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1、Tools for Decision Making,Economic evaluation ofHealth InterventionsShi RongShanghai Jiao Tong University,PART I.Opportunity cost,To make a choice means opt for something and give up another opportunity.=Every choice involves a cost.The economists use the term of opportunity cost to emphasis this co
2、st.Opportunity cost:the best alternative foregone.,Example,You have 1,000 You have 3 options:A/EPI 15 lives saved B/DOTS 20 lives saved C/Fluconazol 5 lives savedWhat is the opportunity cost of choosing(1)A,(2)B and(3)C?,Marginality:the question is not“to study or not”,but“how many hours per course”
3、?Hours in study Result 5 20/100 10 50/100 15 70/100 20 80/100 25 85/100 30 86/100,Marginality for the consumer,It depends also on the quantity I have already!Before buying/consuming one unit,I consider what utility brings this supplementary unit.Economists considers that marginal utility is decreasi
4、ng:the next unit brings less utility than the previous one.,Choice:the example of the MoH,In many situations,decision is not on my own resources along my own preferences.Example:Must the MoH put its next$in condoms,drugs for opportunistic diseases or ARV?How to compare marginal benefit and marginal
5、cost?=Cost-effectiveness study!,PART.COST ANALYSIS,1.The use of cost information,4 reasons to study costs:to plan a budget and stay within in(accountable);to compare efficiency of different facilities(to identify opportunities of rationing);to fix prices of a service(allocate cost to goods and servi
6、ces produced);to prioritize between different interventions.=A vital managerial tool!,2.The relation between cost and output:a few definitions,Output:goods or services produced by a firm.Fixed costs:cost incurred once you start a specific production,but which is not related to the quantity of output
7、.Variable costs:directly related to the quantity of output.,A few definitions,Total cost:for a given output,FC+VC;It is determined by the current state of technique&knowledge,costs of the inputs and quantity of output.Average cost:Total cost/output.Marginal cost:increase in cost due to the productio
8、n of one more unit of output.,A numeric&graphic example,#of nurses Discharged TFC TVC TC AFC AVC AC mC patients 0 0 250 0 250 1 40 250 250 500 6.25 6.25 12.5 6.25 2 100 250 500 750 2.5 5 7.5 4.17 3 130 250 750 1000 1.92 5.77 7.69 8.33 4 150 250 1000 1250 1.67 6.67 8.33 12.5 5 160 250 1250 1500 1.56
9、7.81 9.38 25Marginal cost=(total costn+1-total costn)/(quantityn+1-quantityn),Marginality in decision making:an example,Imagine you are the manager of a health center.Your clinic is open from 8 a.m.to 15 a.m.6 days a week.Part of the population complains about these opening hours.You consider to ext
10、end the opening of your facility.You wonder if it is relevant or not.,Costs of the Health Center,Cost Now Now+Now+Option 1 Options 1&2 Building(%)200 200 200 Equipment(%)100 100 200 Vehicles(%)100 100 150 Support(%)200 200 300 Running costs(%)200 250 250 Staff(%)500 600 1,500 Drugs 500 750 1,000 Tot
11、al 1,800 2,200 3,600 Output(consult.)600 800 900,4.Allocating the overhead costs,Some inputs are shared by different outputs.Theres a need to split the costs per output.INPUT ALLOCATION KEY Vehicles=Distance traveledEquipment=Time usedBuilding space=Space/time usedStaff=time workedSupplies=Volume/we
12、ight used,5.Assessing costs for economic evaluation,Imagine you are in charged of the malaria control program in a district.Provide the list of all the costs of the program.Use the typology capital/recurrent costs.Table 6.4Must include the costs covered by the society as a whole.=Much broader than b
13、udgeting,efficiency comparison and pricing.Figure 6.4,A few definitions,Direct costs:resources used in the design,implementation,receipt and continuation of a health intervention.Actual sums of money are handed over in payment.Indirect costs:the value of resources expended by patients and their care
14、rs to enable individuals to receive an intervention.No money is paid over.Intangible costs:non-financial costs such as anxiety,pain attributable to the program.,Some tips,Direct costs are easy to value.Use actual expenditures or consumption(Dont include stock!)Use sampling Exclude transfers.Indirect
15、 costs are more difficult.Can be the major cost incurred by the households!Use survey and proxies.Intangible are very difficult.Think also to side-effects of the intervention!Dont invest too much time in costs of small amounts!,Classify the following costs of an AIDS/HIV project,Drugs to treat the o
16、pportunistic diseases.Time of carer doing psychological support to the patient to continue their treatment.Feeling of shame and despair of the AIDS patient.Taxi fare to come to the consultation.Absenteeism of the patient on her job the days she goes to the health center.Doctor time for consultation.
