Healthcare Financing Overview Lecture PDF

Lecture 5: Healthcare Financing Overview Defining Health Care Financing  Health care finance is a branch of finance that concerned with the mobilization, accumulation and allocation of money to cover the health needs of the people, individually and collectively, in the health systems.  The whole...

Lecture 5: Healthcare Financing Overview Defining Health Care Financing  Health care finance is a branch of finance that concerned with the mobilization, accumulation and allocation of money to cover the health needs of the people, individually and collectively, in the health systems.  The whole processes of health care finance involves: 1) where the money came from, 2) How it was collected, 3) Redistributed to the third party payers and 4) Finally used to pay the providers for their services.  In summary, healthcare financing provides a mechanism for paying health care costs ( Hsaio, W and Liuis a, Y, 2001). Health Care Financing Goals  To make healthcare affordable and accessible for all.  Improve the health of the majority and make funding available.  Make sure that all individuals have access to effective public health and personal health care.  Improve quality  Control Costs  Set the right financial incentives for providers.  Help understand roles private & public sector play in healthcare sector. How much are we spending?  There exists an enormous mismatch between countries’ health financing needs and their current health spending.  Developing countries account for 84 % of global population and 90 % of the Global Burden of Disease, but only 12 % of global health spending.  The poorest countries bear an even higher share of the burden of disease and injury, yet they have the fewest resources for financing health services. Factors Influencing Health Care Financing 1. Demographic Changes 2. Economic Recession 3. Rising Expectation 4. Concerns About Equity 5. Disease-pattern Changes 6. Displacement Effects Criteria for Choosing a Financing System 1. Viability and ease of using the system: • This implies bureaucratic and cost simplicity, social acceptability and technical feasibility 2. Revenue generating ability: • Net revenue minus earning ability = Revenue minus operating costs • The administration of user-changes for example, may include the costs of billing, accounting and the safe storage and collection of funds. 3. Effects on service – provision: • Systems of financing • For example which involve three parties – the patient, the provider & the insurance company – may lead to over-provision of certain services 4. Effects on equity: • That is equal access to care for those in equal need. 5. Participation in decision-making: • This is a concept that stresses community participation which creates an opportunity for a direct relationship between the consumer and the provider. The National Health Accounts (NHA) Health Care Spending? The National Health Accounts is a process through which countries monitor the flow of money in their health sector.  As health systems have grown and become more complex, planners and policymakers need tools to analyze health financing, in order to better understand their own system and make comparisons with the experience of other nations.  NHA is a tool being used today in more than 144 low- and middleincome countries. ‫مهم‬ Mechanisms of Health Financing : The health service financing source 1. General Revenue Or Taxation. 2. Insurance Schemes. 3. Community Financing. 4. Direct Out Of Pocket Payments. 5. External Source of Financing. 1) General revenue or taxation  The most traditional way of financing health care  It requires a competent government that are capable of collecting, managing and dispersing funds in a responsible and accountable manner.  Tax-based systems is a form of risk pooling in which the risk pool is the entire population of taxpayers.  Tax-based financing systems subsidize the poor and disadvantaged: wealth is transferred from the rich and healthy to finance healthcare for the poor & sick.  However, the problem of consumer moral hazard (overuse of services that are “free”) remains one of the reasons why elements of “fee-for-service” have been introduced in many of tax based systems. 2) Insurance Schemes  A) Social Insurance: is typically operated by a public agency and raise funds via broad based, often compulsory contributions from payroll. No one is excluded from such schemes, in contrast with private risk-based systems.  