INTRODUCTION HEALTH

ECONOMIC EVALUATION (I)

1 Judy Ouma
QUESTION
 $100 = 25 x10 = 250 *62% = 155 bal = 95
 $100 = 10 x10 =100 * 92% = 92 bal = 8

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INTRODUCTION
 Economic evaluations involve the identification,
measurement, valuation, and the comparison of the
costs (inputs) and benefits (outcomes) of two or more
alternative treatments or activities or intervention;

 In economic evaluations, the costs and consequences of

alternative interventions or scenarios are compared to
examine the best use of the scarce resources;

 ‘…the comparative analysis of alternative courses of

action in terms of both their cost and
consequences’(Drummond, M. F.et al.1997)

 It involves the gathering and examination of data about

interventions or programmes to allow them to be 4
assessed.
CONT…
 Health care evaluation (HE) is the critical
assessment, through rigorous processes, of an
aspect of healthcare to assess whether it is
fulfilling its objectives:

 Vaccination program

 Free maternal health care

 Out-patient program for armed forces.

 Containers for Slum areas

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 CBA
ASPECTS OF HEALTHCARE CONSIDERED
 Effectiveness – the benefits of healthcare measured
by improvements in health outcomes

 Efficiency – relates the cost of healthcare to the

outputs or benefits obtained

 Acceptability – the social, psychological and ethical

acceptability regarding the way people are treated in
relation to healthcare

 Equity - the fair distribution of healthcare amongst

individuals or groups
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 HE can be carried out during a healthcare intervention, so
that findings of the evaluation inform:
 the ongoing programme -(formative evaluation) or
 end of a programme (known as summative evaluation).

 Evaluation can be undertaken prospectively or

retrospectively.
 a prospective basis (forward)has the advantage of ensuring that
data collection can be adequately planned and hence be specific to
the question posed

 Retrospective data (backward) dredging (cleaning) for proxy

indicators as well as being more likely to be complete.

 Prospective evaluation processes can be built in as an

intrinsic (belonging) part of a service or project (usually
ensuring that systems are designed to support the ongoing 7
process of review).
IMPORTANCE OF HE
 Improve strategies, programs, and interventions

 Make more informed decisions in future planning

 Clarify the options available

 Account for the expenditure of public funds

 For intervention or program

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LOGIC FOR DOING ECONOMIC
EVALUATION
 Ineconomic theory we use the concept of
the ‘economic man’ who goes into the
market determined to maximize his
output given his budget constraint.

 Inthis situation he compares prices and

qualities and does not make any choices
without having full information

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CONT….
 To assist in choosing between options/an aid to
decision-making, not a substitute for thought
 Comparing different preventive programmes for
malaria, diarrhoea, etc in terms of their cost and
effectiveness (in preventing new cases)

 Comparing different HIV treatment programmes in

terms of their effectiveness in extending life and their
cost –cost per Life Year gained

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LOGIC FOR DOING ECONOMIC
EVALUATION....
 The process that a rational individual goes
through when making choices has a specific
pattern:
 it is always possible for the individual to make a
decision when a set of alternatives are given;
 Ranking the consequences of the alternatives in
order of preference;
 Utility maximization by always choosing the
alternative which has the highest priority on the
preference scale;
 Consistency and transitivity

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NOTE…
 Economic evaluation should be a tool that would
help rational individual by providing information
about the impact of implementing a new
programme, thereby making the implications of a
decision more transparent

 Question: Did we undertake necessary economic

evaluation before making decision to pursue the
program????

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STEPS IN CONDUCTING AN ECONOMIC EVALUATION

 Defining the economic question and the

perspective of the study
 Determining the treatments to be evaluated
 Choosing the study design
 Identifying, measuring and valuing the costs of
the alternative treatments
 Identifying, measuring and valuing the benefits of
the alternative treatments
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 Adjusting costs and benefits for
differential timing

 Measuring the incremental costs and

benefits

 Putting
the costs and benefits together
and analysing the results
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 Testing the sensitivity of the results

 DEFINING THE ECONOMIC QUESTION AND THE
PERSPECTIVE OF THE STUDY

• The choice of study questions will depend on the

specifics of your situation and your evaluation
priorities.
• You may want to know whether a new therapy
should be adopted.
• For example, you may have a set budget for
substance use treatments.
• In this situation, your question may be whether a
new treatment can deliver more benefits within the
same budget constraint as other existing
approaches. 15
 The research question must be clearly
defined, the hypotheses must be derived
precisely.
 The study design should be chosen to
reflect reality as closely as possible.

