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Economic evaluation of health programmes

Economic evaluation of health programmes. Department of Epidemiology, Biostatistics and Occupational Health Class no. 5: Measuring costs - Part 2 Sept 17, 2008. Plan of class. Finish material from previous class DRGs Discounting Valuing productivity losses.

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Economic evaluation of health programmes

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  1. Economic evaluation of health programmes Department of Epidemiology, Biostatistics and Occupational Health Class no. 5: Measuring costs - Part 2 Sept 17, 2008

  2. Plan of class • Finish material from previous class • DRGs • Discounting • Valuing productivity losses

  3. There are 543 such codes in version 23 (FY 2005) of the DRG system (source: Wikipedia entry on DRGs, accessed Sep 16 08)

  4. Using DRG weights/NIRRUs to cost hospital stays • Use NIRRU – Niveau d’intensité relative des ressources utilisées • Equivalent to DRG weight • Multiplied by a cost per NIRRU (obtainable from MSSS), provides an indication of the expected (or average) cost of an admission. • Can be used to derive a cost per day for a given type of admission, more accurate way of costing an admission of a certain type if one knows length of stay

  5. Discounting • Reasons to prefer something now rather than later: • Short-term view of life • Future is uncertain • We’ll be richer later

  6. Two uses of discounting in economic evaluation • Express future costs (or benefits) in terms of current costs (or benefits) • Principle of comparing apples with apples • Convert the up-front cost of a building or equipment into an annual cost over their useful life

  7. Current GIC rates in Canada Source: http://www.fiscalagents.com/bestGICrates.shtml These interest rates are above rates of inflation in recent years (2 to 3%), reflecting the greater value of money now compared to money later

  8. What is the current value of a future stream of costs (or benefits)? • P = C1/(1+r) + C2/(1+r)2 + C3/(1+r)3 • Suppose C1=$1000, C2=$2000, C3=$9000. Calculate the present value of this stream of costs if r=0.05. Of course, if more than 3 years, extend the series similarly

  9. Source: John Broome, Ethics of climate change, June 2008 Scientific American

  10. What is wrong with the previous graph? How would you fix it?

  11. Converting the up-fron cost of a building or equipment into an annual cost • This type of cost often ignored as it does not appear in a hospital’s financial statements if the building is depreciated. • Find E such that: • K = E/(1+r) + E/(1+r)2+ … + E/(1+r)n • K = E x (1 – (1+r) –n)/r • K = E x (Annuity factor, n period, interest r)

  12. Exercise • If a superhospital has a projected upfront cost of $800 million and a useful life of 50 years, what annual sum can we convert the cost of the hospital to over its useful life? Assume an interest rate of 3%.

  13. Which interest (or discount) rate to use? • Competing theoretical arguments • In practice, show results without discounting, and also use 3% (US Public Health Service Panel on Cost-Effectiveness in Health and Medicine recommendation) and 5% (for comparability with other studies)

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