B) Private Insurance: is usually voluntary and does not involve the government other than in a regulatory role. Private insurance can be used to provide complementary cover for luxury or high-cost services, or a broader range of health care providers, not included in a social health insurance or tax-funded system. Private health insurance can also offer a means of faster access to care, in systems where waiting time is significant. Consumers voluntarily choose to purchase an insurance package that best matches their preference. 3) Community Health Financing  Financing schemes at the local level in which all or most inhabitants of a certain community contribute to the financing of their local health care system.  CHF is a form of voluntary health insurance, which generally target the informal sector in which people are not covered by mandatory insurance. CHF schemes generally operate on a relatively small scale, with a small risk pool.  Community financing can complement taxation and social and private insurance in order to reach people left out by formal taxation and insurance schemes, such as those employed in the informal sector, unemployed, or living in rural areas.  Most community financing schemes have evolved in the context of severe economic constraints, political instability, and lack of good governance. 4) Out-of-Pocket Payments and User Fees  Out-of-pocket payments are payments by patients directly to health services providers that are not reimbursable by an insurance scheme.  The advantages of out of pocket payments are that the money is raised and spent locally, there is less leakage through insurance system overheads and the patients see direct result for their payment, are therefore more willing to pay, and can monitor the service better, leading to enhanced quality.  The amount of money being raised through direct payments is often difficult to measure because much of it is not recorded and may be unofficial or 'underthe-table' payments. l Lecture 6: SocioEconomic Factors and Health Outcomes I- Socio-Economic Status  Whether a program is equitable ( ‫ )فيه عدالة‬or pro-poor is typically determined by estimating the Socio-Economic Status (SES) of clients or users of specific services, and then comparing their individual status to the economic status of the population as a whole.  Socioeconomic status (SES) is an economic and social combined total measure of a person’s economic and social position in relation to others, based on income, education, and occupation.  Economists usually focus on income as a measure, but because it is difficult to measure income objectively, a variety of proxies for it is used to estimate where a household falls on the scale.  Though survey data on living standards have existed for some time in developing countries, they have rarely been used to measure the economic status of individuals served by a particular health program A person’s economic status can be measured using Data Collection: Household Surveys ‫مهم‬ Social Determinants of Health 1. Safe water and sanitation 2. Housing (indoor air pollution) 3. Food security and nutrition 4. Transportation, Road safety 5. Gender 6. Social class, social support 7. Behaviours (tobacco, alcohol) 8. Income & income inequality 9. Education (especially female) 10. Built Environment 11. Stress 12. Employment ‫المخرجات الصحية ذكرها رؤوس اقالم‬ II- Health Outcomes: (1) Mortality  Mortality outcomes are the most common indices of health to measure the health status of a population. e.g. Infant Mortality Rate (IMR): is the number of deaths per 100,000, of children between birth and one year. A high rate has been taken to indicate unmet health needs and unfavorable environmental factors such as economic conditions, nutrition, education, sanitation & medical care.  The government’s role is not limited to legislative options. Subsidy and tax options can also serve to encourage healthy behavior and discourage unhealthy behavior. The challenges are enormous and suggest that economics can play a role in those sensitive areas of public policymaking. II- Health Outcomes: (2) Poor Nutrition Outcomes II- Health Outcomes: (2) Poor Nutrition Outcomes II- Health Outcomes: (2) Poor Nutrition Outcomes II- Health Outcomes: (2) Poor Nutrition Outcomes II- Health Outcomes: (3) Fertility II- Health Outcomes: (3) Fertility II- Health Outcomes: (3) Fertility II- Health Outcomes: (4) Morbidity II- Health Outcomes: (4) Morbidity II- Health Outcomes: (4) Morbidity IV- How poverty affects health: Theory 1. Poor cannot buy health care  Cannot afford to prevent a disease before it occurs (vaccinations)  Doctor visit for diagnosis  Drugs to treat the problem 2. Poor more likely to be malnourished  Can’t afford food or fertilizer to grow food  Immune system weak (Susceptible to diseases) 3. Lack of income to buy drugs so pharmaceutical companies do not invest drug development for specialize diseases (i.e. malaria)  Bill and Melinda Gates Foundation supports research on diseases that mainly affect the poor in the South IV- Poverty affects health: Theory 4. 