Role of Cost-Benefit and Cost-Effectiveness in Health Sector

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Economics is an age-old social science discipline, which basically deals with production, distribution and consumption of goods, services and service delivery and how society can optimally use its limited resources to achieve its goals. The application of economics to health- related issues started around 30 to 40 years ago. Various health problems like increased cigarette smoking habits in young, limited availability of Retro viral drugs, higher prevalence of obesity and diabetes coupled with very high costs for seeking health care and dearth of trained health care professionals, pose a challenge to policy makers at government and agency level especially with the limited amount of resources available to combat the health- related problems. To overcome these problems health economics plays a major role, hence policy makers conduct Economic Evaluations (EE) which are instrumental in facilitating evidence-based decision making, by helping public health professionals and decision makers identify, measure and compare, which activities have the required impact, which interventions can be scaled up, what activities would be sustainable and what are the interventions which can improve population health in the long run. EE is conducted through various techniques, in order to make informed decision, regarding allocation of limited resources, to bring about reforms in health sector (more so since the year 1980) and to improve ‘service delivery’ and ‘health status’ of the public.

EE can be defined as “Systematic appraisal of costs and benefits of projects, normally undertaken to determine the relative economic efficiency of the programs”. It is a method which informs policy makers regarding the ‘economic cost’ also known as ‘opportunity cost’ which is the value of the benefit of the next best alternative, or the benefit we would have obtained if we had used the resources for the next best alternative.

Given that resources are limited, policy makers have to prioritize how best to invest or allocate the resources, this is where the role of economic evaluation lies. Comparative analysis is the basis of economic evaluation/analysis where comparison of ‘costs’ and ‘consequences ’is done between 2 or more different options. Dr. Thomas Frieden Director of US Centers for Disease Control and Prevention said that “to establish an effective intervention package, it is critical to understand the full range of available evidence- based strategies, the size and characteristics of the population to be reached, the projected impact of each intervention, and the estimated cost”. Public health professionals aim to improve outcomes in the health sector but at the same time want to bring down the cost entailed.

There are various stages involved in EE. Firstly, we need to define the health problem which requires decision making – ‘framing the evaluation’. Then we need to identify the resources that would be required to fix the health problem, in what quantity and put an approximate monetary value for the resources needed, followed by determining what will be the consequences/benefits of the intervention, how many benefits per intervention and what is the worth of the benefits obtained and finally gather evidence on the costs and benefits, interpret the data and present to the policy makers so that decision can be taken. EE can be done at 2 levels – partial level method and full level method.

Partial Economic Evaluation

Partial economic evaluation (PEE) is a method to help public health professionals determine the total cost of the program and disease costs before allocating resources, but the limitation is that no comparison is made between 2 or more alternative options and the costs to outcomes cannot be related. PEE conducts program costs analysis and cost of illness analysis.

Program cost analysis: wherein the total cost of the program is systematically broken down into subsets mentioning all the entities involved along with the specific costs incurred e.g. the intervention cost of providing metformin tablets versus providing a placebo to a group of study subjects for a period of 3 years was $ 2412 per person.
Costs of illness analysis: it helps public health professionals determine the total cost of preventing or treating a particular disease in order to allocate the required funds e.g. for HPV disease-estimated cost of prevention and treating was $8.0 billion in 2010, and actual cost of routine screening for cervical cancer and treatment was $7.0 billion.

Full Economic Evaluation

Full economic evaluation is a method where 2 or more health interventions are compared in relation to the costs incurred for the resources put in and the costs of the outcomes at the end of the said intervention. There are various types of full economic evaluation techniques, for example, cost benefit analysis, cost effective analysis, cost utility analysis.

Cost Benefit Analysis (CBA)

This is an economic evaluation technique which is called the ‘Gold Standard’ of EE. CBA measures inputs and outputs in monetary terms. This technique compares the monetary value of the resources consumed by an intervention, with the monetary values of the benefits obtained from the outcome of the same intervention. CBA helps policy makers to decide, which interventions should receive priority funding, and which health policies should be implemented.

