCombining costs and


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Combining costs andCombining costs and

outcomesoutcomes

With treatment, primary clinical outcomesWith treatment, primary clinical outcomes

were improved, as were secondary clinicalwere improved, as were secondary clinical

outcomesoutcomes

With treatment, costs were lower for familiesWith treatment, costs were lower for families

and payers.and payers.

Conclusion: the treatment is dominant, andConclusion: the treatment is dominant, and

should be implemented.should be implemented.


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Sensitivity analysisSensitivity analysis

DiscountingDiscounting

Important refinementsImportant refinements

Candidates for sensitivity analysis in costingCandidates for sensitivity analysis in costing


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Candidates for sensitivity analysis in costingCandidates for sensitivity analysis in costing

exercise:exercise:

production effectsproduction effects

estimates of survival/quality of lifeestimates of survival/quality of life

excluded itemsexcluded items

imputed valuesimputed values lengths of life of capital itemslengths of life of capital items

discount ratediscount rate


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Interested inInterested in realreal resource useresource use

Adjust costs to eliminate effects of inflationAdjust costs to eliminate effects of inflation

Assuming 5% inflation:Assuming 5% inflation:

$100 last year$100 last year $100 now$100 now

$100 last year = $105 at todays prices$100 last year = $105 at todays prices

Counting costs in a base yearCounting costs in a base year

Why do we discount theWhy do we discount the


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Costs and benefits arise at different points in time (e.g. prevention)Costs and benefits arise at different points in time (e.g. prevention)

We want to look at costs and benefits from the perspective of theWe want to look at costs and benefits from the perspective of thepresent daypresent day

Discounting is simply the expression of opportunity cost over time, i.e.Discounting is simply the expression of opportunity cost over time, i.e. tying up resources nowtying up resources now

not having benefits nownot having benefits now

The same cost arising in the future impinges on us less than if it aroseThe same cost arising in the future impinges on us less than if it arosenownow

The same benefit arising in the future is not seen as being as valuableThe same benefit arising in the future is not seen as being as valuableas the same benefit arising nowas the same benefit arising now

So, we discount these future costs and benefitsSo, we discount these future costs and benefits

This is not accepted by everybodyThis is not accepted by everybody

Why do we discount theWhy do we discount the

future?future?

i i


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Question: Should costs (and benefits) occurringQuestion: Should costs (and benefits) occurring

at different points in time, be given equalat different points in time, be given equal

weighting?weighting?

If I offered to give you 1000 today ORIf I offered to give you 1000 today OR

1000 in 5 years which would you choose?1000 in 5 years which would you choose?

Would you rather pay me 1000 today ORWould you rather pay me 1000 today OR

1000 in 5 years?1000 in 5 years?



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We have positive time preference because:We have positive time preference because:

myopia or impatiencemyopia or impatience

diminishing marginal utility of wealthdiminishing marginal utility of wealth

diminishing marginal utility of healthdiminishing marginal utility of health

the future is uncertainthe future is uncertain

But, how do we calculate discounted costs and benefitsBut, how do we calculate discounted costs and benefits

and at what rate should we discount?and at what rate should we discount?

i iDi i


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Present Value:Present Value:

PV=present valuePV=present value

VVnn=Value in year n=Value in year n

r=discount rater=discount rate

n=number of years aheadn=number of years ahead

n

n

r

VPV

)1( +

=


i i lDi ti l


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Which would you rather have: 1000Which would you rather have: 1000

today or 1000 in five years time?today or 1000 in five years time?

What is 1000 in five years worthWhat is 1000 in five years worth todaytoday??

PV= 1000 (1/1.05)PV= 1000 (1/1.05)55 = 783.50= 783.50

1000 in five years is worth less than1000 in five years is worth less than

1000 today1000 today

Discounting exampleDiscounting example

Ch i f diCh i f di t t


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Consistent with empirical economic studiesConsistent with empirical economic studies

Include government recommended ratesInclude government recommended rates

Consistent with other published economicConsistent with other published economic

evaluations.evaluations.