17、,Comparing different interventions,Make the perspective explicit:cost for the provider,the health sector,the household or the whole society?Keep the possibility to present separately the costs according to the perspectives(split by sources).Omit common costs(costs shared by all the options under con
18、sideration).,6.Taking time into consideration:6.1.Discounting,You are a manager.You are looking at the future.You have limited resources to carry out some interventions.You have reliable information on future costs and benefits of the different options.You have to identify the best allocation of cur
19、rent and future resources.Ex:private investment.,Time preference,Do you prefer to have 100$today or 100$in one year?Do you prefer to pay 100$today or 100$in one year?People usually worth 1$today more than 1$tomorrow:inflation preference for present.,A preference for the present,Time preference:Peopl
20、es preference for consumption(or use of resources)now rather than later because they value present consumption more than the same consumption in the future.It would exist even in a world of zero inflation and no bank interest.,5 reasons for a positive rate of time preference,Impatience,short-term vi
21、ew of life,living for today rather than in the future.Future is uncertain.“A bird in the hand is worth two in the bush”.Positive economic growth.We will be more wealthy in the future+decreasing marginal utility of wealth=1$today 1$in the future.,5 reasons for a positive rate of time preference,Since
22、 most individual have a positive rate of time preference,one can obtain a positive return when making a riskless investment.I have my own investment opportunities(to increase my future well-being by using resources today).To seize these opportunities,I need the resources now!,When to consider time p
23、reference in economic evaluation?,Whenever:costs occur in different years outcomes occur in different years both costs and outcomes occur in different years.different interventions are compared.Usually costs come at an early stage,benefits come later.,Discounting,Because costs(and outcomes)usually o
24、ccur in different time periods,and because the values of these costs(and outcomes)are different for different years due to time preference,it is important to adjust costs(and outcomes)to common year.,Costs and benefits of 5-year intervention,Year 1 Year 2 Year 3 Year 4 Year 5 TotalBenefits 0 12 40 1
25、00 135 287Costs 100 50 50 50 10 260NetBenefits-100-38-10 50 125 27,Discounted costs&benefits of a 5-year intervention,Year 1 Year 2 Year 3 Year 4 Year 5 TotalBenefits 0 12 40 100 135 287Costs 100 50 50 50 10 260Discount 1 0.91 0.83 0.75 0.68factorPresent 0 11 33 75 92 211Value of BPresent 100 45 41
26、38 7 231Value of CNet-100-34-8 37 85-20benefits,Definitions,Discounting:is a method for adjusting the value of costs and outcomes which occur in different time periods into a common time period,usually the present.Present value:the value now of future costs or benefits adjusted for the fact that the
27、y occur in the future by discounting at a given rate.,How the discount factor is calculated?,The discount rate()is the rate at which future costs and outcomes are discounted to account for time preference.If the discount rate is 5%,for the 1st year,the discount factor will be:1/(1+0.05)=0.9524;for t
28、he 2nd year:1/(1+0.05)2=0.9070;for the 3rd year:1/(1+0.05)3=0.8638;and so on.,Discounting:the formulas,Formula for one year:NPV(Ci)=Ci*discount factor if the cost is incurred at the end of the year,the discount factor is 1 if the cost is incurred at the beginning of the year,the discount factor is,(
29、1+)i,(1+)i-1,1,Discounting:the formulas,Formula for a series of future costs:if the cost is incurred at the end of the year,NPV(Ci)=if the cost is incurred at the beginning of the year,NPV(Ci)=,n,n,i=1,n,Ci,(1+)i,n,i=1,Ci,(1+)i-1,Example,If,we have 3 years,with C1=20,C2=30 and C3=50,then the formula
30、 NPV(Ci)=becomes NPV(C)=+(cost incurred at the beginning of the year),n,n,i=1,Ci,(1+)i-1,20,(1+)0,(1+)1,30,(1+)2,50,Exercise,What is the NPV of each distribution of costs?(=0.06,costs at the beginning of the year)2004 2005 2006 2007Option 1 100 200 300 400Option 2 500 300 200 0Option 3 0 0 0 1000,Di
31、scounting with tables,Tables exist.In the table,N starts at 1.l=next year if the cost is incurred at the beginning of the year;l=this current year,if the cost is incurred the end of the year.,What is the social rate of time preference?,In developed countries,economists use a discount rate between 3
32、and 5%.In developing countries,the discount rate must be higher(“higher urgency of needs”):the World Bank uses a rate around 10%.Local real interest rate(i.e.inflation taken away)can also be used as the social discount rate=r.,Exercise,What is the actualized cost of this program?(=10%;costs assumed
33、as incurred at the beginning of the years),Sensitivity analysis,This proceeds by:identifying uncertain parameters,drawing up the most realistic range of values for them,inserting these into the final calculation of costs and benefits,considering the effect of changing the values on the final outcome
