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Conducting an Economic Analysis

Conducting an Economic Analysis. Martha A. Wojtowycz, PhD Associate Professor, Obstetrics and Gynecology SUNY Upstate Medical University, Syracuse, NY A. Dale Tussing, PhD Professor, Economics Syracuse University, Syracuse, NY. What is Economic Analysis?.

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Conducting an Economic Analysis

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  1. Conducting an Economic Analysis Martha A. Wojtowycz, PhD Associate Professor, Obstetrics and Gynecology SUNY Upstate Medical University, Syracuse, NY A. Dale Tussing, PhD Professor, Economics Syracuse University, Syracuse, NY

  2. What is Economic Analysis? • Looks at the financial impact of health programs or medical conditions • What is the cost of our public health program? • What is the cost of a particular condition? • Some analyses compare program costs with outcomes • Outcomes can be measured in: • money terms • health benefits

  3. Types of Economic Analyses • Descriptive analysis • Documents costs or outcomes • What does our care coordination program for pregnant teens cost? • Economic evaluation • Compares costs and outcomes of two or more programs or interventions • To improve enrollment in our enhanced prenatal services program, should we spend our outreach funds on community-based neighborhood workers or on public health nurses?

  4. What are some problems that you might face that lend themselves to economic analysis? Consider these... • You are planning to expand smoking cessation services to all pregnant women in your city. • How much will that cost you? • You need to cut your agency’s budget by 25% next year. • What programs should you keep, and what programs should you cut?

  5. More problems... • You want to get managed care groups in your area to pay your agency to provide care coordination services for eligible pregnant women -- • How do you convince them it’s worth it? • How much do you charge for your services? • What are some of the projects that you are working on?

  6. Uses of economic analyses • Summarizes program and policy outcomes in money terms • Identifies programs to retain/initiate • Aids preparation of budgets and financial projections

  7. Why do economic analyses? • We want to learn how much a program or policy change will cost us. • We want to learn where the most benefit is for our limited dollars. • We want to learn the most efficient ways for implementing a particular policy or achieving a particular goal.

  8. Session objectives… • Provide an overview of concepts that can be used for economic analyses • Discuss the alternative perspectives or points of view from which a descriptive study or an evaluation can be conducted • Present different methodologies available to conduct economic descriptive studies and evaluations

  9. Economic Concepts

  10. Cost • What is meant by cost? • Cost refers to the resources (e.g., people’s time, materials, building space, etc.) used in the program that you are evaluating, expressed in money terms.

  11. Cost (continued) • To serve 1,000 eligible pregnant women, a smoking cessation program requires: • 100 hours of a public health educator’s time, valued at $30 per hour • brochures/manuals valued at $1,500 • What is the cost of this program? • Health Educator = 100x$30 = $3,000 • Materials = $1,500 • Total $4,500

  12. Costs vs. Charges • Costs are not necessarily the same as charges • Costs take into account the quantity and value of resources used to produce something or to provide a service • Charges may or may not reflect true cost • charges may be higher or lower than cost depending on the resources used to provide the service • charges may be influenced by market conditions • charge what others in your community providing a similar service charge

  13. Costs vs. charges (con’t) • Example: A hospital pays $0.25 for a bandage. The hospital charges inpatients $30 for the bandage. • In this case, the cost is $0.25 while the charge is $30.

  14. Different Perspectives Very Important! • Costs vary according to the perspective or point of view of the analysis. • Whose costs? • Several different perspectives from which we can analyze a program including: • Provider perspective • Health department perspective • Societal perspective

  15. Different Perspectives (con’t) • Provider perspective • narrow point of view • count only costs borne by health care providers in providing a service • providers include local health departments, clinicians, managed care organizations, hospitals, community agencies • If you provide health care services and want to determine how much to charge for these services, you may want to use a provider perspective.

  16. Different Perspectives (con’t) • Health Department Perspective • also narrow point of view • include only the impact on budgets of agencies in providing a service or intervention • health department refers to state or local health departments • If you plan program budgets, you may want to use this perspective.

  17. Different Perspectives (con’t) • Societal Perspective • include all costs regardless of who bears the costs • include costs to providers, health departments, consumers or program participants • A societal perspective is usually used for public policy purposes. • It could also be used when a program involves a significant time investment by program clients and you want to take account of their time.

  18. So you see… • Cost is not necessarily the same as program expenditures. • Cost includes most or all program expenditures • However, it may also include items for which there are no expenditures • e.g., sometimes it includes volunteer time, participant time, donated materials

  19. Economic Analysis Techniques

  20. Cost Analysis • Cost analysis is a descriptive analysis technique that only examines program costs. • Add up costs and express in $ terms • Case management program for special needs children costs $250,000 • Outcomes or outputs not evaluated

  21. Cost Analysis (continued) • Different cost measures: • Total cost • Cost per client • Cost of changing the scope/size of the program • Expanding program eligibility • Providing additional services

  22. Uses of Cost Analysis • Useful for budgetary, planning, legislative or reimbursement purposes • How much should a health department budget for care coordination service programs for children with special needs? • A managed care organization would like to buy prenatal care coordination services from a local health department. How much should the health department charge for these services?

  23. Limitations of Cost Analysis • Only looks at cost. • Does not evaluate whether the program is worth the cost.

  24. Economic Evaluation • Cost benefit analysis • Cost effectiveness analysis • Perspectives same as in cost analysis

  25. Cost Benefit Analysis • Economic evaluation technique that compares costs and benefits of program. • Benefits can include: • value of better health, usually measured by cost of disease averted • increased productivity, often measured by earnings or reduced sick days • program savings

  26. Cost Benefit Analysis (con’t) • Costs expressed in $ terms • Benefits expressed in $ terms • Compare costs and benefits • If benefits exceed costs, the program is beneficial. DO IT! • If costs exceed benefits, the program is not beneficial. DON’T DO IT!