Choice of discount rateChoice of discount rate

Main arguments againstMain arguments against


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OK to discount money, but not healthOK to discount money, but not health

Inter-generational equityInter-generational equity

Main arguments againstMain arguments against

discountingdiscounting


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Measurement and valuation of benefitsMeasurement and valuation of benefits

B fitB fit


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BenefitsBenefits

What do we mean by benefit?What do we mean by benefit?

How do we describe Health-Related Quality of LifeHow do we describe Health-Related Quality of Life

benefits?benefits?

How do we obtain valuations for health and non-healthHow do we obtain valuations for health and non-health

benefits?benefits?

What do we mean byWhat do we mean by


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What do we mean byWhat do we mean by

benefit?benefit?

Cases detected, cases treated, lives/life years saved (CEA)Cases detected, cases treated, lives/life years saved (CEA)

Combination of quality and length of life e.g. QALYs (CUA)Combination of quality and length of life e.g. QALYs (CUA)

Utility based Health State valuationsUtility based Health State valuations

More general measures of well-being (CBA)More general measures of well-being (CBA)

Valuing health and non-health benefits, e.g. reducingValuing health and non-health benefits, e.g. reducing

inequalities, raising empowerment, improving accessinequalities, raising empowerment, improving access

Why do we need valuations of benefits?Why do we need valuations of benefits?


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Why do we need valuations of benefits?Why do we need valuations of benefits?

Historical focus has been on mortality-based measuresHistorical focus has been on mortality-based measuresof benefitsof benefits

But measures should take into account morbidity andBut measures should take into account morbidity and

mortality benefits of programsmortality benefits of programs

Preferences for Health States are used to estimatePreferences for Health States are used to estimatemorbidity or Health-Related Quality of Life (HRQoL)morbidity or Health-Related Quality of Life (HRQoL)

componentcomponent

Data on mortality and morbidity/HRQoL are combinedData on mortality and morbidity/HRQoL are combined

into a single index (typically QALYs)into a single index (typically QALYs)

Why do we need valuations ofWhy do we need valuations of


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Why do we need valuations ofWhy do we need valuations of

benefits?benefits?

QALYs allow comparisons acrossQALYs allow comparisons across different programsdifferent programs

disease groupsdisease groups

sick versus wellsick versus well

young versus oldyoung versus old

Can detect unexpected side effectsCan detect unexpected side effects

Preferences for health and non-health benefitsPreferences for health and non-health benefits

permit broader comparisons across health programspermit broader comparisons across health programs

permit comparisons with non-health programspermit comparisons with non-health programs

Methods for valuingMethods for valuing


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gg

benefitsbenefits Valuing health benefits (HRQoL)Valuing health benefits (HRQoL)

Visual Analogue Scale (VAS)Visual Analogue Scale (VAS)

Time Trade-Off (TTO)Time Trade-Off (TTO)

Standard Gamble (SG)Standard Gamble (SG)

Valuing health and non-health benefitsValuing health and non-health benefits Willingness To Pay (WTP)Willingness To Pay (WTP)

Discrete Choice Experiments (DCEs)Discrete Choice Experiments (DCEs)

Steps in constructing anSteps in constructing an


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Steps in constructing anSteps in constructing an

HRQoL Utility InstrumentHRQoL Utility Instrument

Decompose HealthDecompose Health Impairment, Disability, HandicapImpairment, Disability, Handicap

Construct a coherent Descriptive SystemConstruct a coherent Descriptive System set of questions / itemsset of questions / items

Attach utility weights to itemsAttach utility weights to items Elicit preference values for Health States included in theElicit preference values for Health States included in the

descriptive systemdescriptive system

VAS, TTO, SGVAS, TTO, SG

Combine items (using a utility model)Combine items (using a utility model) additive, multiplicativeadditive, multiplicative

Main HRQoL UtilityMain HRQoL Utility


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Q yQ y

InstrumentsInstruments EQ-5D (Euroqol)EQ-5D (Euroqol)

SF-6D (based on SF-36)SF-6D (based on SF-36)

HUI-III (Health Utilities Index Mark III)HUI-III (Health Utilities Index Mark III)

AQoL (Assessment of Quality of Life)AQoL (Assessment of Quality of Life)

QWB (Quality of Well-Being)QWB (Quality of Well-Being)

Rosser-Kind IndexRosser-Kind Index

EQ 5D Descripti e S stemEQ 5D Descriptive System


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EQ-5D Descriptive SystemEQ-5D Descriptive System

