Costs and Health Services by Mwimba Chewe - Department of Health Policy and Management - Health Economics HSM 4230

Costs and Health Services Mwimba Chewe Health Economics HSM 4230 Department of Health Policy and Management Outline • Introduction • Cost Effectiveness Analysis • Evaluating Multiple Treatments • Measuring Costs • Measuring Effectiveness • Cost Benefit analysis • Conclusions Introduction • This practice of evaluating new medical advances is called health technology assessment (HTA) and it can generate enormous controversy; • In fact, health technology assessment is so controversial that it is illegal for US Medicare to use HTA in its decision-making. • That HTA is a source of contention is no surprise, because lives hang in the balance whenever cost-effectiveness decisions are made. • If either private or public insurers decide not to cover an expensive cancer medication, then it becomes unaffordable for a large group of people whose lives may have been saved by it. Introduction Introduction • Making these decisions involves implicitly or explicitly placing a monetary value on human life. • Such valuations of life are philosophically contentious and politically explosive. • The first step in health technology assessment is to measure the costs and benefits of a health technology. • The term “technology” should be interpreted broadly – technologies studied as part of HTA include; • new pharmaceutical products • new methods for doing a particular surgery • machine that helps doctors screen for a disease Cost Effectiveness Analysis • HTA encompasses two different types of analysis. • Cost effectiveness analysis, which is the science of comparing the costs and benefits of different medical treatments. • Cost–benefit analysis, which is used to choose optimally from among different treatments by creating an explicit tradeoff between money and health. • Cost-effectiveness analysis (CEA) is defined as the process of measuring the costs and health benefits of various medical treatments, procedures, or therapies. Cost Effectiveness Analysis Cost Effectiveness Analysis • The primary goal of cost-effectiveness studies is to compare different therapeutic approaches or strategies for addressing the same medical condition. • These studies encompass diverse scenarios. • Sometimes, multiple treatments are similar, both in terms of their effects and costs, such as two pills treating the same psychiatric disorder. • Other times, treatment options can be vastly dissimilar, like comparing palliative care in a hospice with experimental surgery conducted inside an MRI scanner. • Challenge: When treatments vary significantly in cost and benefit, it becomes challenging to make meaningful comparisons. Cost Effectiveness Analysis • In some cases, one treatment clearly outperforms another. • If a treatment is both more cost-effective and more effective in delivering health benefits than another, the latter is said to be "dominated" by the former. • When a treatment is dominated by another, it is always advisable to choose the dominating treatment because it offers better health outcomes at a lower cost. • Cost-effectiveness studies help healthcare decision-makers identify the most efficient and cost-effective treatment options, ensuring that patients receive the best care possible while optimizing resource allocation. Example – ART for HIV treatment Treatment Cost per Patient per Year Quality-Adjusted Life Years (QALYs) Outcome Regimen A (newer fixed-dose combination) $500 0.85 Dominant Regimen B (older multi-pill regimen) $700 0.75 Dominated • Regimen A dominates Regimen B because: It costs less ($500 vs. $700) • It provides better health outcomes (0.85 QALYs vs. 0.75 QALYs) • In this case, Regimen B would be considered inefficient and likely excluded from further consideration unless there are specific contextual factors (e.g., drug resistance, availability) that justify its use. ICER: The Incremental Cost- effectiveness Ratio • The heart of cost-effectiveness analysis is the incremental cost-effectiveness ratio (ICER), which provides a comparison between any two treatment options that are not dominated. • If neither treatment is dominant, one treatment must be both more expensive and more effective. • Incremental cost-effectiveness ratio (ICER): the ratio of the incremental costs of pursuing one treatment over another to the incremental benefits of that treatment. • The formula for an ICER is given by equation ICER: The Incremental Cost- effectiveness Ratio • where: • CA and CB are the respective costs of treatments A and B, and • EA and EB are the respective health outcomes of treatments A and B. • Costs in ICER calculations are typically expressed in currency and encompass …