The advantages of CBA are that it can be used to compare interventions with a range of different outcomes. CBA can relate across different sectors in the Economy. It can measure both economic and allocative efficiency issues within health sector or across other sectors. The principle of the CBA is that it can calculate all the benefits and costs associated with any intervention, i.e. The Ministry of Finance may decide to allocate resources for outreach activities for immunization in the health sector or midday meals in public schools through the Ministry of Education, based on available funds and comparing the activities of two different government departments. In this method all costs and benefits like health outcomes and consequences of interventions are converted to a single monetary identity such as $ which makes it simpler for government policy makers to make a decision to invest in interventions. CBA can appropriately help a decision maker to decide if a single intervention policy should be implemented or it would require more than 1 policy for betterment of health status of the population and to determine if the benefits are greater than the costs. If information is needed as to which interventions will result in overall resource savings, a cost–benefit analysis has to be done.

Two common CBA indicators are:

Net Present Value (NPV): which is expressed as a single monetary unit which is obtained by subtracting the cost of an intervention from the cost of the benefits obtained from same intervention. If benefits >cost, then net benefit is > than 0, which means that the monetary value of the outcome is more than the monetary value of the resources used for setting up the intervention, hence this analysis helps public health professionals and policy makers decide which intervention is worthwhile in terms of priority funds allocation. If NPV> Cost, intervention is worthwhile.
Benefit Cost Ratio (BCR): we can also compare the cost and benefits of an intervention through the BCR, which is the ratio of benefits to costs. The result is obtained by dividing the benefits by the cost incurred. This method plays a role in resource allocation because if an intervention is worthwhile depends on BCR. The higher the BCR the more profitable is the intervention. If BCR>1 then intervention is worthwhile hence policy makers can make informed decision and allot funds to implement the intervention. E.g. A 1.50:1 BCR can be interpreted as, for every $1 of costs incurred, the society will gain $1.50 of benefits.

The limitation of CBA is that it cannot put a monetary value on intangible benefits like quality of health and human life.

Cost-Effectiveness Analysis

Cost-effectiveness analysis (CEA) is an EET wherein the consequences of various interventions can be determined by the use of a single outcome and expressed in ‘health units’ as in number of life years saved, number of deaths avoided, number of heart attacks avoided, number of cases detected. Different interventions are measured as cost per unit of effectiveness (National Institute for Health and Clinical Excellence (NICE)). In CEA costs and health effects of an intervention are compared to ascertain the extent to which an intervention is worthy of fund allocation. This helps decision-makers determine how best to allocate limited healthcare resources. CEA is a method to assess health gains relative to cost entailed for different health interventions and directly relates their financial and scientific implications. CEA is calculated by dividing the cost of an intervention in monetary units by the expected health gain which is measured in ‘natural units’ such as number of lives saved. E.g., the cost of using volunteer paramedics and trained lay people as ‘first responders’ to accidents costs approx. US$ 128 per life saved in South Asia and US$ 283in North Africa and Middle east, compared to a community-based ambulance that costs US$1, US$100 and US$3500 per life saved in the same 2 regions respectively. The most commonly used EET in the health sector is CEA wherein the monetary value of the inputs/resources used for an intervention is analyzed against the amount of health status gained as a consequence of that intervention. The outcomes are expressed as health units – as in number of life years saved and the values can be easily interpreted by decision makers and public health professionals. CEA is expressed as – ratio of costs ÷ health outcomes, also known as Cost effectiveness ratio (CER) The advantage of CEA is that the outcomes are expressed as Natural health units only and not as monetary units.

There are 2 types of CER:

Average CER (ACER) which relate to single interventions. When making a decision regarding allocation of resources for Interventions, policy makers compare the ACER of between 2 interventions, and the intervention with lower ACER is given priority funding (provided that the costs and effects of 1 intervention is not changed in any way when the other intervention is introduced).
Incremental CER (ICER) which compares relative costs and effects and expressed as ratio of the difference in cost between 2 alternatives to the difference in effectiveness between the same 2 alternatives. But when interventions are not mutually exclusive, decision makers use ICER to determine what extra benefit can be gained from a new diagnostic test and what are the additional costs to be incurred, e.g. comparing 2 diagnostic tests to detect TB through – sputum smear microscopy and GeneXpert MTB/RIF Nucleic Acid Amplification Test because we are testing a common unit of effect i.e. cost per case detected.