5. Poor are more likely to live far away from doctors and hospitals  Transportation costs are large  Poor more likely to go untreated  Certainly holds for rural poor, may not hold for urban poor in all countries  Use mobile health clinics and foot doctors to reach the poor in rural areas Poor less likely to be educated Many studies have shown the more educated mothers (literacy) have healthier children • 6. Educated mother understands sanitation better Poor and uneducated girls less likely to refuse unsafe sex and more likely have risky sex leaving them vulnerable to AIDS V- Determinants of Health  Health is affected by these group of factors: 1) Genetic / Biological factors: 2) Environmental factors. 3) Socioeconomic factors. 4) Life style. V.1: Biological determinants  Genetic make-up (Heredity)  It is permanent & can not be altered.  Transmitted by hereditarily.  No treatment.  Many be Prevented to some extent The Millennium Development Goals (MDGs) • The UN Millennium Development Goals are eight goals that all 191 UN member states have agreed to try to achieve by the year 2015. • The MDGs are inter-dependent; all the MDG influence health, and health influences all the MDGs. For example, better health enables children to learn and adults to earn. Gender equality is essential to the achievement of better health. Reducing poverty, hunger and environmental degradation positively influences, but also depends on, better health. There are 8 Millennium Development Goals Lecture 7: The Market Concept and Efficiency Outline OF The Lecture I. Fundamental concepts of markets II. The 9 conditions for competitive markets III. Applicability of market conditions in Healthcare IV. Market Failures V. Market structure  Perfect competition  Imperfect competition  Monopoly  Oligopoly Learning objectives By the end of this lecture you will be able to:  Define the fundamental concepts of markets;  List the 9 conditions for competitive markets;  Define different forms of Market Structure.  Explain the characteristics of Market Structure Key Terms  Adverse selection: When a party enters into an agreement in which they can use their own private information to the disadvantage of another party.  Moral hazard: A situation in which one of the parties to an agreement has an incentive, after the agreement is made, to act in a manner that brings additional benefits to themselves at the expense of the other.  Asymmetry of information: A market situation where all participants do not have access to the same level of information.  Market failure: A situation in which the market does not result in an efficient allocation of resources. In market failure, individual incentives for rational behavior do not lead to rational outcomes for the group.  Externality: a consequence of an industrial or commercial activity which affects other parties without this being reflected in market prices.  Public good: A good or service that can be consumed simultaneously by everyone and from which no one can be excluded. 1) Fundamentals of Markets  A market is simply the result of the interaction of supply and demand.  For any market to function, you simply need three components: 1) A good or service to trade. 2) Two independent players: Buyers, and Sellers 3) A 'price' of the good or service that conveys information about its value, that is:  Buyers’ willingness to pay = Demand,  Sellers’ willingness to produce = Supply. 2) The 9 conditions for competitive markets 3) Applicability of market conditions in Healthcare 4) What is Market Failures?  Market failure is the economic situation defined by an inefficient distribution of goods & services in the free market. There are many potential solutions for market failures. These can take the form of private market solutions, government-imposed solutions, or voluntary collective action solutions. 4.1: Externalities  Economic cost/benefit that is the by-product of economic activity Refers to benefits which are not captured in the main transaction b/w producer & consumer.  The spill-over effects received by the third party without their choice. There’re negative & positive externalities.  Ex: In immunization services the whole community receive the benefits of immunization when transmission of diseases decline even though not everyone took immunization. Ex: Tree farms, trees also serve environmental functions of as capturing CO2 from the atmosphere.  