Kathleen N. Gillespie, PhD

1. Evidence-Based Public Health: A Course in Chronic Disease Prevention MODULE 7: Economic EvaluationKathy GillespieMarch 2013

2. “An economist is a man who states the obvious in terms of the incomprehensible.” Alfred A. Knopf

3. Kathleen N. Gillespie, PhD 314-977-8147 gilleskn@slu.edu

4. Learning Objectives Be able to answer the following questions: • Why is economic evaluation needed? • What is economic evaluation? Are there different types? • When is an economic evaluation necessary or useful?

5. Learning Objectives More questions… • How is an economic evaluation done? • Who can help me with an economic evaluation? • Where can I find information about economic evaluations?

6. Where This Module Fits The green and blue sections, primarily

7. Next Module: Logic Model EE helps with costs and objectives

8. Why?

9. Why EE? • Evidence-based practice requires knowing • Does it work? • At what cost? • EE starts after efficacy has been determined. Want to promote interventions that work at a reasonable cost, i.e. that provide “good value for the money”

10. Examples • Increasing Physical Activity: Evidence shows that the following will work (The Community Guide) • Community wide campaigns • School-based physical education • Street-scale urban design and land use policies and practices • Social support interventions in community settings • Which to invest in? or a mix?

11. Examples, cont. • Budget cuts: A department’s budget must be cut by 5%. How to do this so as to minimize the effect on the public’s health? • Grant awards: A number of applications have been received for a limited pool of grant dollars. How to select the winners?

12. Need to Weigh Costs and Benefits • A scale can compare apples and oranges because both are measured by weight • EE provides the scale – an agreed upon way to measure health benefits and costs

13. What?

14. What Is EE? • EE examines the costs and benefits of alternative programs to inform decisions about the allocation of scarce resources using an established set of economic tools. • There are four types of EE.

15. Types of Economic Evaluation • Cost-benefit (CBA) • Cost-utility (CUA) • Cost-effectiveness (CEA • Cost-minimization The number of projects that can be compared declines as we move down the list.

16. EE and Business • EE methods are closely related to several business methods • Return on Investment, or ROI • Make or buy decision • A business plan • Investment decision making

17. It Helps to Have a Map What is the intervention? Who is the relevant group? How long should the group be followed? What can happen at each time period? DECISION ANALYSIS can provide the map.

18. Example Decision Tree Dowding D and Thompson C, Using decision analysis to integrate evidence into decision making, Evid Based Nursing, 2009 12: 102-104.

19. Components of Economic Evaluation in Public Health Economic Inputs Health Outputs Public Health Program Costs Direct Costs Indirect Costs Averted Treatment Costs Benefits YOLS QALYS Dollars Always compare a new program to some alternative.

20. Components of Economic Evaluation in Public Health YOLS QALYS Dollars Direct Indirect Averted Treatment Costs Benefits B

21. The Product of an EE Incremental Costs EE ratio = Incremental Benefits

22. The EE Ratio • The EE ratio is often called the Incremental Cost Effectiveness Ratio, or ICER • Emphasizes that we are comparing 2 or more interventions

23. Dimensions of Economic Evaluation Type Inputs Outputs Perspective CMA ROI CBA CEA CUA Dollars Dollars Dollars Dollars Dollars Natural Units Organization Dollars Organization Dollars Society Natural Units Society Utilities Society

24. Every EE is Conducted from a Particular Perspective Perspective (or viewpoint) determines whose interests are paramount in the evaluation Perspective determines what costs and consequences are considered Perspective determines how the results are interpreted

25. Determining the Perspective Single provider’s practice FQHC Healthcare system Insurer – public (Medicaid) or private (BCBS) State agency Federal program (CDC, Medicare) Society

26. Example: Increasing Physical Activity • Community wide campaigns • Suppose a campaign would cost $150,000 and yield an improvement of 1,000 quality-adjusted life years • ICER = $150/QALY • Social support interventions in community settings • Suppose this would cost $200,000 and yield 2,000 quality-adjusted life years • ICER = $100/QALY

27. Some Assumptions of Economics • Resources are scarce. • Human wants are unlimited, and more is (almost) always preferred to less. • If there is perfect competition, the market will do an efficientjob of allocating scarce resources to maximize profits and satisfaction. Note: society may not consider this outcome equitable.

