flagship program on health sector reform and sustainable financing
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Flagship Program on Health Sector Reform and Sustainable Financing. Cost-Effectiveness Technique in Health: Strengths and Limitations. Presentation Objectives. To describe cost-effectiveness analysis (methodology) To discuss limitations and assumptions underlying CEA. Why a Benefit Package?. - PowerPoint PPT PresentationTRANSCRIPT
Flagship Program on Health
Sector Reform and
Sustainable Financing
Cost-Effectiveness Technique in Health: Strengths and Limitations
R. Bitrán- Flagship Tehran- March 2004 3
Presentation Objectives
• To describe cost-effectiveness analysis (methodology)
• To discuss limitations and assumptions underlying CEA
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Why a Benefit Package?
• Outcomes: – Use resources more rationally
– Meet equity goals
– Ensure accountability and transparency
• Process:– Clarify goals, priorities, choices, and opportunity
cost
– Mobilize consent through participation in design process
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What Is a Basic Benefit Package?
3 defining features:
– Limited set of services
– Services included based on prioritization methods
– Synergies among interventions/services included
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Key Words:Limited & Prioritized
Question:
How best to choose the limited number of services that can be included in a benefit package?
Answer:
That depends...?? ?
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How would An Objective Utilitarian Choose?
Design your benefit package so that the population’s health status is maximized
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But How?
??
?
?
?
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Cost-Effectiveness Analysis!
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What Is Cost-Effectiveness Analysis?
One type of Economic Evaluation that focuses on outcomes, e.g.,
- Lives- DALYs
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Economic Evaluation
Choice
Program A
ComparatorB Consequence B
Consequence A
Source: Drummond et al., 1997
Costs A
Costs B
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Economic Evaluation
Choice
Program A
ComparatorB
Consequence B
LIVES SAVED
Consequence A
LIVES SAVED
Source: Drummond et al., 1997
Costs A $
Costs B $
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Problem:
How to compare:
- costs
- consequences
Solution:
Compare Cost-Effectiveness Ratios
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Cost-Effectiveness Ratio
Cost $ / Effectiveness
C/EA vs. C/EB
==> Pick Program A if C/EA < C/EB
Pick Program B if C/EB < C/EA
Seems simple, but is that really the case?
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First Issue: Effectiveness
• Need same measure of Effectiveness, E.g.:
– Lives saved
– DALYs
• Can’t compare “apples” and “oranges”
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Second Issues: Costs
Many different kinds of costs
– Health care costs
– Patient resources (time, $, other)
– Costs in other sectors
Which ones to include?
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Example 1
COSTS:
– Health Care Costs$1,000,000
– Patient/Family resources$5,000
– Costs in other sectors$50,000
CONSEQUENCES:
– Lives Saved: 100
– Health care savings $250,000
– Savings in other sectors$20,000
– Savings in pat./fam. resources$12,000
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Example 1: Cost-Effectiveness Ratio
Summary:
1) C/E = 10,000 / life saved
2) C/E = 7,500 / life saved
3) C/E = 7,730 / life saved
Question: Which one is right?
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The “Right” C/E Ratio
• The “right” C/E ratio depends on your perspective and your objectives
• Economists argue for a societal perspective:
==> Include all costs and consequences
C/E = $ 7730 / life saved
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The “Right” C/E
Net Costs / Effectiveness
Net costs = Costs - Resources Saved
= C - S
C= C1+ C2 + C3 +...
S= S1 + S2 + S3 +...
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Cost and Effectiveness Are Difficult To Predict
• Both depend on how well the delivery system functions
• The incremental cost of any one service depends on what else is done
• Demand for a service may change when it is included in a benefit package
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Determining Cost Effectiveness Requires Many Value Judgments To
Create A Single Measure Of Gain
• The value of diminishing different kinds of disability
• Disability versus death
• Death at different ages
• Current versus future gains (discount rate)
• Attitude toward uncertainty (risk aversion)
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Programs Lasting Multiple Years
Differential Timing of CostsYear Cost of Program A Cost of Program B
($000s) ($000s)
1 5 15
2 10 10
3 15 4
“Total” 30 29
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Programs Lasting Multiple Years
• Question: Is this comparison legitimate?
Answer: No!
• Question: What to do?
Answer: Convert future costs to ‘present’ costs
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Value of a 1-year Investment
• Deposit $100 in the Bank @ 10% / year==> get $110 after 1 year
• How much is $100 in 1 year worth today?==> $91
Deposit $100 in the Bank @ 5% / year==> get $105 after 1 year
• How much is $100 in 1 year worth today?==> $95
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Multi-Year Programs
Conclusion:
– Timing matters
– The interest rate matters
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Choice of Discount Rate Makes a Difference
r=0% r=1% r=5% r=10%
Costs ($000s) ($000s) ($000s) ($000s)
PA 30 29.31 26.79 24.08
(late costs)
PB 29 28.54 26.81 24.91
(early costs)
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Review Important Issues in C/E Analysis:
• In/exclusion of costs and consequences
• Difficulty estimating cost and effectiveness
• Timing of costs (and consequences)
• Discount rate
• Program (input) level
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Additional Issues
What happens to the C/E of a program when the input is increased?
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Example 2: Doubling Inputs
COSTS:
• Health Care Costs$2,000,000
• Patient/Family resources$10,000
• Costs in other sectors$100,000
CONSEQUENCES:
• Lives saved = 150
• Health care savings $375,000
• Savings in other sectors$30,000
• Savings in pat./fam. Resource$18,000
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Impact of Doubling the Inputs
• Example 1: C/E=$7,330
• Example 2: C/E=$11,247
==> Cost doubled but effects did not!
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Additional Issue: Marginal Vs. Average Cost
Marginal Cost Effectiveness May Depend On How Extensively Some Services Are Provided Because Of “Diminishing Returns”
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Using Cost Effectiveness To Calculate A Basic Benefit
Package• Determine cost-effectiveness ratio of each
option
• Rank according to those ratios
• Calculate total cost of including each service in package
• Go down the list in rank order until the available budget is exhausted
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Important Things to Remember:C-E analysis is predicated on (objective) utilitarian beliefs:
What happens if you have other ethical beliefs?
- Subjective utilitarian?
- Egalitarian liberal?
- Communitarian?
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Important Assumptions to Remember
• Ignores equity issues
• Ignores political concerns
• Assumes people are rational (they’ll demand what’s “good” for them)
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Conclusion
• C-E analysis is relatively simple in theory but difficult in practice
• Extreme care must be taken when confronting the methodological challenges inherent in CEA
• CEA does not consider equity issues and is based on objective utilitarianism
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Conclusion (cont.)
Notwithstanding these caveats, CEA is a potentially useful input into the design process of a benefit package, but it is not sufficient by itself.
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Appendix
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Example 1: Cost-Effectiveness Ratio
1) Health Care Cost Only
$1,000,000 / 100 lives
C/E = $10,000/life saved
2) Health Care Resources Only
==> Health care cost - health care savings($1,000,000-250,000)/100 lives
C/E= $7500 / life saved
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Example 1: Cost-Effectiveness Ratio
3) All Resources
C/E = (All costs - All savings) / # lives saved
($1,000,000+5,000+50,000)
- ($250,000+20,000+12,000) / 100 LS
= $7730 / life saved
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DiscountingNet Present Value (P) of a stream of future Costs:
3
P= Fn(1+r)-n
n=1 F1 F2 F3
= ------- + -------- + --------
(1+r) (1+r)2 (1+r)3
F1 F2 F3
= ------- + -------- + --------
(1.05) (1.05)2 (1.05)3