Measuring Costs and Benefits in Health Care Francois Dionne, PhD Contact:

Overall Plan

Overview Economic evaluation Priority setting in health care Why these presentations or: how does this relate to quality improvement initiatives?

Why bother with this? “Financial challenges” Two types of initiatives: 1)Will provide net savings 2)‘Purchases’ improved quality

In the background Health authorities – cost control, avoiding crisis Providers – drive service utilization Ministry of Health- meddling Politicians – quick wins, announcements Public expectations about service

“If we are ever going to get the ‘optimum’ results from our national expenditure on the NHS we must finally be able to express the results in the form of the benefit and the cost to the population of a particular type of activity, and the increased benefit that would be obtained if more money were made available.”. Cochrane AL. Effectiveness and Efficiency: random reflections on health services. Nuffield Provincial Hospitals Trust, London, 1972.

Therefore, the pursuit should be… Cost effectiveness rather than just clinical excellence (efficiency versus effectiveness) In order to do this must link costs and benefits (or, improved quality, but at what cost)

Economic evaluation

Economic Principles Opportunity cost –The benefits associated with the best alternative use of those resources is the opportunity cost The Margin –Marginal Cost = cost of one more unit of output/consumption –Marginal Benefit = benefit from one more unit of output/consumption

Efficiency Concepts Technical efficiency –The delivery of an intervention is taken as given –Technical efficiency is about how best to achieve that delivery Allocative efficiency –All interventions have to fight with each other for implementation –It is about whether to do something rather than how to do it (and can also be about how much to do)

What is Economic Evaluation? Economic evaluation is a set of methods to assist decision-makers in making choices between alternative interventions Based on principles of welfare economics –maximise the well-being of the community –‘Fair’ choices require a systematic comparison of costs (resources) and consequences (outcomes or benefits) of alternative health programs

Incremental Analysis Target patient group  Survival  Quality of life New Program Old Program Impact on health status Impact on health care costs Impact on health status Impact on health care costs  Survival  Quality of life  Hospitalisations.  Drugs, procedures etc.  Hospitalisations.  Drugs, procedures etc. DIFFERENCE

Types of Economic Evaluation Cost-Effectiveness Analysis –Measure benefits in natural units e.g. changes in blood pressure –Difficult to compare across programs Cost-Utility Analysis –Measure benefits in terms of QALYs (or equivalent) –Easier to compare across programs Cost-Benefit Analysis –Measure benefits in terms of dollar valuations –Across programs and compare health and non-health programs

Generic steps in economic evaluation (1) Define study question and perspective –Describe alternatives, determine study perspective (2) Identify, measure and value costs and benefits –Measure costs and benefits in physical units relevant for study perspective, value costs and benefits (3) Analysis of costs and benefits –Discounting, incremental (additional) costs and benefits of alternatives, sensitivity analysis on key parameters (4) Decision rule –Incremental Cost-Effectiveness Ratios (ICERs) e.g. cost per QALY thresholds, other decision-making criteria

Study Perspective Study question determines perspective Perspective determines costs/ consequences considered –e.g. societal, government, provider, third party payer Societal - widest possible range of costs/ consequences

Costs Identify, measure and value all resources impacted by the initiative that have a positive opportunity costs Direct health care costs (e.g. costs of treatment) Direct personal costs (e.g. transportation) Direct non-health costs (e.g. administration, legal system) Indirect costs (e.g. productivity losses) Valuation of opportunity costs - market prices/shadow prices

Effectiveness: Quality Adjusted Life Years (QALYs) Initial Final Full Health Dead

Dialysis Transplant QALYs Gained = Life Years Quality of Life Quality Adjusted Life Years (QALYs)

Incremental Cost-Effectiveness Ratio (Cost new – Cost old ) (Effectiveness new – Effectiveness old ) Incremental resources required by the intervention Incremental health effects gained by using the intervention ICER =  C /  E = = ICER

A simple decision rule ICER for new program ≤ $50,000/QALY Decision: adopt new initiative ICER for new program > $50,000/QALY Decision: do not adopt new initiative

$20,000/QALY $100,000/QALY C B D E A Decrease in QALYsIncrease in QALYs More Costly Less Costly Grades of recommendation The Cost-Effectiveness Acceptability Plane

$20,000/QALY $100,000/QALY C B D E A Decrease in QALYsIncrease in QALYs Costly More Costly Less Costly New technology is as/ more effective & less costly A. Compelling evidence for adoption

$20,000/QALY $100,000/QALY C B D E A Decrease in QALYsIncrease in QALYs More Costly Less Costly B. Strong evidence for adoption New technology more effective, incremental cost/QALY ≤$20,000

$100,000/QALY C B D E A New technology more effective, incremental cost/QALY ≤$100,000 C. Moderate evidence for adoption Increase in QALYs More Costly Less Costly Decrease in QALYs $20,000/QALY

$20,000/QALY $100,000/QALY C B D E A Increase in QALYs More Costly Less Costly New technology more effective, incremental cost/QALY > $100,000 D. Weak evidence for adoption

$20,000/QALY $100,000/QALY C B D E A Decrease in QALYsIncrease in QALYs More Costly Less Costly New technology is less effective, or as effective, and more costly E. Compelling evidence for rejection

How is economic evaluation used? Lots of examples of local decisions using economic evaluation as an input into decision process National cost-effectiveness guidance has made some impact on real-world decisions –Demonstration of clinically-important benefit is still paramount –Economic analysis is more important when there is substantial budgetary impact –There are broader contextual factors (systems, organizational and ethical considerations) that influence priority setting decisions