Differs from other commodities where benefits were enjoyed by those who buy. 11 4.2: Public Goods A commodity or service that is provided without profit to all members of a society, either by the government or by a private individual or organization. Health care has the characteristics for it to be classified as public goods. Two main features of public goods are non-rivalness (‫ & )غير منافس‬nonexcludability (‫)عدم االستبعاد‬. Individuals cannot be effectively excluded from using them, and use by one individual does not reduce the good’s availability to others. Certain components of health services particularly preventive services are public goods. E.g. dengue control program through mass spraying of insecticide. Other examples include the air we breathe, public parks, and street lights. 12 4.3: Merit Goods  A commodity or service, such as education & health, that is regarded by society or government as deserving public finance. Merit goods are goods and services that are considered to be very important.  Government take the initiative to ensure its production.  It cannot be left to the private sector since it may not produce in enough quantity for consumption. It would be under consumed if left to the willingness to pay of individuals.  Most of merits goods are provided for free or at highly subsidized by the government. E.g. Maternal and Child Health Services which are considered to be an essential services and in most countries are provided for free. 13 4.4: Risks and Uncertainties (‫)المخاطر وعدم اليقين‬  When someone plan to buy a car for example, he goes to the car dealer when the need to use the car arise and when he has enough money.  Health services is not the same like other commodities because we do not know when we need the service.  No one could know precisely when one would fall ill.  The elements of risks and uncertainties in health care were not only limited to the need but also to the costs. 14 4.5: Imperfect Information (‫)معلومات غير كاملة‬  When someone wanted to buy a car for example, he has some understanding of the model that he is searching for.  He can even have the chance to test drive the car before buying it.  Health services  patients have little idea of the effectiveness of care, the quality and even consequences of having or not having treatment.  Worst still some individuals may not even know that they are ill. 15 4.6) Adverse selection  Adverse selection arises when people use their private information to their own benefit when entering a contractual arrangement, to the disadvantage of the less-informed party.  A classical example of adverse selection is health insurance, because a person typically knows more about his/her own health than the insurer. Thus, everything else equal, the people more likely to buy insurance at any given premium are the ones posing the greatest risks.  Anticipating adverse selection, insurers tend to adjust their premiums upward. In the end, adverse selection leads to higher premiums and fewer insured people than if there were no informational asymmetries. 4.7) Moral hazard  Health insurance provides a good example of moral hazard as well, because people have more incentives to enter into riskier behaviors (e.g., practice extreme sports, spend less on preventive care, etc.) once they have secured insurance.  If insurers cannot prevent moral hazard, they will adjust premiums upward accordingly.  As a result, the presence of moral hazard increases premiums and reduces the number of insured people compared to a situation without private information. 5) Forms of Market Structure  Competition in the market occur in various forms  The state of resource allocation differs depending on the type of competition  Types of market structure 1) Perfect competition 2) Monopoly 3) Oligopoly 4) Monopolistic competition 5.1) Perfect Competition  PC is a market structure in where there are many small firms selling homogeneous products.  Characteristics: 1) Many buyers and sellers 2) Homogeneous products 3) Price taker 4) No barriers to entry 5) Perfect mobility of factors of production. 5.2) Monopoly  Monopoly is a market structure in which there is only a single seller of the product. Example : Saudi Railways, Saudi Electricity etc. Usually in monopoly one firm has full control over the supply of the product .  Characteristics: 1) Sole supplier of the product 2) Large number of buyers 3) No close substitutes (Unique products/services) 4) Price maker 5) Impossible entry into the market. 