MobilityMobility

Self-careSelf-care

Usual activitiesUsual activities

Pain/discomfortPain/discomfort

Anxiety/depressionAnxiety/depression

243 states, 3 levels per attribute243 states, 3 levels per attribute


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HUI III Descriptive SystemHUI III Descriptive System


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HUI-III Descriptive SystemHUI-III Descriptive System

VisionVision

HearingHearing

SpeechSpeech

AmbulationAmbulation

DexterityDexterity CognitionCognition

Pain and discomfortPain and discomfort

EmotionEmotion

972,000 states, 5-6 levels per attribute972,000 states, 5-6 levels per attribute

Valuing health benefitsValuing health benefits


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gg

(HRQoL)(HRQoL) Visual Analogue Scale (VAS)Visual Analogue Scale (VAS)





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1.00

0.00

0.50

0.7

5

0.25

Dead

Full Health

Poor Health



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1.00

0.00

0.50

0.7

5

0.25

Dead

Full Health

Place the HealthState forChildhoodLeukaemia onthe scale



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Easy to administer and achieve high response ratesEasy to administer and achieve high response rates

No difficult choicesNo difficult choices

Respondents tend to shy away from the end-points ofRespondents tend to shy away from the end-points of

the scalethe scale

ButBut

Time Trade Off (TTO)Time Trade Off (TTO)


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Choice between two certain outcomesChoice between two certain outcomes

Years of life traded for quality of lifeYears of life traded for quality of life

Years of healthy life you would give up toYears of healthy life you would give up to

avoid living in a state of poor healthavoid living in a state of poor health



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Time Trade-Off (TTO)Time Trade-Off (TTO)ExampleExample

You have arthritis (unable to do household and personal careYou have arthritis (unable to do household and personal care

tasks, difficulty walking)tasks, difficulty walking)

Choose between living with arthritis for the next 10 yearsChoose between living with arthritis for the next 10 years

(followed by immediate death) or living in full health for a shorter(followed by immediate death) or living in full health for a shorter

length of time (followed by immediate death)length of time (followed by immediate death)

Would you choose 1 year of full health (followed by death) or 10Would you choose 1 year of full health (followed by death) or 10years with arthritis (followed by death)?years with arthritis (followed by death)?

Would you choose 9 years of full health (followed by death) or 10Would you choose 9 years of full health (followed by death) or 10

years with arthritis (followed by death)?years with arthritis (followed by death)?

Flip-flop until preference value is foundFlip-flop until preference value is found

Time Trade-Off (TTO)


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Utility of Health State A is T/10Utility of Health State A is T/10 T is the number of years in full healthT is the number of years in full health

10 is the number of years in Health State A10 is the number of years in Health State A

If years in full health selected was 6If years in full health selected was 6

Utility (HSUtility (HSAA)= 6/10 = 0.60)= 6/10 = 0.60

The better Health State A is, the less the yearsThe better Health State A is, the less the years

of healthy life you would give upof healthy life you would give up



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Classical method of assessing preferencesClassical method of assessing preferences

Choose between certain outcome and a gambleChoose between certain outcome and a gamble

Conforms to axioms of expected utility theoryConforms to axioms of expected utility theory

Incorporates uncertainty, therefore better reflects realIncorporates uncertainty, therefore better reflects real

treatment decisionstreatment decisions

If respondent is risk neutral then utilities from SG shouldIf respondent is risk neutral then utilities from SG should

be the same as from TTObe the same as from TTO



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You have end-stage renal disease and face the prospectYou have end-stage renal disease and face the prospectof being on dialysis for the remaining 40 years of yourof being on dialysis for the remaining 40 years of your

lifelife

You are offered a hypothetical intervention (e.g. aYou are offered a hypothetical intervention (e.g. a

xenograft) that will involve the gamble:xenograft) that will involve the gamble:

Immediate return toImmediate return to

full healthfull health

(probability = p)(probability = p)

Immediatedeath

(probability = 1-p)



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Xenograft

Status quo

Death

Full Health for 40 yrs

Dialysis for 40 yrs

p

1-p

Preference value of Being On Dialysis = pPreference value of Being On Dialysis = p