CDR Recommendations

PBAC recommendations Incremental cost/extra QALY gained Evaluations

Take home messages Economic evaluation methods are well developed but that does not mean simple to apply C/E does not take into account all factors that are considered in decision-making in health care organizations- multiple objectives – it is about EFFICIENCY Very helpful to identify dominant strategies but a threshold is a rudimentary measurement of opportunity cost- one that leads to ever increasing spending

Group exercise #1

Economic evaluation Each group choose an ‘intervention’ related to safety or quality improvement Design an economic evaluation to assess the incremental costs and benefits –What is your study perspective? –What is the comparator? –What costs need to be collected? –How will you measure benefits ? For how long? What about possible non-participation? 30 minutes group work, no reporting back- focus on questions

Priority setting in health care Francois Dionne, PhD Contact:

Background

Resource allocation Allocation of health care funds according to defined populations is a global phenomenon Basic notion within health authorities is that of a limited funding envelope –Not enough resources to meet all needs Surveys have reported uncertainty amongst decision makers on how best to set priorities and allocate resources, i.e. economic evaluation is not sufficient

Decisions Decision-makers need to determine: –what health care services to provide –for whom to provide services –how to provide services –where services should be provided … in order to meet local and/ or system level objectives including improved access, health gain…within a set budget

How is that typically done? Resource allocation based on historical patterns (across the board changes) with incremental adjustments Incremental adjustments are based on: –Politics and the ‘squeaky wheel’ –New technologies: Economic evaluation (limited)

What is required? (or, what would be nice) A pragmatic decision-making approach that…. –Aligns resources strategically with system goals and community needs –Leads to publicly defensible decisions based on available evidence and community values –Facilitates stakeholder engagement around improving benefit with limited resources –Supports the public accountability of health care decision-makers

This leads us in the direction of Program Budgeting and Marginal Analysis (PBMA) Formal framework to assist decision-makers in making resource allocations decisions Combines medicine, economics and ethics Used since the 1970’s in health care

PBMA

Program Budgeting 1. What resources are available in total? 2.In what ways are these resources currently spent? 3.What part of the budget can be changed? Basic thinking behind PBMA

Marginal Analysis 1. What are the main candidates for more resources and what would be their effectiveness? 2. Are there any areas of care which could be provided to the same level of effectiveness but with less resources, thereby releasing resources to fund candidates for more resources? 3. Are there areas of care which, despite being effective, should have less resources because a candidate for more resources is more effective (per $ spent)?

PBMA process 1. Determine aim & scope of decision making. 4. Develop decision criteria with stakeholder input. 3. Clarify existing resource mix. 5. Identify and investment and disinvestment options. 7. Validate recommendations, provide formal decision review process and implement decisions. 8. Evaluate & improve. 6. Evaluate options and make resource allocation recommendations. 2. Form priority setting committee.

Determine aim and scope of activity Is the aim to bridge a deficit situation, to allocate new funding, to consider possible re-allocations of existing funding… What parts of the organization are included in the process implementation?

The Advisory Panel Multi-disciplinary mix of stakeholders –Decision-makers, clinician leaders –Finance/information personnel –Sometimes, consumer/community representatives Manager of the process

Mapping resource use Summary of information about services provided across the continuum of care –Run rate versus budget

Decision Making Criteria Basis for priority setting decisions Operationalization of organizational objectives Specified at outset of process in explicit manner Should not overlap (mutually exclusive) Need to clearly define Embody organizational values (weights)

Proposal submission Business case template Targets on investments and/or disinvestments Process guidelines and formal, explicit submission process Genuine disinvestment and investment- system perspective Transition costs in business case Validation from decision support

Benefit measurement Multi-attribute decision analysis (MCDA) Score proposals against criteria Combine the scores to get a single measure of each proposal’s impact- common measurement metric for all proposals

Use of ‘evidence’ Determining Operational Priorities Determining Operational Priorities Population Needs Provincial Requirements / Targets Evidence from the literature: clinical and cost-effectiveness studies Stakeholder Input The Community Staff / Doctors Board Stakeholder Input The Community Staff / Doctors Board Financial Data Service Utilization Output / Outcomes Data Business Plan Priorities Practice Guidelines & Standards

Physician roles Advocacy vs. system perspective Critical appraisal of competing evidence from a range of sources and settings Assessment of clinical evidence from systematic reviews Expert opinion when ‘good evidence’ lacking Ruta et al. 2005

Public roles Values in relation to health care objectives Specific input on decision criteria (weights) Participation on advisory panels?

Expected outcomes Resource shifts consistent with strategic objectives Evidence driven decisions Ownership of resource allocation decision process Transparent and defensible decision making Clinician engagement and partnership

Success factors Shared vision –Stakeholder buy-in –Transparency Credible commitment –Resources for process –Incentives to encourage participation Follow-through (execution) –Facilitating change process Learning/ quality improvement

Take home messages Pragmatic framework required that can compare alternatives for resource use and draws on evidence base Enables organization to move towards improved allocation of resources

Group exercise #2

Setting priorities Let’s assume the improvement initiative you worked on previously underwent an economic evaluation and was found to have an estimated cost per QALY gained that is considered ‘acceptable’ It is also the case that your organization has a formal, structured priority setting process in place Your job is to develop a short proposal to support the implementation of your initiative Be explicit about the benefit gains in relation to your pre-defined criteria