Public Health Module

1. Health Services Planning in the World Class Commissioning EnvironmentMaximising Patient Care Within Available ResourcesAuthor: David Murray BSc MSc FFPHOperational Director, Consultant in Public Health & Honorary Senior Lecturer, PHAST & Imperial College London Public Health Module Venue Date

2. Acknowledgements Contributors: • Dr Richard Fordham – Senior Lecturer/Deputy Associate Dean, Health Economics Group, University of East Anglia • Dr Peter Brambleby – Director of Public Health, North Yorkshire & York PCT

3. Aim To explore the principles and practice of investment decision-making to maximise population health within available resources.

4. Contents 1. The under-pinning concepts of health economics, including: • The economics perspective • Key economic principles – efficiency & equity 2. Information and evidence on costs and benefits: • Measurement of costs & benefits • Methods of economic evaluation – e.g. cost-effectiveness studies & analyses 3. Practical methods of resource allocation/investment decision-making in health, including: • Resource allocation formulae • Programme budgeting & marginal analysis (PBMA) • Priority setting – e.g. multi-criteria analysis (MCA)

5. Investing in health 1. Health Planning, Investment Decision-Making, & Health Economics

6. Health Planning & Investment • Consideration of comprehensive range of health improving interventions: • Promotion of health • Prevention of disease • Screening • Diagnosis • Treatment/management • Rehabilitation • Need - Demand - Supply

7. Policy Context • Policy context: • WCC competence 6 – Prioritise investment according to local needs, service requirements, & the values of the NHS. • WCC competence 11 – Make sound financial investments to ensure sustainable development & value for money. • Care Quality Commission: PCT Commissioning standards – Domain 2: Clinical & cost effectiveness • Combined perspective – health planning & health economics

8. "World Class Commissioning“ (2008) • "Investment decisions will be made in an informed and considered way, ensuring that improvements are delivered within available resources"(DH, 2007a) • PCTs will be able to:"Prioritise investment by having a thorough understanding of the needs of different sections of the local population ... • Make confident choices about the services that they want to be delivered, and acknowledge the impact that these choices may have on current services and providers..."(DH, 2007a)

9. The 'primacy of prioritisation must be a fundamental principle of public sector resource allocation'.  A 'whole system' approach must be taken which takes account of and is applicable to all health service delivery in a given area Avoid unintended consequences and opportunity costs associated with narrower priority setting or decision making processes NHS Confederation Guidance to PCTs (2008)

10. A room with a different view 2. Health Economics Perspective

11. Source: Rupert Fawcett Cartoons

13. Economics Greek: oikonomos,"one who manages a household" ..oikos,"house"and nemein,"to manage"

14. Group Discussion - Household Investment Decision-making • Think of 2 or 3 recent decisions you have taken to make a substantial purchase in your household • Discuss how you came to the decision to make the purchase & how you chose the particular product

15. Health Economics • A framework for the systematic consideration of costs & benefits across society in support of priority setting/ investment decision-making

16. Finance & economics FINANCE/MONEY = measure & store of value, means of exchange (usually reflected in price) ECONOMICS = what is produced; how resources used up in producing it; how these products are exchanged and by whom MONEY is only a currency!

17. What you already know about economics(but might have been totally unaware of !) • Humans are quite ‘rational’ economic beings (most of the time) .. • We all satisfy our own needs rationally… ‘maximise our own personal ‘utility’ subject to a resource constraint’ • We want to maximise gain and minimise pain! • But it’s not just about self-interest! eg. altruistic or communal gifts • Why should society be any different? – it’s only the sum of its parts

18. Health Economics Perspective 1 • Acceptance of resource/budget limitations • Scope – societal vs public sectors vs NHS • Long-run timeframe • Cost vs price • Opportunity cost – all investment choices & uses result in other lost opportunities • Demand = willingness & ability to pay at a given price

19. Health Economics Perspective 2 • 2 concepts of efficiency: • Technical: Doing things well/at least cost for a given output at a given quality • Allocative: Doing the right things to maximise benefit from available resources • Marginal analysis – measurement of costs/savings & benefits additional to the current baseline • Equity – consideration of the spread/allocation of fair/ethical costs & benefits across society

20. Weighing it up 3. Costs & Benefits

21. Weighing up the input & outputs in alternative uses of resources ... ? Resources Outcomes

22. Group Discussion – Resources & Benefits • Briefly discuss the ‘resources’ & ‘benefits’ we would need to weigh-up in introducing a ‘hospital at home’ service

23. Economic approach • Weighing up the costs and the benefits of alternative courses of action (Drummond, 1987) • Costs (full resources) to whom? • Benefits…to whom? Concern with equity. • Divergence of personal and social costs • Wider scope of benefits in public health

24. Production Costs & prices • Fixed cost – constant over a period of time regardless of workload • Semi-fixed/stepped cost – constant within given production limits (e.g. additional staff) • Variable cost – vary in proportion to workload • Sunk cost – investment that cannot be re-invested • Price = cost + profit/surplus

25. Costs • Total cost • Unit cost = 1 unit/patient • Average cost = total cost/N • Marginal cost = cost of producing one additional unit • Cost curves • Opportunity cost = foregone opportunity to produce the next best alternative use of resources

26. Constant returns to scale Diseconomies and economies of scale Economies of scale

27. Costs • Direct cost – e.g. health care staff time & consumables • Indirect costs – e.g. catering • Overhead costs – e.g. management, heating • Intangible costs – e.g. pain, inconvenience