ChoiceChoice

certain

Valuing health and non-healthValuing health and non-health


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benefitsbenefits

Willingness To Pay (WTP)Willingness To Pay (WTP)

Discrete Choice Experiments (DCEs)Discrete Choice Experiments (DCEs)



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Most common method of measuring benefits in cost-Most common method of measuring benefits in cost-benefit analysisbenefit analysis

Utility you gain from a program represented byUtility you gain from a program represented bymaximum amount you would be willing to pay for themaximum amount you would be willing to pay for theprogramprogram

E.g. a new drug improves your health from severeE.g. a new drug improves your health from severeasthma to full healthasthma to full health What is the maximum you would be WTP for that drug?What is the maximum you would be WTP for that drug?



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Can a monetary value be placed on health?Can a monetary value be placed on health? monetary valuations often implicit e.g. personal choices,monetary valuations often implicit e.g. personal choices,

physician choicesphysician choices

can be explicit e.g. safety programs, cost-per-QALYcan be explicit e.g. safety programs, cost-per-QALY

thresholdsthresholds

WTP can be measured in terms of out-of-WTP can be measured in terms of out-of-

pocket payments, taxations, insurancepocket payments, taxations, insurance

Equity weights for ability to payEquity weights for ability to pay

Discrete Choice ExperimentsDiscrete Choice Experiments


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((DCEsDCEs))

Individuals asked to make pairwise choices betweenIndividuals asked to make pairwise choices betweenhypothetical scenarioshypothetical scenarios

Scenarios describe benefits from programsScenarios describe benefits from programs

Scenarios decomposed into attributes and levels ofScenarios decomposed into attributes and levels of

different attributesdifferent attributes direct parallel to items and item responses in HRQoLdirect parallel to items and item responses in HRQoL

instrumentsinstruments

Unlike WTP, valuations of attributes can be brokenUnlike WTP, valuations of attributes can be broken

down for the different parts of benefitsdown for the different parts of benefits

Some research issuesSome research issues


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Some research issuesSome research issues

Complexity of taskComplexity of task Cognitive burden, realismCognitive burden, realism

Sensitivity to method of elicitationSensitivity to method of elicitation Which is the gold standard method?Which is the gold standard method?

Dealing with health states that are worse thanDealing with health states that are worse thandeath (negative utilities)death (negative utilities)

Whose preferences count Community?Whose preferences count Community?Patients?Patients?

Proxy measures of benefit - parent for childProxy measures of benefit - parent for child


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Session 3Session 3

Evaluating community/ socialEvaluating community/ social

interventionsinterventions


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Session 4Session 4

Using economics in healthUsing economics in health

servicesservices

OverviewOverview


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OverviewOverview

Background and principlesBackground and principles

Program budgeting and marginal analysisProgram budgeting and marginal analysis

(PBMA)(PBMA)

Case studies NHA and VIHACase studies NHA and VIHA International lessonsInternational lessons

Background: priority settingBackground: priority setting


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Background: priority settingBackground: priority setting

Health organizations the world over are charged withHealth organizations the world over are charged with

allocating resources within a limited funding envelopeallocating resources within a limited funding envelope

Surveys in Canada (and elsewhere) have reported uncertaintySurveys in Canada (and elsewhere) have reported uncertainty

amongst decision makers on how best to do thisamongst decision makers on how best to do this

Key questionsKey questions


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What is to be done when there are not enough resources to meet all needs?What is to be done when there are not enough resources to meet all needs?

What alternatives exist to historical and/ or political allocation processes?What alternatives exist to historical and/ or political allocation processes?

How can resources be shifted or re-allocated within existing budgets?How can resources be shifted or re-allocated within existing budgets?

How can evidence be drawn on to support a priority setting process?How can evidence be drawn on to support a priority setting process?

