ECON 440 Lecture 7: Valuing Health QALYs and Cost-Effectiveness Analysis
13 Jun 2018
School
Department
Course
Professor
Valuing health interventions
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Economic efficiency
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Cost-Benefit Analysis
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Cost-Effectiveness Analysis
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Cost-Utility Analysis: QALYs
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Use of economic evaluation in practice
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Outline for Today
Benefit of other drug + Market size
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Marginal benefit of a new drug
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How much the marginal benefit of the new drug is worth to people
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Marginal cost of the new drug
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Value of the new drug
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What are 4 key pieces of information that we need?
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Valuing the Impact of a Policy, Health Intervention, or New Health Technology
How would tobacco use behavior change?
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Impacts on morbidity, productivity, foregone health care spending (both smokers and non-smokers)
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Estimating the impacts of alternative regulations on tobacco use
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What are they worth?
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Assessing the economic benefits of these reductions in tobacco use and subsequent health effects
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Direct costs of implementation and enforcement
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Losses to consumer surplus from limiting individual choice
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Determining the economic costs of implementing these regulations
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(Value of those costs)
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From Chaloupka et al., 2014
Efficiency requires that we maximize health outcomes gained from the resources allocated to healthcare
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i.e., how good are systems at producing health with a given basket of inputs (fixing resources)?
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Technical efficiency: Maximum possible improvement in health outcome is obtained from a set of resource
inputs
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Can compare across interventions
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Here, we fix the amount of $ (flexibility across inputs)
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Productive efficiency: Maximization of health outcome for a given cost, or the minimization of a cost for a given
outcome
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Concerned with opportunity costs and MB = MC
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Total welfare (well-being)
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Health
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Resources are allocated so as to maximize the welfare of the community
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Allocative efficiency: Value we place on health improvements are equal to their costs
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If the market isn't a useful mechanism to help identify the best way to allocate scare resources, we need
to find other ways to determine where our spending is most valuable
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Efficiency (3 types)
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Social welfare: costs and benefits for individuals and society for different choices
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Getting value for our spending on health care requires thinking about:
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How do we best allocate these resources?
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Economic Efficiency and Health
Both direct and indirect costs
CBA measures costs and benefits in dollars
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Cost-Benefit Analysis
Lecture 7 - Valuing Health: QALYs and Cost-Effectiveness
Analysis
Tuesday, January 30, 2018
1:35 PM
ECON 440 Page 1
Both direct and indirect costs
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Measure benefit →convert that benefit into dollars
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Incremental net benefit > 0
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Incremental benefit/cost ratio > 1
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Allocative efficiency
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Social welfare will improve if marginal benefits > marginal costs
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Valuing opportunity costs, externalities and social benefits that have no market for pricing
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A dollar in the future is worth less than a dollar today - typical discount rate = 3%
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What does this impose on future generations?
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Discounting future costs and benefits
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Allocative efficiency requires equalizing marginal benefit/cost ratios across health interventions
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Ethical and political concerns often make this difficult or impossible to implement in practice
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Equity vs efficiency
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CBA doesn't have anything to say about whether this is equitable or not
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Distribution of costs and benefits
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Human capital approach: present value of an individual's future earnings
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Limited by ability to pay
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Willingness to pay to avoid risks
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e.g. compensating wage differentials
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Willingness to accept compensation for taking risks
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Valuing a human life
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CBA Challenges
Human capital approach: present value of an individual's future earnings
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Willingness to pay to avoid risks / limited ability to pay
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Where do willingness to pay/accept estimates come from?
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Rates of seatbelt usage, willingness to pay for a fire alarm in a house or an airbag in a car, willingness to
pay (reduced wage) for a safer job
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What form can they take?
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Are we willing to pay more throughout our lives so we can receive treatment if and when we need it?
(intangible)
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Willingness to pay for health insurance
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Estimates of value of life across studies: $3 - 7 million
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Its not meant to be applied to the value of saving the life of an identified person (i.e., the value of
changing the risk of mortality from 1 to 0)
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Marginal change in mortality risk
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The Value of a Statistical Life (VSL) is a way to summarize the value of small reductions in mortality risks
(marginal change in mortality risk)
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"Real" vs "Statistical" lives
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Constant across individuals?
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Across age?
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Value of a life:
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CBA Challenges: Value of a Life
Compares the costs of achieving a non-monetary outcome, such as lives saved
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Objective assumed desirable
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Ratio of marginal cost to marginal output (effect)
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Incremental cost-effectiveness ratio (ICER):
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CEA is used where the outcome is measured in the same units across choices and we're trying to determine the
most efficient one
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e.g., can't compare meds that help eyesight and meds that help the heart)
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Cost-effect and outcome are measured in the same units across choices
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Incremental effectiveness of intervention and cost
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Produce a chosen level of output from among alternative production methods at the lowest possible cost
Question of productive efficiency - how much health can we produce for a dollar?
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Cost-Effectiveness Analysis
ECON 440 Page 2
Document Summary
Lecture 7 - valuing health: qalys and cost-effectiveness. Valuing the impact of a policy, health intervention, or new health technology. How much the marginal benefit of the new drug is worth to people. Estimating the impacts of alternative regulations on tobacco use. Impacts on morbidity, productivity, foregone health care spending (both smokers and non-smokers) Assessing the economic benefits of these reductions in tobacco use and subsequent health effects. Determining the economic costs of implementing these regulations. Losses to consumer surplus from limiting individual choice (value of those costs) Efficiency requires that we maximize health outcomes gained from the resources allocated to healthcare. Productive efficiency: maximization of health outcome for a given cost, or the minimization of a cost for a given outcome. Here, we fix the amount of $ (flexibility across inputs) Allocative efficiency: value we place on health improvements are equal to their costs. Concerned with opportunity costs and mb = mc.