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DETERMINING THE TREATMENTS
TO BE EVALUATED
• Full economic evaluations require two or more
treatments for evaluation.
• The choice of treatments is a very important part of
the evaluation process.
• An economic evaluation is not useful if a potential
treatment of greater benefits and lesser costs has been
omitted.
• The choice of alternatives must be justified
• On the other hand, it is impossible, for practical
reasons, to evaluate all possible alternative
treatments.
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ECONOMIC EVALUATION AND
ECONOMIC ANALYSIS...
 Economic analysis involves the testing of
economic theories and making predictions of
change in response to resource re-allocation

 Whereas Evaluation involves placing a value on

things
 Motivating a reallocation of resources
 Cost-benefit or cost-effectiveness

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CONT…
 Thespecific question being
addressed may be:
A comparison of the costs and
benefits of a new intervention to
some current therapeutic approach

A comparison of the costs and

benefits between treatment and
prevention activities 19
COMPONENTS OF EVALUATION

 The basic components of evaluation are:

 Identifying the parameters of the subject of appraisal,

 Developing criteria specific to the topic within the

parameters,

 Data gathering,

 Measuring the data against the criteria, and

 Employing the results of assessment for improvement of

the process, status, behavior, or activity evaluated.

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I) IDENTIFYING PARAMETERS
 Parameters are the exact dimensions or fixed
limits that clearly define the area of evaluation;
 Establishment of the frame of reference within which
the process will take place;
 are essential to accurate interpretation and
meaningful use of the results of the evaluation.

 Parameters to be considered might include:

 the framework of time within which the data
gathering will take place,
 description of the kinds of data to be obtained, and
 specification of the patient population selected for
evaluation of patient care.
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ILLUSTRATION
 In the assessment of a patient's status on the
health/illness continuum, the parameters might
limit the appraisal to:

 respiratory function,

 neuromuscular function,

 emotional status, or

 any of a number of areas that are important to

accomplishing the overall goals and objectives of
health care for that specific patient. 22
II) DATA GATHERING
 Involves the collection of information that gives
factual and objective evidence about the subject
being evaluated.
 The evidence may be obtained through:
 Observation, interview, the review of patient records,
and,
 Laboratory analysis and testing,
 Radiologic studies, and other diagnostic techniques,
 Physical assessment or examination and history
taking.

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FRAMEWORK FOR EVALUATION:

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COSTS ANALYSIS
 Central to the exercise of evaluation is the concept of cost.
 Evaluating the costs of an intervention first requires the
perspective of the economic evaluation to be defined by
determining relevant categories of costs;
 A number of perspectives can be adopted in an economic
evaluation.
 Perspective of a hospital might include staff costs, hospital
stay costs (also referred to as “hotel costs,” these include
costs of cleaning, heating, laundry and meals), drug costs
and diagnostic testing costs.
 In comparison, taking a wider national health services
perspective would mean including other costs, such as
prescription costs for drugs used by the patient after
discharge.
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NOTE
 Health economists agree that economic
evaluations should be conducted from the
perspective of society, which includes all costs
associated in the evaluation
 E.g. the cost to the patient of time off work.

 In practice, evaluations tend to be conducted

from more narrow points of view.

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USEFULNESS OF COSTING
 Determining the resource requirements of an intervention

 Identifying important cost issues for potential savings –

e.g. the optimal use of personnel in delivery health care

 Budgeting for Strategic planning

 Assessing efficiency in two equivalent programs

 Which one yields the greatest benefit with a given amount

of resources

 It is therefore a common component in all types of economic

evaluation
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CATEGORIES OF COSTS IN HEALTH CARE
 Costs in health care are generally grouped into
the following categories:
i) Direct costs
 Direct costs are those directly associated with the
health care intervention.