Key questionsKey questions

E i i i lEconomic principles


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Economic principlesEconomic principles

Opportunity costOpportunity cost:: By investing in program A, some benefit lost by notBy investing in program A, some benefit lost by not

investing in program Binvesting in program B

MarginMargin About the next unit of resourcesAbout the next unit of resources

I li ti f th i i lImplications of the principles


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Implications of the principlesImplications of the principles

To do more of some things, we have to take resourcesTo do more of some things, we have to take resources

from elsewhere, by either:from elsewhere, by either:

doing the same things at less cost; ordoing the same things at less cost; or

taking resources from areas of (effective) caretaking resources from areas of (effective) care

Measure costs and benefits of health careMeasure costs and benefits of health care

Often aboutOften about how muchhow much rather thanrather than whetherwhether

Ethical conditionsEthical conditions


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Daniels & Sabin, 2002; Gibson,

Martin & Singer, 2005a.

124

RELEVANCERELEVANCE Decisions based on reasons fair-mindedDecisions based on reasons fair-minded

people can agree are relevant under thepeople can agree are relevant under thecircumstancescircumstances

PUBLICITYPUBLICITY Reasons publicly accessibleReasons publicly accessible

REVISIONREVISION Opportunities to revisit/revise decisions &Opportunities to revisit/revise decisions &mechanism to resolve disputesmechanism to resolve disputes

EMPOWERMENTEMPOWERMENT Power differences minimized &Power differences minimized & effectiveeffectiveparticipation optimizedparticipation optimized

ENFORCEMENTENFORCEMENT Mechanisms ensure 4 conditions metMechanisms ensure 4 conditions met

Evolution of PBMAEvolution of PBMA


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Evolution of PBMAEvolution of PBMA

Economic framework to assist decision makers inEconomic framework to assist decision makers inmaking choices around limited resourcesmaking choices around limited resources

Based on economic principles and can incorporateBased on economic principles and can incorporate

ethical conditionsethical conditions

Used in health care since 1970sUsed in health care since 1970s 100+ organizations internationally100+ organizations internationally

Currently being used in health authorities in Alberta andCurrently being used in health authorities in Alberta and

British Columbia; also piloting in the LHINsBritish Columbia; also piloting in the LHINs

From principles to practice


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1. What resources are available in total?

2. In what ways are these resources currently spent?

3. What are the main candidates for more resources andwhat would be their effectiveness?

4. Are there any areas of care which could be providedto the same level of effectiveness but with lessresources, so releasing resources to fund candidatesin (3)?

5. Are there areas of care which, despite being effective,should have less resources because a proposal in (3)is more effective (per $ spent)?

From principles to practice

Practical StepsPractical Steps


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Practical StepsPractical Steps

Determine aim and scope of activityDetermine aim and scope of activity

Identify and map resource useIdentify and map resource use

Form an advisory panelForm an advisory panel

Define and weight decision making criteriaDefine and weight decision making criteria

Identify options for investment and disinvestmentIdentify options for investment and disinvestment

Evaluate investments and disinvestmentsEvaluate investments and disinvestments

Validation and recommendationsValidation and recommendations

Communication, evaluation, revisionCommunication, evaluation, revision

Peacock et al. BMJ 2006

Programme budgetingProgramme budgeting


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Programme budgetingg g g

Most health regions have utilization data; some regionsMost health regions have utilization data; some regionshave case costinghave case costing

Unique identifiers enable linkage but across an entireUnique identifiers enable linkage but across an entireregion or province tends to beregion or province tends to be Big holes in community based servicesBig holes in community based services

Physician fee for service data held centrallyPhysician fee for service data held centrally

Limited linking of inputs to outputsLimited linking of inputs to outputs

Some exercises jump right to marginal analysis, others takeSome exercises jump right to marginal analysis, others takethe time to generate map of activity and expenditurethe time to generate map of activity and expenditure

Use of evidenceUse of evidence


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DeterminingOperational Priorities:

Identifying Marginsfor Change

DeterminingOperational Priorities:

Identifying Marginsfor Change

PopulationNeeds

Population

Needs

ProvincialProvincialRequirements /Requirements /

TargetsTargets

ProvincialProvincialRequirements /Requirements /

TargetsTargets

Rating options againstpre-defined criteria

Rating options againstpre-defined criteria

Stakeholder InputThe CommunityStaff / Doctors

Board

Stakeholder InputThe CommunityStaff / Doctors

Board

Financial DataFinancial Data

Service UtilizationOutput / Outcomes Data

Service UtilizationOutput / Outcomes Data

Business PlanPriorities

Business Plan

Priorities

PracticeGuidelines &Standards

PracticeGuidelines &Standards


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Expected OutcomesExpected Outcomes


