Lecture Notes Template
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COST BENEFIT ANALYSIS March 24, 2015 Outcome: Economic outcome CBA method that uses monetary value in the comparison of costs and consequences Drug A Drug B Cost $ $ Consequence $ $ Advantage: - Single units - Drugs indicated for different diseases can be compared Disadvantage: - Very subjective - Difficult to place a monetary value on clinical outcome Components of CBA Cost - Direct medical - Direct non-medical Benefits - Direct benefits o Direct medical o Direct non-medical - Indirect benefits o Productivity human capital willingness to pay - Intangible benefits o Patient preferences, pain and suffering willingness to pay COSTS And BENEFITS Benefits “cost savings” or “cost avoided” Example: Asthma program: Asthma-galing Asthma-galing No program Costs Medications Salary of RPh Furnitures, etc - Benefit s Reduced hospitalization Less attacks Increased productivity Improved QoL Measuring Indirect and Intangible benefits 1. Human capital (HC) approach 2. Willingness to Pay (WTP) approach Human Capital Approach - One way to measure indirect benefits - Assumption: value of health benefits = economic productivity that they permit - Salary - 2 components o Wage rate o Missed time (missed days vs years?) Categories of Missed days Categories Examples Missed work Days missed from work (for employed) Missed housekeeping Days missed from housekeeping (for unemployed) Restricted activity days Percent of time during which work or housekeeping was restricted Caregiver time Parent’s time spent as a caregiver to a child who has illness Advantages: - Very easy - Very simple Disadvantage - Can be biased to different people (people with different salaries, unemployed) - Assumption may also be biased - Does not incorporate values for pain and suffering Willingness to Pay Method - Measures both indirect and intangible aspects of a disease - Determines how much people are willing to pay to reduce the chance of an adverse health outcome - Grounded in welfare economic theory and incorporates patient preferences and intangible benefits - Contingent valuation (CV) direct method used to elicit dollar values of WTP amounts o 2 general elements: Hypothetical scenario describe health program, amount of time, benefit Bidding vehicle place a value on the program Bidding Vehicles - Open-ended questions “How much are you willing to pay for the program?”
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Lecture Notes
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MEETING No.
COST BENEFIT ANALYSISMarch 24, 2015
Outcome: Economic outcomeCBA method that uses monetary value in the comparison of costs and consequences
Drug ADrug B
Cost$$
Consequence$$
Advantage: Single units Drugs indicated for different diseases can be comparedDisadvantage: Very subjective Difficult to place a monetary value on clinical outcome
Components of CBACost Direct medical Direct non-medicalBenefits Direct benefits Direct medical Direct non-medical Indirect benefits Productivity human capital willingness to pay Intangible benefits Patient preferences, pain and suffering willingness to pay
COSTS And BENEFITSBenefits cost savings or cost avoided
Example:Asthma program: Asthma-galing
Asthma-galingNo program
CostsMedicationsSalary of RPhFurnitures, etc-
BenefitsReduced hospitalizationLess attacksIncreased productivityImproved QoL
Measuring Indirect and Intangible benefits1. Human capital (HC) approach2. Willingness to Pay (WTP) approach
Human Capital Approach One way to measure indirect benefits Assumption: value of health benefits = economic productivity that they permit Salary 2 components Wage rate Missed time (missed days vs years?)
Categories of Missed daysCategoriesExamples
Missed workDays missed from work (for employed)
Missed housekeepingDays missed from housekeeping (for unemployed)
Restricted activity daysPercent of time during which work or housekeeping was restricted
Caregiver timeParents time spent as a caregiver to a child who has illness
Advantages: Very easy Very simpleDisadvantage Can be biased to different people (people with different salaries, unemployed) Assumption may also be biased Does not incorporate values for pain and suffering
Willingness to Pay Method Measures both indirect and intangible aspects of a disease Determines how much people are willing to pay to reduce the chance of an adverse health outcome Grounded in welfare economic theory and incorporates patient preferences and intangible benefits Contingent valuation (CV) direct method used to elicit dollar values of WTP amounts 2 general elements: Hypothetical scenario describe health program, amount of time, benefit Bidding vehicle place a value on the programBidding Vehicles Open-ended questions How much are you willing to pay for the program? Close-ended questions (take it or leave it) Bidding Game maximum willingness to pay Payment card present choices; will always choose lowest amount range bias
HCWTP
AdvantagesStraight forwardEasy to measurePlace dollar value on intangible benefitsGrounded in welfare economic theory
DisadvantagesMaybe biased against specific groups of people (unemployed)Biased assumption unequal wage rates Does not incorporate values for pain and sufferingValidity of WTP responsesCompliance biasStrategic bias
Calculating Results of Costs and Benefits1. Net benefit ( or net cost) calculations2. Benefit-to-cost (or cost-to-benefit) ratio3. Internal rate of return
Net benefit (or net costs) Present the differences between the total costs and benefits Net benefit = total benefits total costs Net cost = total costs total benefits Cost beneficial if: Net benefit >0 Net cost 1 C-to-B
