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