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Expected Outcomesp

Primary benefit for PBMAPrimary benefit for PBMA Achieving real resource shifts that are consistentAchieving real resource shifts that are consistent

with strategic decision-making objectiveswith strategic decision-making objectives

Secondary benefits for PBMASecondary benefits for PBMA Evidence driven decisionsEvidence driven decisions

Ownership of planning processOwnership of planning process

Transparent and defensible decision makingTransparent and defensible decision making

Clinician engagement and partnershipClinician engagement and partnership

Gibson et al. JHSRP2006

Canadian examplesCanadian examples


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pp

Chinook Health Region (Alberta)Chinook Health Region (Alberta) Surgery, chronic diseaseSurgery, chronic disease

Headwaters Health Authority (Alberta)Headwaters Health Authority (Alberta) Surgery, long term careSurgery, long term care

Calgary Health Region (Alberta)Calgary Health Region (Alberta) Macro, childrens servicesMacro, childrens services

Vancouver Island Health Authority (BC)Vancouver Island Health Authority (BC) Macro, within portfoliosMacro, within portfolios

Interior Health Authority (BC)Interior Health Authority (BC) Community care servicesCommunity care services

Northern Health Authority (BC)Northern Health Authority (BC) Home and community careHome and community care

BC Cancer Agency (BC)BC Cancer Agency (BC) Screening, select drug therapiesScreening, select drug therapies

North West, Central West and Champlain LHINsNorth West, Central West and Champlain LHINs

Urgent priorities, Aging at Home, Alternative levels of careUrgent priorities, Aging at Home, Alternative levels of care

Northern Health AuthorityNorthern Health Authority


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yy

Scope: all non-hospital H&CC servicesScope: all non-hospital H&CC services

Participants: range of clinicians, managers and financeParticipants: range of clinicians, managers and financepersonnelpersonnel

Objective: recommendations for allocation and re-allocation toObjective: recommendations for allocation and re-allocation toimpact 2007/08 budget yearimpact 2007/08 budget year

Timeline:Timeline: May 17 decision maker training workshopMay 17 decision maker training workshop June form advisory panelJune form advisory panel

July formulate and validate decision criteriaJuly formulate and validate decision criteria

Aug/ Sept generate investment and release optionsAug/ Sept generate investment and release options

Sept. 26 decision making retreatSept. 26 decision making retreat

Oct. recommendations to ExecutiveOct. recommendations to Executive Nov/ Dec. evaluation and process refinementNov/ Dec. evaluation and process refinement

Home & Community CareHome & Community Care


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Home & Community CareHome & Community Care

Criteria defined and assigned weightsCriteria defined and assigned weights

Health gain, access, appropriateness, strategic alignmentHealth gain, access, appropriateness, strategic alignment

Scoring of proposals for investment and resource release onScoring of proposals for investment and resource release on

quantitative score sheetquantitative score sheet

Scores entered into decision analysis softwareScores entered into decision analysis software

Transferred to excel to present benefit scoresTransferred to excel to present benefit scores

Recommendations for re-allocation, endorsed by SeniorRecommendations for re-allocation, endorsed by Senior

ExecutiveExecutive

Evaluation and refinements for next yearEvaluation and refinements for next year


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SUB-CRITERIASUB-CRITERIA GUIDELINES FOR SELF-RATINGGUIDELINES FOR SELF-RATING Rating (1-Rating (1-9)9)

0=opinion; 1=some0=opinion; 1=someevidence; 2=high qualityevidence; 2=high quality

evidenceevidence

11 22 33 44 55 66 77 88 99

i) incremental health gain -i) incremental health gain -magnitude of health gain asmagnitude of health gain asmeasured bymeasured by relevant clinicalrelevant clinicaloutcomesoutcomes resulting from the initiativeresulting from the initiativecompared to current practices &compared to current practices &available servicesavailable services

no difference in outcomesno difference in outcomescompared with currentcompared with current

practices/servicespractices/services

minimal improvement tominimal improvement tooutcomes compared withoutcomes compared withcurrent practices/servicescurrent practices/services

