INTRODUCTION TO ECONOMIC EVALUATION IN HEALTH CARE

INTRODUCTION TO ECONOMIC EVALUATION IN HEALTH CARE By Mustapha Muktar, PhD Department of Economics Bayero University, Kano-Nigeria mmukhtar.eco@buk.edu.ng http//:www.mustaphamuktar.blogspot.com Introduction Economic evaluation applies analytic methods to identify, measure, value, and compare the costs and outcomes of alternative interventions. Economic evaluation is a way of using the scientific approach to determine the costs and benefits of public health activities. It can also be viewed as the quantitative analysis of the relative desirability to the whole community of investing in alternative projects or programmes. It is not simple to decide on which alternatives to choose, but with evaluation decision makers can make the difficult choices when resources are limited. Economic evaluation allows us to compare the costs and outcomes of different alternatives. You can then compare programs and give recommendations on the most efficient way to use scarce resources. Process of Economic Evaluation The overall economic evaluation process is to:  identify all of the relevant costs and outcomes involved in a program  find ways to measure the appropriate outcomes and costs and assign values to them and  compare the cost per unit outcome or, in the case of cost-benefit analysis, compare the net benefits between programs. Economic evaluation therefore answers the following questions; how much does it cost to achieve a certain level of program performance?  how can a fixed budget best be allocated across program priorities?  what are the costs and benefits of choosing one program instead of another? Why use economic evaluation methods In most cases, something can be done in more than one way. For example, there may be more than one way to screen for a disease or different alternative ways to deliver a program or service. Also, you may have few resources, but many things that you need to do:  every choice you make has an associated opportunity cost.  Trade-offs must be made (for everything you choose to do, something else will not get done). To achieve a particular health objective, you may need to:  find the most effective and efficient way to deliver a program or service  spend the least possible amount to achieve the objective Justification of Economic Evaluation As early as the seventeenth century, the British physician Richard Petty advocated greater social investment in medicine. This was based on his belief that the value of a saved human life far exceeded the cost. Health care resources are limited by the total funds available, as well as through competition with other areas, such as housing and education. This raises the question of how to decide where the money should be allocated most appropriately. The establishment of a benchmark for an efficient level of health care provision is still to be found, and it must always be questioned whether the allocation of health care resources is efficient and equitable. It has been proposed that, faced with increased demands, but little increase in resources, the National Health Service has several options which include but not limited to; to become more efficient so that more individuals can be treated with the same resources; to extend means testing so that some people may be excluded from certain services due to their wealth; to increase ‘rationing’ or to provide a smaller range of services. However, there is no doubt that resources are scarce and choices have to be made regarding their use. The aim is to maximize health from available resources whilst paying due concern to issues of equity. Economic evaluation is important because without systematic analysis, it is not possible to identify the relevant alternatives. In addition, the assumed viewpoint is important. A programme that looks attractive from a patient's viewpoint may look decidedly unattractive from the government's budget. Advantages of Economic Evaluation It Compels the collection and analysis of information about programs and interventions  helps you to organize data  helps you to understand that resources are limited and that there are opportunity costs associated with making public health decisions: often, you must give up one thing to get another  Makes it possible to demonstrate to policymakers and funders the value of resources used Limitations of Economic Evaluation It Requires the assigning of values to variables that may be difficult to measure (for example, quantifying pain and suffering)  It analyzes a limited number of factors  It takes time and skill to do properly Common Methods of Economic Evaluation in Public Health Economic evaluations within public health consist of partial economic evaluations and full economic evaluations. Partial economic evaluations assess either the cost or the health outcome components of public health programs, or they assess both costs and health outcomes of a single program without reference to an alternative program. Examples: cost description, outcome description, efficacy or effectiveness evaluation, cost-outcome description, and cost analysis. Full economic evaluations assess both costs and health outcomes; they also compare these across different health interventions or compare a health intervention with a no-health intervention. Examples: cost-effectiveness analysis, cost-utility analysis, and cost-benefit