  27. Cost Benefit Analysis (con’t) • Ideally, we should fund all programs in which benefits exceed the costs. • However, in an arena of limited resources, we may need to make decisions among several programs in which the benefits exceed the costs. • We need to calculate summary measures for programs and then rank programs according to these measures.

  28. Cost Benefit Analysis Summary Measure • Usual summary measure is the Benefit Cost (BC) ratio. • BC ratio=Benefits in $ terms/costs in $ terms • Benefits exceed costs when ratio is > 1. • We want the BC ratio to be greater than one. • Ratio of 2.0 implies that for every $1 spent on the program there is $2 returned in benefits

  29. Uses of Cost Benefit Analysis • Decision of whether or not to fund a program. • Do the benefits exceed the costs? • Should the health department spend money on a smoking cessation program? (Y or N) • Cost side: Smoking cessation program costs expressed in $ terms. • Benefit side: Place a value on the benefits of reducing the proportion of women who smoke during pregnancy. • Compare costs with benefits. • If Benefit-cost ratio is greater than 1 (or if net benefits are positive) then DO IT!

  30. Do the benefits exceed the costs? Then DO IT! Benefits: Savings to Medicaid from averting a LBW baby ($) Costs: Smoking cessation program cost ($) > ?

  31. Uses of Cost Benefit Analysis (continued) • Comparison of programs, even those having different goals. • Spend money on smoking cessation programor perinatal drug addiction treatment services? • Compare costs and benefits of smoking cessation program. • Compare costs and benefits of addiction treatment program. • Rank programs by benefit-cost ratios. • Select the program with the highest benefit-cost ratio (as long as it is greater than 1).

  32. Choosing between programs B/C of perinatal addiction treatment services B/C of smoking cessation vs. Choose the alternative with the higher B/C ratio as long as it is >1.

  33. Advantages of Cost Benefit Analysis • Evaluates both costs and benefits in money terms. • Powerful tool that can help answer the question of whether or not to fund the program.

  34. Limitations of Cost Benefit Analysis • Must evaluate benefits in money terms. • Sometimes difficult to place a dollar value on outcomes. • Examples: • What is the value of health? • What is the value of a human life? • To avoid placing a dollar value on benefits, use cost effectiveness analysis.

  35. Cost Effectiveness Analysis • Includes both costs and outcomes • Costs expressed in $ terms • Outcomes expressed in units of one health outcome • e.g., repeat teen pregnancy averted • It is important to choose the right outcome measure. • Results can be sensitive to this choice • Effectiveness measure should clearly reflect project objectives

  36. Cost Effectiveness Analysis • Summary measures: • Outcomes per dollar of cost • Repeat teen pregnancies averted per dollar spent on family planning program • You want to maximize the outcomes per dollar • Cost per unit of outcome • Cost per repeat teen pregnancy averted • You want the lowest cost per outcome

  37. Uses of Cost Effectiveness Analysis • Comparison of programs having common goals. • Goal: We want to increase the proportion of pregnant women who seek early prenatal care. • Which of the following programs shall we fund? • prenatal care outreach program • increase provider reimbursement for prenatal care services

  38. Comparison of programs with same goal Increase provider reimbursement ($) Outreach program ($) vs. Common goal: Increase proportion of pregnant women with early prenatal care

  39. Uses of Cost Effectiveness Analysis • When choosing among alternative programs, first calculate summary measures for each alternative. • program that increases provider reimbursement • outreach program

  40. Uses of Cost Effectiveness Analysis (continued) • Select the program with the lowest cost per outcome measure. • Compare the measures and select the program with the lowest cost per woman receiving early prenatal care services. • Or select the program with the highest outcome values per dollar of cost. • Compare the measures and select the program with the greatest increase in the proportion of women receiving prenatal care per dollar of cost.

  41. Advantages of Cost Effectiveness Analysis • Looks at both costs and outcomes. • You do not have to place a dollar value on outcomes.

  42. Limitations of Cost Effectiveness Analysis • Unlike cost benefit analysis, cost effectiveness analysis cannot tell you whether to fund a program. • Therefore, judgements about the value of a program must implicitly be made by the user of the results (e.g., program planner). • Example: Suppose it costs $5000 to avert each repeat teen pregnancy. The program planner must decide whether this program is worth funding. • Outcome measure selected is inherently arbitrary.

  43. Every project needs to address… • Time frame • Analytic horizon • Discounting • Sensitivity analysis

  44. Eligibility Enrollment Access to well-baby visits B I R T H At-risk Immunization Received Service Referred Ready-for-school Time frame: the period of your program or intervention Analytic horizon: the period of impact included in your study

  45. Discounting of future costs and outcomes • Even if the program is a one-year program and the costs are incurred this year, the outcome effects are likely to continue into the future • $1 today is worth more than $1 next year • benefits in future years are worth less than benefits realized this year • Discounting is a technique that reduces the value of future benefits to current values. • If costs occur in the future, they need to be discounted as well.

  46. Sensitivity Analysis • Results of economic evaluations may be sensitive to the assumptions used to estimate both costs and benefits, and choice of outcome measure. • We need to know how changes in these affect the results. • Calculate the summary measures using different assumptions in the success rate of intervention, valuation of costs, valuation of benefits, choice of outcome measure, discount rate, outcome measure. • analyze worst and best case scenarios

  47. Part II – Group Exercise

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