Cost-Benefit Analysis in the Healthcare Sector
Lecture No. 55
Chapter 16
Contemporary Engineering Economics
Copyright © 2016
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Contemporary Engineering Economics, 6 edition
Park
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Cost-Effectiveness Analysis in Healthcare
•
What constitutes a cost?
o
o
o
•
Direct cost
Indirect cost
Intangibles
What constitutes a health effect?
o
o
Years of life saved (gained)
Quality of life improved
•
Cost-effectiveness ratio
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Discounting
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All cost items in the future are discounted.
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Contemporary Engineering Economics, 6 edition
Park
Copyright © 2016 by Pearson Education, Inc.
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How to Use a CEA?
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Independent interventions
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Cost-effectiveness ratios be calculated for each program and placed in rank order. Select all the programs
as long as the budget permits.
•
Mutually exclusive interventions
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Incremental cost-effectiveness ratios (ΔCERs) should be used to make the selection.
th
Contemporary Engineering Economics, 6 edition
Park
Copyright © 2016 by Pearson Education, Inc.
All Rights Reserved
Example 16.1: Cost-Effectiveness for Independent
Interventions
Given: Cost and health effect for three drug-intervention programs
Find: Which project to fund as a function of available budget?
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Contemporary Engineering Economics, 6 edition
Park
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Solution
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Contemporary Engineering Economics, 6 edition
Park
Copyright © 2016 by Pearson Education, Inc.
All Rights Reserved
Example 16.2: Mutually Exclusive Intervention Programs
Given: Five drug intervention programs
Find: Incremental CER and which program to fund out of five programs
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Contemporary Engineering Economics, 6 edition
Park
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Incremental Analysis
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P1 versus “do-nothing”
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P1 versus P2
–
•
Select P2.
P2 versus P3
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No dominance
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Contemporary Engineering Economics, 6 edition
Park
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(continued)
•
P4 versus P3
–
•
P2 versus P4
–
•
Select P4.
Select P4.
P4 versus P5
–
No dominance
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Contemporary Engineering Economics, 6 edition
Park
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Remaining Mutually Exclusive Alternatives After Eliminating All Dominated Programs
If the available budget is $140,000, all patients should receive intervention P4.
If the available budget is $170,000, all patients should receive the more effective P5.
If the budget is $150,000, 2/3 patients receive P4 and 1/3 receive P5.
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Contemporary Engineering Economics, 6 edition
Park
Copyright © 2016 by Pearson Education, Inc.
All Rights Reserved
Cost-Effectiveness Diagram: Life Years Gained
th
Contemporary Engineering Economics, 6 edition
Park
Copyright © 2016 by Pearson Education, Inc.
All Rights Reserved