moderate improvement tomoderate improvement tooutcomes compared withoutcomes compared withcurrent practices/servicescurrent practices/services

high improvement tohigh improvement tooutcomes compared withoutcomes compared withcurrent practices/servicescurrent practices/services

vast improvement tovast improvement tooutcomes compared withoutcomes compared withcurrent practices/servicescurrent practices/services

ii) anticipated impact - theii) anticipated impact - theincremental improvement theincremental improvement theinitiative will have on clientsinitiative will have on clients healthhealthand quality of life and performanceand quality of life and performance

no difference on quality ofno difference on quality oflife and performancelife and performance

compared with currentcompared with currentpractices/servicespractices/services

minimal improvement onminimal improvement onquality of life andquality of life and

performance comparedperformance comparedwith currentwith current


moderate improvementmoderate improvementon quality of life andon quality of life andperformance comparedperformance comparedwith currentwith currentpractices/servicespractices/services

high improvement onhigh improvement onquality of life andquality of life andperformance comparedperformance comparedwith currentwith currentpractices/servicespractices/services

vast improvement onvast improvement onquality of life andquality of life and

performance comparedperformance comparedwith currentwith current


iii) early intervention - likelihood thatiii) early intervention - likelihood thatearly intervention will reduce the riskearly intervention will reduce the riskof complicationsof complications

0-11%0-11% 12-23%12-23% 24-35%24-35% 35-46%35-46% 47-58%47-58% 59-70%59-70% 71-82%71-82% 83-94%83-94% >95%>95%

iv) target population - # ofiv) target population - # ofincrementalincremental clients to be servedclients to be servedannuallyannually by the initiative divided byby the initiative divided by# of# ofnewnew clients with this condition/clients with this condition/

disease in NH regiondisease in NH region

0-11%0-11% 12-23%12-23% 24-35%24-35% 35-46%35-46% 47-58%47-58% 59-70%59-70% 71-82%71-82% 83-94%83-94% >95%>95%

(see Excel spreadsheet)


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Vancouver Island Health AuthorityVancouver Island Health Authority


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Vancouver Island Health AuthorityVancouver Island Health Authority

750,000 population750,000 population

17,000 employees17,000 employees

All of Vancouver IslandAll of Vancouver Island

$1.5 billion operating budget (excluding Phys costs)$1.5 billion operating budget (excluding Phys costs)

114 service delivery sites114 service delivery sites

Strategic planning, commissioning and provider roleStrategic planning, commissioning and provider role

Entire continuum of care - primary care to tertiary careEntire continuum of care - primary care to tertiary care

PBMA implementationPBMA implementation


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PBMA implementationPBMA implementation

For the past two years, VIHA has used PBMA in collaborationFor the past two years, VIHA has used PBMA in collaboration

with researchers from UBCwith researchers from UBC

Goals of PBMA in VIHA:Goals of PBMA in VIHA: Engage the organization, including physician leadershipEngage the organization, including physician leadership

Transparent and evidence-based processTransparent and evidence-based process

Greater understanding of the need to make choicesGreater understanding of the need to make choices

Achieve greater support for decisionsAchieve greater support for decisions

VIHAs 2007/08 ProcessVIHAs 2007/08 Process


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VIHA s 2007/08 ProcessVIHA s 2007/08 Process

Each portfolio presents their service growth and reductionEach portfolio presents their service growth and reduction

opportunities using business case template; assessment againstopportunities using business case template; assessment against

criteriacriteria

Proposals scored by peers (senior management team)Proposals scored by peers (senior management team)

Ranking using formal benefit scoring toolRanking using formal benefit scoring tool

Marginal analysis trade-off decisions on relative value of releases vs.Marginal analysis trade-off decisions on relative value of releases vs.

investmentsinvestments

Final list validated by the groupFinal list validated by the group

Recommendations to Executive and/ or BoardRecommendations to Executive and/ or Board

Evaluation CriteriaEvaluation Criteria


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Patient/Client Safety Healthy Workplace

Access and FlowClient/Patient Focus

Health and Wellness

Net Revenue/ In-kind ResourcesEfficiency

Differential weighting across the criteria

a ua o C e afor Proposalsfor Proposals

VIHA 2007/08 PVIHAs 2007/08 Process

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