5.2) Disadvantages of Monopoly ‫يتهم ا&حتكار بسعر أعلى وينتج إنتاجا أقل من شركة‬ .‫تنافسية تماما‬  A monopolist charges a higher price and produces less output than a perfectly competitive firm. ‫يتهم ا&حتكار بسعر أعلى وينتج إنتاجا أقل من شركة‬ .‫تنافسية تماما‬  Resource allocation is inefficient because the monopolist produces less than if competition existed.  Monopoly produces higher long-run profits than if competition existed, and  Monopoly transfers income from consumers to producers to a greater degree than under perfect competition. ‫نافسة ا(حتكارية‬-‫( ا‬5.3 5.3) Monopolistic Competition  It is a mid-way between perfect competition and monopoly. .‫ثالية وا(حتكار‬-‫نافسة ا‬-‫ ا‬8‫هو منتصف الطريق ب‬  Characteristics: ‫عدد كبير من الشركات‬ 1) Large number of firms ‫نتجات‬-‫تمايز ا‬ 2) Product differentiation 3) Freedom of entry and exit 4) Less mobility 5) Non price competition 6) No perfect knowledge 7) Close substitutes. Examples: Restaurants, hairdressers, etc. ‫عدد كبير من الشركات تمايز‬ ‫نتج حرية الدخول والخروج من‬-‫ا‬ ‫عرفة‬-‫نافسة غير السعرية غير ا‬-‫ا‬ .‫ثالية بدائل وثيقة‬-‫عرفة ا‬-‫غير ا‬ 5.4) Oligopoly ‫احتكار القلة‬ ‫ من‬A‫أنت هيكل سوقي يوجد فيه عدد قليل من البائع‬ ‫ أولغواحولي‬.‫نتجات التي تبيع منتجات متطابقة أو متباينة‬ (‫تمايزة‬B‫نتجات ا‬B‫فرط )ا‬B‫نقية )منتجات متطابقة( والقلق ا‬ ‫ من‬A‫ي يوجد فيه عدد قليل من البائع‬ ‫ أولغواحولي‬.‫نتجات متطابقة أو متباينة‬ (‫تمايزة‬B‫نتجات ا‬B‫فرط )ا‬B‫ابقة( والقلق ا‬  It is a market structure in which there are few sellers of a product selling identical or differentiated products. Pure Oligopoly (identical products) and Differentiated Oligopoly (differentiated products).  Characteristics: 1) Relatively small number of sellers 2) Interdependence of the firms 3) Price rigidity and price war 4) Difficulty in entry and exit ‫ن‬T‫عدد قليل نسبيا من الترابط سي‬ ‫بة أسعار الشركات‬T‫من ص‬ ‫وصعوبة حرب ا\سعار في الدخول‬ .‫عقدة‬B‫والخروج من هيكل السوق ا‬ 5) Complex market structure. Key Points 1.An oligopoly is a type of market structure where two or more firms have significant market power. Collectively, they have the ability to dictate prices and supply 5.4) Oligopoly Generally, a market is considered an oligopoly when 50 percent of the market is controlled by the leading 4 firms. ‫ يعتبر السوق أولغواحي عندما يتم التحكم‬،‫بشكل عام‬ ‫ شركات‬4 ‫ائة من السوق من قبل‬D‫ في ا‬50 ‫في‬ .‫الرائدة‬ Lecture 8: Promoting equity and the role of government Key Terms  Equity. A policy objective which seeks to establish fairness in the allocation of resources.  Horizontal equity. Equal treatment of equals (e.g. equal access for equal need).  Vertical equity. Unequal (but fair) treatment of un-equals (i.e. individuals who are unequal should be treated differently according to their level of need). Do you think equality of health is a feasible goal?  There is a range of reasons why equality of health is often impossible to achieve, think about the following points: A. Many factors influence health in addition to health care. B. Genetic differences between people mean that complete inequality of health is simply impossible. C. Equalizing health might be considered paternalistic since it may restrict individuals’ lifestyle choices which often have an impact on health. D. If no more resources are to be made available to health services to achieve this goal, then to achieve equal health some people’s health will need to improve and some deteriorate. Equity and health care financing  Whether health care financing system is regressive or progressive depends on the mix of financing sources. As a general rule, systems based on general taxes tend to be more progressive. Systems based on private insurance rely more on direct user payments tend to be more regressive.  Donaldson: reach the following broad conclusions about equity and health care financing: 1) In setting economic objectives, most health care systems will want to pursue both efficiency and equity goals. 2) Efficiency is rather more straightforward in the sense that there is a general consensus around what it means and how it can be measured. 3) Equity is a somewhat trickier concept to pin down, as we have seen from its varied definitions. Lecture 9: Identifying, Measuring and Valuing costs WHY STUDY COST ? 1) To make awareness of cost consciousness among practitioners and consumers. 2) To compare cost of treatment of certain illness or conditions over time or in different settings. 3) To estimate cost of extending or contracting out services. 