Introduction to Cost-Benefit Analysis

1. Introduction to Cost-Benefit Analysis Awad MATARIA, PhD Health Economist HEC/DHS/WHO-EMRO Introduction to Economic Evaluation with Special Application to NCDs Cairo-Egypt, 16-18 December 2012

2. Introduction • Full economic evaluation with consequences being valued in monetary units. • Direct comparison of costs & consequences in the same unit of measurement. • CBA: an approach or an analysis? • Net Social Benefit (NSB): “Is it worth it?” (figure) • Decision rule depends on the budget constraint. • Ratio of benefits to costs. (figure)

3. NSB

4. Introduction • Full economic evaluation with consequences being valued in monetary units. • Direct comparison of costs & consequences in the same unit of measurement. • CBA: an approach or an analysis? • Net Social Benefit (NSB): “Is it worth it?” (figure) • Decision rule depends on the budget constraint. • Ratio of benefits to costs. (figure)

5. Cost-Benefit Ratio

6. Is the program worthwhile? • CEA/CUA useful to allocate a fixed budget to maximize a selected effectiveness measure. • To do so we need: • Complete and comparable data on all alternatives. • Formal periodic budget allocation process. • Basic difference from CEA/CUA: • CEA/CUA gives the price to achieve an incremental goal, but not whether a goal is worth achieving. Hence, invoke some external criterion of value: League tables and thresholds (arbitrary). • Decision maker implicitly or explicitly do the monetary valuation

7. ICER/ICUR and decision making: • Calculate the ICER/ICUR for having the program of interest and not the comparator. • Compare the calculated ICER to an pre-established threshold of acceptance or to a league table including the ICERs/ICURs of socially accepted and socially unaccepted health programs. • Suggested cut-offs of $30,000 - $50,000 per QALY.

8. CEA/CUA versus CBA • Since both do involve monetary valuations, are they equivalent? • Philosophical difference: ‘decision-making philosophy versus welfare economics and consumer sovereignty. • CBA has a broader scope: transportation and environment. • Production efficiency versus allocative efficiency. • ‘Process utility’, ‘reassurance value’ and non-health benefits. • CEA/CUA are client-focused (patients), not possible to directly include externalities.

9. Assigning money values • Three approaches: • Human capital approach. • Revealed preferences. • Stated preferences.

10. Controversy

11. ECON 638

12. Which is the most appropriate form of economic analysis? • This depends on: • Problem tackled. • Institutional framework. • Practical measurement challenges. • The perspective the analyst takes on the role of the economic evaluation.

13. Components of Economic Evaluation Consequences B

14. What are the relevant costs and consequences to be considered?

15. WHO-CHOICE and GCEA

16. League Table

17. Where to go to know more?

18. Journals With an EE Focus Health Economics Journal of Health Economics The European Journal of Health Economics Cost Effectiveness and Resource Allocation (online journal)

19. An Example: • Kim J, Leung G, Woo P, and Goldie S (2004). “Cost-effectiveness of organized versus opportunistic cervical cytology screening in Hong Kong”. Journal of Public Health, 26(2):130–137.

20. Study aim: • Provide evidence on the cost-effectiveness of alternative cervical cancer screening strategies.

21. Study perspective: • Societal perspective.

22. Efficiency Possibilities Frontiers Economic Evaluation – Jan. 22nd, 2009

23. Results: • Liquid-based cytology dominates conventional cytology. • Threshold from the US: $100 000 per YLS is quite common. • In HK no clear threshold but: • If the threshold is $15 000/YLS, the optimal screening frequency with liquid-based cytology would be every 3 years. • if the threshold is $10 000 per YLS, the optimal screening frequency would be every 4 years.

24. Discounting: • The use of constant dollar value (US$ 2000), to deflate all the cost. • Future costs and life years were discounted at an annual rate of 3 per cent.

25. Sensitivity analysis:...…………..(1) • Sensitivity and specificity of screening strategies. • Upper age limit: no upper age limit, 55 and 65.

26. Conclusion • It is more worthwhile to implement an organized rather than opportunistic strategy for the screening of cervical cancer, using liquid-based cytology.

27. Summary • Economic evaluation is the comparison of costs and consequences to determine the most efficient allocation of scarce resources. • Several challenges: methodological issues. • Economic evaluation will be increasingly used, especially in times of limited public health resources.

28. THANK YOU