Economic Evaluation in Healthcare

• The topic is economic evaluation in healthcare.

Economic Evaluation Methods

• Cost-Equity Analysis is not a commonly recognized means of economic evaluation in healthcare.
• Cost-Utility Analysis and Cost-Effectiveness Analysis are commonly practiced methods.

QALYs in Economic Evaluation

• QALYs quantify the benefits of medical interventions by considering both the quantity and quality of life.
• QALYs are used in Cost-Benefit Analysis.

Discount Rate Considerations

• Evaluators placing heavy weight on future generations should use a low discount rate.
• High discount rates would de-emphasize future costs and benefits.

Cost-Effectiveness Analysis

• Cost-effectiveness analysis measures outcomes in natural units.
• It is poorly suited for programs with multiple types of health outcomes as each outcome is measured in a different unit and cannot be combined into a single indicator.
• Cost-effectiveness analysis is better suited to situations with a single, primary outcome of a treatment that is of interest.

Economic Evaluation Requirements

• An economic evaluation must compare two or more programs in terms of their costs and benefits.
• A study that calculates the economic costs to society without comparing programs or interventions doesn't qualify as an economic evaluation.
• Furthermore, the study considers only one aspect (the costs of disease) rather than the costs and consequences of a course of action.

Societal Perspective in Economic Evaluations

• Economists recommend conducting economic evaluations from the viewpoint of all members of society to maximize social welfare.
• Failing to do so gives zero weight to the costs borne or benefits obtained by some members of society.
• Viewpoint refers to the set of people and organizations whose costs and benefits are included in the evaluation.

Cost-Utility Analysis and Allocative Efficiency

• Cost-utility analysis incorporates subjective values into the calculation of quality-adjusted life-years (QALY).
• Cost-utility analysis only answers the question of the least expensive way to produce a QALY.
• It cannot, through the analysis itself, reveal whether a program would generate positive net benefit to society and address questions of allocative efficiency.
• Policy makers must judge whether producing QALYs at the indicated cost is a good investment.
• In contrast, cost-benefit analysis produces a measure of the net benefit to society under all the assumptions associated with CBA.

Time Preference and Prevention Programs

• A higher rate of time preference means that a person weights costs and benefits that occur now or in the near future much more heavily than costs and benefits that arise far in the future.
• Prevention programs are generally characterized by high up-front costs followed by benefits in the future.
• Preventive programs are less attractive to those with high rates of time preference than for those with low rates of time preference.

Net-Benefit Measure and Pareto Efficiency

• The use of the net-benefit measure to summarize the results of a cost-benefit study does not follow directly from the Pareto efficiency principle.
• The net-benefit principle deems an allocation efficient if it increases net benefit.
• Note that many individuals may be harmed by the action, but if the gains by those are sufficiently large, the action is deemed efficient.
• The net-benefit measure corresponds more closely with the potential Pareto criterion.
• In contrast, the Pareto efficiency principle deems an allocation efficient if it is impossible to reallocate resources so as to make at least one person better off while not making anyone else worse off.