4) To relate cost to size of health care facility in order to achieve economies of scale (reduced costs per unit that arise from increased total output of a product). Definition and Classifications of Costs  Definition of cost: A cost is the value of money that has been used up to produce something. It is the expenses faced by the business in the process of supplying goods and services to consumer. Cost is the value of resources used to produce something, including specific health services  Behavior – how costs react to changes in underlying cost driver  Variable or Fixed ‫امثلة والفروقات بينهم‬  Function – related to production or sales Product costs –  Direct Material  Direct Labor  Indirect /Factory Overhead / Intangible Cost ‫مهم‬ Direct vs Indirect Cost  Direct Cost (traceable cost) Cost incurred in producing output (traceable with product). Can be quantified directly Ex- drugs, supplies, wages, salary, lab tests.  Indirect Cost (non-traceable cost) A. Tangible Cost Not traceable with product Ex- Office Rent, Marketing expense, Travel bills, insurance, maintenance, telecom. B. Intangible Cost Due to pain, sufferings, depression, loss of quality of life Difficult to quantify Fixed cost vs Variable Cost  Fixed Cost “Overhead cost” Costs which do not vary with the quantity of output in the short run (about one year). Expenses that are unaffected by the amount of work done. Must be borne even if out-put stop. Does not vary with change in the level of out-put. E.g: Rent, Equipment, salaries, property taxes. Lease payment  Variable Cost Costs which vary with the level of output As output increase variable cost increases. E.g: Drugs, Vaccines, Consumables and Supplies. Food, Medical/Surgical supply Other Types of Costs  Opportunity cost and actual cost  Explicit and implicit cost  Capital Cost and operating cost  Recurrent Cost  Marginal Cost  Average Cost  Total Cost Total Cost  Refer to sum of all costs incurred in producing any level of out-put  Measure of aggregate resources required of a particular scale of activity Total Cost = Fixed Cost + Variable Cost Average Cost  Is a measure of the Total Costs of production associated with each unit of output  Indicate resource requirements for each unit of output Average Cost = Total Cost Output Marginal Cost Marginal cost (MC) is the increase in total cost that results from a one-unit increase in total product. Over the output range with increasing marginal returns, marginal cost falls as output increases. Over the output range with diminishing marginal returns, marginal cost rises as output increases. Capital Cost (‫)تكلفة رأس المال‬.  Costs of items worth a life span more than one year (buildings, medical equipment, furniture, etc).  Represent investments at a single point in time, usually at the beginning of the program.  Two Types: 1( Depreciating Capital Costs (Buildings, Vehicles, Equipment). 2( Non-depreciating Capital Costs (Land).  Most Capital Costs are fixed costs.  Two important issues in Capital Costs.  Value depreciates over time  Best way to handle capital cost  Annuitize the capital cost to equivalent annual cost over useful life of the asset Recurrent Costs  Costs that are necessarily incurred each year.  Examples: 1) Salaries 2) Drugs 3) Supplies 4) Utilities 5) Fuel 6) Maintenance of Building 7) short-term training ‫مهم‬ Conclusions about costing  Cost is an essential variable for economic evaluations.  Without it, you can’t perform any economic research.  Identifying the costs you need is based on what type of analysis you perform (CEA or CBA) and the perspective you take (payer or societal).  You can estimate the costs of a treatment strategy using micro-costing methods, which requires a careful inventory of all units of resources used.  You can also use gross-costs based on DRG or other database.  Once you have your costs, then you will need to think about the effects of time such as discounting and inflation. 30 Lecture 10: Economic Evaluation 1 I- Economic Evaluation  Economic evaluation is a set of scientific methods to assist decision-makers in making choices between alternative interventions.  It is multidisciplinary and involves economics, epidemiology, biostatistics, medicine, pharmacy etc.  Economic evaluation is about comparing the costs and benefits of an intervention with the cost and benefits of an alternative intervention.  It aims to answer two main questions:  Is the health procedure in question worth doing compared with other things we could do with the same resources?  Are we satisfied that the healthcare resources should be spent in this way rather than in any other way? 4 II- Why study Economic Evaluation 1. Helps to decide which healthcare alternatives provide the best healthcare outcome in terms of money spent. 