28. Some Assumptions of Economics If the market works well, then there are only 2 parties to each trade – a buyer and a seller – and they bear all the costs and reap all the benefits of the trade.

29. When?

30. When Is EE Needed? • EE needed if there is market failure (inefficiency). • Perfect competition not present. • Could occur naturally or the market could be ‘broken’. • EE helpful if there are concerns about inequity.

31. Inefficiency Reasons for EE • When the market fails, or is broken. • Complex decisions with high stakes. • Little or no price information available. • High information costs to find out about the product. • Markets involving externalities or public goods. • Externalities are spillover effects from trades. • Public goods are non-excludable.

32. When is EE needed? Really? • Practically speaking, may be mandated or requested by funding agency. • Useful when comparing options internally. • Useful when justifying programs externally.

33. Inequity Reasons for EE • Social or government decision-making processes. • If the distribution of goods and services that would emerge from the market is considered inequitable, then society can legislate, regulate, or tax/subsidize. • EE measures the current or desired outcomes.

34. Public Health Requires EE • Provides services when the market fails • WIC program, health clinics • Complex decisions, high stakes - health and life • Provides services with external benefits • Immunization programs, sanitation, inspections • Tobacco control programs

35. Public Health Requires EE • Provides public goods and services • Health monitoring and assessment • Social marketing and public information campaigns • Access to health and equity are often concerns

36. How?

37. The Product of an EE Incremental Costs EE ratio = Incremental Benefits

38. Possible Outcomes of an EE Aggregate Health Benefits Quadrant I Quadrant IV Costs money, Improves health Saves money, Improves health Aggregate Costs Saves money, Worsens health Costs money, Worsens health Quadrant III Quadrant II

39. Measuring Costs • All economic evaluation methods require listing and measurement of costs. • One tricky point. • Mathematically, a benefit can be a negative cost, and a cost can be a negative benefit.

40. Negative Costs and Benefits • Whether some items are negative costs or benefits depends on the method. • Makes a difference because we are constructing a ratio. • General idea: all items falling on the health system are costs, positive or negative.

41. Types of Costs • Direct (or program) costs • Indirect costs • Time and travel costs to participants • Averted productivity losses (a negative cost)? • Cost of treatment during gained life expectancy ? • Averted treatment costs (a negative cost)

42. Direct Costs All costs of the intervention • Labor • Supplies • Rent • Utilities • Costs of treating side effects of the intervention, if any

43. Indirect Costs Also called spillover costs. • Time and travel costs to participants. • Costs to parties outside controlling program or agency. • Averted productivity losses (a negative cost)? • Cost of treatment during gained life expectancy?

44. Averted Productivity Losses • The present value of future wages gained. • The intervention increases the worker’s longevity and/or reduces disability. • Used in cost-benefit analyses. • Not included in cost-utility analyses. • Double counting of the benefit.

45. Costs of Treatment During Gained Life Expectancy • If the intervention saves a life, that person will die of something else later on. What are his/her expected total medical expenditures in the added life years? A controversial cost. • Pro: these are expenses that would be avoided in the absence of the intervention, and therefore should be counted. • Con: health expenses should not be singled out for inclusion.

46. Averted Treatment Costs • The averted costs to society of treating persons for the disease are subtracted from total costs. • Included in the cost side because they impact the health care budget. • A negative cost, not a benefit.

47. Measuring Benefits • Benefits can be measured in many ways • Different units of measurement • Dollars • Years of life saved • Quality adjusted years of life gained • Specific health outcome • Different time frames for the outcome • Intermediate outcome • Final health outcomes

48. Measuring Benefits Prevention poses special problems: • Benefits may be: • small and cumulative. • complex and interrelated. • Are difficult to measure or validate without large samples of panel data observed over long time periods. • Consequently, often focus on intermediate outcomes.

49. Measuring Benefits Prevention poses special problems: • Aim is often to change behavior among more people. • Increases costs in the short term. • Community versus individual approach. • Economies of scale possible. • Provide walking trails; tax gasoline. • Individual interventions often more costly.

50. How to Put it Together? Have costs and benefits, how to put them together? Depends on the type of EE.