28. Health Benefits • Survival/death • Treatment • Cure • Cases/infections prevented • Length of life • Quality of life • Function

29. Societal Benefits • Productivity: • employment • education • caring • Participation (e.g. politics, arts) • Independence

30. Doing the right things, well, & for all the right people 4. Efficiency & Equity

31. Technical efficiency - Inputs and outputs • Maximise output subject to budget/cost limit or minimum • Minimise costs subject to a fixed or maximum level of output • No resources wasted in production of a given product at an accepted quality

32. Productivity • Measure of technical/productive efficiency • Amount of output per unit input in producing a given product e.g: • Factory hours to make a product • Number of products produced by a factory per day • Patients treated per hour/per clinic

33. Allocative efficiency • Allocative efficiency is where organisation is producing a combination of goods that maximises the overall level of satisfaction or welfare of the population of interest • Global efficiency – allocative efficiency across all productive activities in society as whole e.g. education, health, welfare benefits, industry, etc • Where no further reallocation of resources at the margins of production could improve social welfare function (=∑individual welfare functions) – i.e. social welfare is maximised

34. Pareto optimality • The theoretical condition as a result of perfect global efficiency, where it is impossible to make one person better off without making someone else in society correspondingly worse off is called a Pareto optimal allocation of resources • How do we know when NHS organisation(eg. PCT) is allocatively efficient? • What type of market conditions are likely to lead to the allocative efficiency?

35. Ethics, equity, & economics • Ethics - theories of social justice/fairness • Equity - treatment according to need/access/ demand/use • Economics – equity (distribution/shares of benefit) vs efficiency (total benefit)

36. Common equity dimensions • Age • Gender • Sexuality • Geography • Socio-economic status • Ethnicity • Religion • Disease/condition • Severity/prognosis

37. Equity not necessarily = equality • Equity concerned with ‘fairness' ‘justice’ (i.e.ethical theories) • May not necessarily be identical to equality (e.g.minimum standards of care, ‘positive’ discrimination) due to taking account of need • However, equity usually synonymous with equality of something (e.g. right to equal opportunity to access)

38. ‘Definitions’ of equity • Equal ‘chance’ of treatment - lottery • Equal expenditure per capita - geography • Equal expenditure/resources for equal ‘need’ (i.e. weighted capitation e.g.‘premature’ mortality) • Equal access (opportunity to use) for equal need (e.g. equal waiting time per ‘condition’) & physical/geographic access • Equal utilisation for equal need (e.g. equal length of stay per ‘condition’) • Equal treatment rates for equal need • Equal ‘health’

39. Equity : Efficiency Trade-off • Explicit equity weighting remains controversial unless considering ‘total social welfare’ rather than economic efficiency alone • Access to primary/secondary/tertiary care (e.g. GP vs NICU) • NICE willingness to pay Cost per QALY for treatments prolonging life in terminal cancer conditions • Targeted out-reach initiatives for ‘hard to reach’ groups

40. 5. Economic Evaluation

41. Key Methods of Economic Evaluation • Cost Consequence Analysis • Cost-Minimisation Analysis • Cost Effectiveness Analysis (CEA) • Cost-Utility Analysis (CUA) • Cost-Benefit Analysis (CBA) • Modelling

42. Length & quality of life 1 • Length of life • Mortality (numbers, rates, SMRs) • Life expectancy • Healthy life-years (eg. QALYs) • Disability-free life years (eg. DALYs)

43. Length & quality of life 2 • Measures of (Health-related) Quality of life: • Numerous QoL measures (generic & disease specific) • SF-36 • Nottingham Health Profile • Symptom Checklist • Hospital anxiety and depression scale

44. Quality Adjusted Life Years (QALYS) Adjusts data on quantity of life years saved to reflect a valuation of the quality of those years. If healthy: QoL = 1.0 If dead QoL = 0 e.g. 5yrs survival gain at ½ QoL = 5 X 0.5 = 2.5 QALYs

45. Disability Adjusted Life Years (DALYS) • Measure of burden of disease adjusted for lost function/productivity (WHO) • World Bank, Global Burden of Disease (1996) • Years of life lost due to premature death + years lived with disability (mortality + morbidity) • Better reflection of burden due to chronic disease rather than due to common causes of death

46. Issues in Economic Evaluation 1 • Taken up by research community, good journals, etc • Used nationally - e.g. NICE • Still ignored by local decision-makers • Suspicion from clinicians • Resistance from public

47. Issues in Economic Evaluation 2 • Lack of good cost data to use • May not capture all the benefit dimensions required by decision makers • Controversy about methods and values used in techniques

48. Steps in costing • Defining the perspective/viewpoint • Identification of costs to include in the appraisal • Measurement of the resources used (how much of each item?) • Valuation of the resources used (what does each item cost?)

49. Identifying costs • A full identification of important and relevant costs should be provided and any omissions justified • Trade-off between time and effort involved in collection and potential impact on results • What are the key cost drivers likely to be? • Include free costs e.g.volunteer and patients’ leisure time and donated clinic space • Not all costs that are identified have to be measured and valued

50. Measure how much of each item used? • Number of medical visits, tablets consumed, hours of staff time… Sources include: • Health insurance accounting systems • Computerised hospital and primary care records • Reports from health professionals, patients and carers • Standards (guidelines, best practice) - medical notes often assumed most accurate