CEA helps policy makers in identifying opportunities which were otherwise neglected by pin pointing those interventions which are not very expensive but have the potential to substantially reduce the disease burden e.g. More than 1 million child deaths occur due to dehydration in diarrhea. Oral rehydration therapy (ORT) can dramatically reduce dehydration thereby reducing mortality and cost is only US$ 2 to US$4. CEA has a major role to help identify ways and means to redirect resources and demonstrates the utility of reallocating resources from ongoing ineffective interventions to better cost- effective interventions. Policy makers can utilize CEA in 4 aspects of an intervention: 1) for an ongoing intervention with current coverage, 2) in order to make decisions regarding upscaling of the intervention, 3) in order to add another intervention to improve coverage e.g. outreach immunization sessions for improving immunization coverage, 4) to decide about shifting from an intervention to a more cost effective one.

The limitation of CEA is that it can determine only a single unit of effectiveness, hence important social costs and benefits are ignored. Also, with CEA policy makers are unable to compare the value of the intervention for different health problems.

Cost-Utility Analysis

Cost-utility analysis (CUA) – this is an EET which is similar to CEA and hence it is mostly stated with CEA. The outcomes are expressed as units measuring the quantity and quality of life years gained. CUA can assess not only the life years saved but also the quality of life years gained. The unit of measure of consequence in CUA are: 1) quality adjusted life years (QALY), which can be defined as a single measure of the quality of life and survival; 2) disability adjusted life years (DALY).

The advantage of CUA is that it analyses interventions that can specifically extend number of life years as well as the quality of the life gained, but at the cost of various side effects involved. There are issues regarding morbidity and mortality to be looked into, e.g. certain types of malignancies. Ministry of Health needs to decide on the best intervention to treat carcinoma breast early stage. The options are radical mastectomy without breast reconstruction and Breast conservation surgery followed by radiotherapy. There are issues of side effects associated with both interventions so CUA helps to make the final decision.

The limitation of CUA is that it cannot measure all other valued characteristics associated with health interventions e.g. QALYs cannot capture differences in the intangible aspects of intervention like, respect, autonomy, provision of information which are all issues of value to patients.

CUA helps policy makers at the agency level like CDC, WHO, UNICEF or Local Health agencies, when their director is faced with the challenge regarding public health interventions and different health outcomes. CUA helps the director to decide which is the best intervention and helps Policy makers to compare the value of different interventions for health problems.

When a decision has to be made regarding allocating resources the best EET currently in use is CUA as it compares the cost of different interventions with their consequences. This can easily be measured in ‘utility based’ units like QALY, which relates to the level of well- being of an individual. QALY is calculated by estimating the total number of life years gained from a certain procedure and then weighting each year to reflect the quality of life in that particular year.

Another measure is ‘Rosser Index’, which describes health status in 2 dimensions: disability and distress. Rosser Index is used to assign quality of life scores to patients. This is useful when decision makers have to compare the outcomes of different programs prior to resource allocation. Both these measures calculate the cost of procedures and quality of life years gained so decision makers can rank them and prioritize allocation of funds.

Conclusion

Evaluating the impact of interventions on health status is important, carrying out EE is critical for health interventions in order to ensure that decision makers are able to allocate resources in the most economical way to the most cost-effective intervention for the betterment of the health status of the population. The role of EE in the form of CBA, CEA and CUA are all EET which can facilitate informed decision by the decision maker regarding the best method to allocate resources.

There is a lot of debate regarding which EET is the best and most effective for resource allocation. CBA is considered the gold standard of EE. Still at present CUA is considered the most sophisticated EE technique available. CEA helps to assess the costs of the interventions and the outcomes of different interventions. Allocation of resources in the health sector entails spending money on health interventions, for this having the knowledge about which intervention is most cost effective and sustainable while providing the greatest health benefits is crucial for decision makers. This where the role of EE comes in, but as said by Mason and colleagues, decision makers should exercise ‘the appropriate caution, care and intelligence’ before finalizing decisions on resource allocation. Hence it has been recommended that Schools of Public Health should offer elective courses on economic evaluation at Master’s and Doctor of Public Health Level to facilitate evidence-based resource allocation decision making in health sector.

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Role of Cost-Benefit and Cost-Effectiveness in Health Sector

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