analysis. The choice of evaluation method is dictated by evaluation objectives, policy priorities, and data availability. The methods that constitute the category of full economic evaluations are the most comprehensive of all methods, with the partial economic evaluations serving as components of the full evaluations. In most studies, the economic evaluations draw on a variety of data types and sources, using program cost and outcome data. The basic task of evaluation efforts are therefore; to identify, to measure, to value, and to compare the costs and consequences of the alternatives being considered. Overview of Cost Analysis Economists define a cost as the value of resources used to produce a good or services. However, the way these resources are measured can differ. There are two main alternatives with respect to measurement of these resources: financial and economic costing. Financial cost represents actual expenditure on goods and services purchased. Costs are thus described in terms of how much money has been paid for the resources used in the project or services. In order to ascertain the financial costs of a project, we need to know the price and quantity of all the resources used or, alternatively, the level of expenditure on these goods and services. Economists define costs in terms of the alternative uses that have been forgone by using resources in a particular way. These economic or opportunity costs recognize the cost of using resources as these resources are then unavailable for productive use elsewhere. The basic idea is that things have a value that might not be fully captured in their prices. It is not difficult in many health programmes to identify resources inputs for which little or no money is paid: volunteers working without payment; health messages broadcasts without charge; vaccines or other suppliers donated or provided at large discount by organizations or individuals. Thus, the values of these resources to society, regardless of who pays for them, are measured by opportunity cost. Economic cost then include the estimated value of goods or services for which there were no financial transaction or when the price of a specific good did not reflect the cost of using it productivity elsewhere. The main ways that financial and economic costs differ is in the way they treat donated goods and services and other inputs. Costs can also be assessed based on costs borne by the ministry of health (like drug and equipment), by patients and their relatives (like transport and food) and by the rest of society (like health education), in monetary terms; direct costs, like wages, indirect costs (like time spent in hospital) . Costs could also be further subdivided in to average, marginal and joint costs, which help decisions on how much of a service, should be provided.There are also capital costs (investment in plant, buildings, and machinery). Costs to be Included in Evaluation If the evaluation is being made from the widest perspective the viewpoint of society as a whole then three main categories of costs must be considered: Health Service Costs, these will include staff time, medical supplies (including drugs), bed and food services in the case of inpatients, use of capital equipment, and overheads such as water, heating and lighting. These items may be divided into variable costs, which vary according to the level of activity (for example, staff time) and fixed costs, which are, incurred whatever the level of activity (for example, heating and lighting). In the long run, practically all costs become variable since those that are fixed in the short run may be varied-for example, by opening and closing wards, and by building new hospitals. In economic evaluation all such health service costs-both fixed and variable-are referred to as direct costs. Costs Borne By Patients and Their Families; These will include out of pocket expenses such as travel, and any cost resulting from caring activities undertaken by the family. These are also direct cost items. In addition, there may also be indirect costs (productivity costs) such as income lost because of absence from work (which is a production loss to society) and any psychological stress experienced by patients, or their families or both. External Costs: These occur when people not directly involved in a programme experience increased costs because of it. For example, public health legislation enforcing antipollution standards or specifying water purification levels may lead to increase in manufacturing costs and consumer prices (as well as providing health benefits). Valuation of Costs The costs identified in physical units (such as hours of staff time, hours of operating theatre use, quantities of drugs and so on) must be valued in monetary terms. For most direct cost items market prices will be available. Consultation time can therefore be valued at the appropriate hourly rate; Medical and surgical supplies can be valued at the prices charged by suppliers; Indirect costs, for which there are no market prices, pose a more difficult problem of evaluation. Some method has to be used to impute values to them. This is known as “shadow pricing”, and time costs provide a good example. When time is spent in hospital by a patient, or on caring by a relative, and this displaces work time, it is usual practice to use the relevant wage to value the lost time.