 These can be divided into:

 Direct health care costs, such as nurse and doctor
salaries, drug costs, the cost of laboratory tests
needed for the intervention; and

 Direct non health care costs, such as the patient’s

cost of transportation to and from treatment centres. 28
CONT…

ii) Indirect costs

 Indirect costs are associated with reduced
productivity due to illness, disability and death.

 They are typically calculated from the gross

earnings of those in employment.

 If the analysis is conducted from society’s

perspective, indirect costs should be included but,
in practice, these costs are often ignored.
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iii) Intangible costs
 Relate to psychological costs associated with illness or
treatment, such as pain and suffering.

 Although these costs may be mentioned in economic

evaluations, they are rarely quantified because of the
practical difficulties involved in doing so.

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IV) Opportunity cost
 Opportunity cost is a central notion in economic
analysis.

 Used to explain the consequences of choosing between

two alternatives.

 Assume we have a choice of two effective treatments,

A and B, but only have enough money for one of them.

 If treatment A is funded rather than treatment B, the

opportunity cost of funding A is the benefits we forgo
in not choosing B, the next best alternative use of the
resources.
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 ILLUSTRATION
 Consider, for example, two possible interventions:
 a cancer screening programme (intervention A) and the
next best alternative,
 a smoking cessation programme (intervention B).

 Only one of these interventions can be funded within

the available budget.

 The opportunity cost of funding A can be thought of as

the number of life years that would have been gained
through the smoking cessation programme.

 Opportunity costs reflect the fact that choices have to

be made between interventions because of the scarcity 32
of resources.
CONT…
v) Average cost
 Average cost is calculated by dividing the total
costs for the intervention by the total quantity of
treatment units provided, such as the number of
patients receiving a course of antibiotics.

vi) Incremental cost

 Incremental cost is the difference in costs found
between two interventions (i.e., the intervention
and its comparator).
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CONT…
vii) Marginal cost
 Marginal cost is the extra cost of producing one
unit of output or expanding a programme or
service
 E.g. increasing the length of stay in hospital by one
day

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CLASS ACTIVITY
 Based on our discussion, come up with a
hypothetical health programme and identify each
of the above mentioned costs

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ECONOMIC EVALUATIONS TOOLS IN
HEALTH CARE

i) Cost –minimization Analysis (CMA)

ii) Cost-Benefit Analysis (CBA)
iii) Cost-effectiveness analysis (CEA)
iv) Cost-utility analysis (CUA)

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I) COST -MINIMIZATION
 Is a method used to measure and compare the costs of
alternative choices have very similar outcomes, so it
is important to seek the choice that consumes the
least cost.

 The principal limitations of this cost evaluation

method are that it can only be used to compare
treatments that provide the same benefits or
effectiveness (identical outcomes, e.g., therapeutic
effects);

 Also with this method, costs need to be determined

accurately.

 In this way, a decision maker can choose the 37

treatment with the lowest total cost.
II) COST-BENEFIT ANALYSIS

 This compares the financial costs with the benefits of

two or more health care treatments or programs.

 Health care interventions that have the same or

better benefit at a lower cost are better values than
treatments or programs that are more expensive.
 For example, cost-benefit analyses have been conducted to
compare vaccinating people against a certain disease
versus treating those people who get sick from the disease
when no one is vaccinated.

 CBA tries to value the consequences in money terms,

so as to make them commensurate with the costs.
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 CONT…
 One of the problems of CBA is that the
computation of many components of benefits
and costs is intuitively obvious but that there
are others for which intuition fails to suggest
methods of measurement, such as the
monetary value of life.

 Thereforethe basic principle is that there

must be a common unit of measurement

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 CONT…
 Inorder to reach a conclusion as to the desirability
of an intervention, all aspects of the intervention,
positive and negative, must be expressed in terms
of a common unit;
 i.e., there must be a "bottom line." The most
convenient common unit is money.

This means that all benefits and costs of a project

should be measured in terms of their equivalent
money value.
 This becomes a restriction to the application of
this method in evaluation of health 40
programmes.
CLASS ACTIVITY
 In the case of COVID-19 which is the best
intervention? Why?

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