34、.,Consequences,If the final value of the decisional criterion is significantly altered and the value of the variable is genuinely uncertain,the conclusion will be shown to be weak by such sensitivity analysis.If the sensitivity analysis shows that the final value remains quite the same,the conclusio
35、n is reinforced.,Example:costs of 2 programs,Discount rate 3%5%10%1800 usd(year 10)1550 usd(year 5)Choice?,PART.COST-EFFECTIVENESSANALYSIS,The best use of scarce resourcesContent of this session:Cost benefit AnalysisCost effectiveness Analysis exerciseCost utility AnalysisOther criteria than efficie
36、ncy,1st Proposal:Cost-Benefit Analysis,“Investing 1 million in intervention X will yield a social benefit of 1,2 million”.“The same amount in intervention Y will yield a social benefit of 1,1 million”.“The same amount in intervention Z will yield a social benefit of 0,9 million”.,1st Proposal:Cost-B
37、enefit Analysis,CBA:method of economic evaluation where the monetary value of the resources consumed by a health intervention(costs)is compared with the monetary value of the outcomes(benefits)achieved by the intervention.Method used for damp,highway,tunnel,CBA,Great quality:the numerator and nomina
38、tor are in the same unit.=It is possible to compare all the public intervention.Ex:is it better to build a bridge,use the same budget for education or for the control of a disease.Drawback:many outcomes are difficult to value in monetary terms.,How to compare benefits to cost?,The net benefits:Total
39、 Benefits Total Costs of an intervention.Intervention relevant if Net Benefit 0Benefit Cost Ratio:Total Benefit/Total CostsIntervention relevant if BCR 1,Example,Benefit Costs Net BCR(NPV,)(NPV,)BenefitsOption 1 4,500 5,000-500 0.9Option 2 4,500 3,600 900 1.25Option 3 45,500 36,000 9,000 1.25,Health
40、 benefits in monetary value?,How to give a monetary value to the benefits brought by an intervention?There are 3 types of benefits:direct:savings in future costs of prevention,treatment,control which would be incurred by the health service or patients or society at large.indirect:avoided costs in te
41、rms of production or productivity losses.intangible:avoided costs in terms of loss of quality of life.,Indirect benefit,How to value in money terms the years/quality of life saved by an intervention?“Life has no price”but it has an opportunity cost!Better to save a baby,an adult or an eldery?,Which
42、monetary value for life?,Ask to users themselves:Willingness To Pay Survey.“Ask”to the market(other!):valuation of the life of somebody according to his return to the society=Human Capital:salary“Ask”to the politicians:study the revelead preferences in political decisions.,To summarize,Too ambitious
43、 for health intervention.Good method when the indirect costs are an important part of the problem for the society.Example:a disease which generate many production losses.It is the only relevant method if you want to compare an intervention in health and an intervention in another sector(e.g.educatio
44、n).,2nd Proposal:Cost-Effectiveness,“Investing 1 million in intervention X will allow to vaccinate 123,000 children”.“With the same amount,intervention Y may finance 1,931,000 malaria chloroquine treatments”.“The same amount in intervention Z will prevent 76,000 prematured deaths”.,2nd Proposal:Cost
45、-Effectiveness,Effects are measured in non monetary values,Natural units.Principle:we have to identify the effect we want to study.For example,to compare two strategies of vaccination,we will compare cost per child completely vaccinated.It is not always easy to chose!,Breast Cancer Screening:Which c
46、ost to minimize?,Screening cost/screened woman?Screening cost/positive case detected?Scr.&Treatment cost/+case detected?Scr.&Tment cost/true+case detected?Scr.&Tment cost/death averted?Scr.&Tment cost/year of life extended?=The formulation of costs depends on the way we formulate the issue!,To summa
47、rize:strengths of CEA,It is simple.For many health interventions,it is more relevant than CBA.It is a very handy method to compare two interventions which tackle a same health issue.If CEA is enough for the political objective of your study,go for it.,To Summarize:weaknesses if CEA,Many intervention
48、s have numerous effects,including in terms of health.With CEA,we neglect other important outcomes.Possibilities for comparison are limited if the effectiveness is measured with a too specific measurement.We need a tool to be able to compare,for example,a STD project(adults)and a MCH one(mothers&babi
49、es).,3rd Proposal:Cost-Utility Analysis,“Investing 1 million in intervention X will allow to save 53,000 QALYs”.“The same amount in intervention Y will save 49,760 DALYs”.,3rd Proposal:Cost-Utility Analysis,Cost Utility Analysis is a form of evaluation that focuses particular attention on the qualit
50、y of the health outcome produced or averted by a health program.CUA has been developed to consider the whole set of health effects delivered by an intervention.Outcome:composite measure of health effects.,CUA principle,Some of these different outcomes are more important&more valued(by the ill person