2. To estimate and understand the full impact of new therapy 3. To make an informed decision regarding appropriate use of drug which have been developed 4. To make the best use of limited resources; in other words, to improve the allocation of resources for pharmaceutical products and services. 5 III-Economic Principles of Costing  Opportunity cost (‫)تكلفة الفرصة البديلة‬: The cost of passing up the next best choice when making a decision. For example, if an asset such as capital is used for one purpose, the opportunity cost is the value of the next best purpose the asset could have been used for:  The Margin concept:  Marginal Cost = cost of one more unit of output/consumption  Marginal Benefit = benefit from one more unit of output/consumption.  Efficiency concept:  Technical efficiency: How to do something using as few resources as possible (e.g. LEAN process) 6 V- Types Of Economic Evaluation The four main approaches that currently in use are: ‫مهم الفرق بينهم‬ are ‫مخرجات متشابهة‬  Cost-minimization analysis ‫معدالت الرضا جودة الحياة‬  Cost-utility analysis ‫مخرجات مادية ومدخالت مادية‬  Cost-benefit analysis. )‫اللي تحتاج ارقام ومقارنة بين برنامجين(مخرجات مختلفة‬  Cost-effectiveness analysis 26 1) Cost Minimization Analysis (CMA)  An analytical tool used to compare two costs of programs that achieved the same outcome.  It compares alternative programs where relevant outcome measures are equal.  It is assumed that regardless of which ever option is taken, the effects or outcomes will be identical.  Therefore, with the assumption that the outcomes of the interventions are measurably identical, the least option is chosen.  Example: The costs of laparoscopic and ‘open’ procedures to treat appendicitis are compared. Both types of procedure have an equivalent outcome but laparoscopic appendicectomy has a higher cost. 27 2) Cost Utility Analysis (CUA)  Method to compare treatment alternatives or programs where costs are measured in monetary terms and outcomes is expressed in terms of patient preferences or quality of life .  Utility value lie between 0 and 1. CUR = Cost / QALY  Benefits are measured in terms of quality adjusted life years (QALY).  Health outcomes adjusted for quality is quality adjusted life year (QALY).  QALY- is a measure of disease burden, including both the quality and the quantity of life lived.  Example: To compare the costs and benefits of health care technologies. 28 2) Cost Utility Analysis (CUA) …. continued  A panel is asked to decide on the numerical value which they would allocate to health state; 0 (the worst imaginable health state) to 100 (the best imaginable health state).  Value scale: a measure of preferences on a scale with arbitrary endpoints (example, SF36, scale of 0 to 100).  Utility scale: a measure of preferences on a scale with endpoints of 0 and 1 and spacing consistent with probability theory. 29 3) Cost-Benefit Analysis (CBA)  Comprehensive and theoretically sound form of economic evaluation.  CBA seeks to place monetary values on both the inputs and outputs i.e. treatment costs and consequence costs.  The effects of treatments, such as complications, number of disability days, and number of life years gained, need to be converted into costs.  Using interviews or questionnaires, subjects are asked how much they would be prepared to pay, in order to obtain the benefits of a treatment, or to avoid the costs of ill health.  Example: Cost-Benefit Analysis of a Worksite OralHealth Promotion Program. 30 4) Cost-Effectiveness Analysis (CEA)  CEA is to identify, examine, and compare the relevant costs and consequences of competing drug regimens and interventions. Cost of the drug treatments are weighed against the effectiveness of the drug.  Costs are expressed in monetary terms: acquisition costs, physician involvement, and nursing costs for administration of the drug.  Consequences are measure in their natural units, such as: Cases cured, Lives saved, Hospitalization prevented. Effectiveness of drug treatments: length of hospital stay , duration of treatment, mortality rate 31 VI- Steps in Cost Effectiveness Analysis The following are the steps in cost effective analysis: 1) Define the Program 2) Compute Net Costs 3) Compute Net Health Effects 4) Apply Decision Rules 5) Perform Sensitivity Analysis. 33 Conclusions  Economic Evaluation is a powerful decision making tool  In infectious, NCD disease prevention  Management ---cost effectiveness.  Support the practice of EBM (Evidence-Based Medicine)  Address issues of technical and allocative efficiency in health care.  Need to be encouraged, training pursued. . 35 36