Core Topics in General & Emergency Surgery: Companion to Specialist Surgical Practice (11 page)
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Authors: Simon Paterson-Brown MBBS MPhil MS FRCS
From the above discussion, it can be seen that, from a health economist's perspective, there are several methods for assessing the benefits that might be accrued from a healthcare intervention within the context of an economic evaluation. Whichever approach is adopted within the economic evaluation, the method of identifying either the costs or the benefits is essentially the same for each of the approaches. In order to identify the relevant costs, it will be necessary to categorise all items of resource that will be utilised within the healthcare programme. Therefore, we need to identify which resources are required and which are not. Measurement requires an estimation of the amount of resources used within the programmes, and these should be measured using natural units of measurement. For example, to look specifically at staffing time, one would use units of time (such as hours) that are spent on activities relating to the programme and the specific grades of staff. For other categories of resource use, different units would be appropriate. One might look at drug use in units such as doses of specific drugs. Other examples of resource use and their relevant methods of measurement are outlined in
Table 2.1
.
Table 2.1
Resource use and methods for measurement
Many of the items in
Table 2.1
are readily identifiable and straightforward to value. Of these, staffing costs usually have the greatest impact upon healthcare costs, and these can be readily costed provided that we are aware of the staffing scale and can use wage rates or salary levels attached to the staff level. For example, to cost consultant time one would multiply the number of hours of consultant time in the programme by their hourly pay, with added allowance to cover the costs of leave, sick pay and superannuation, etc. The majority of the other categories of resource use for health services identified in the table (consumables, overheads, capital, etc.) can be readily costed through the use of the market price.
Elsewhere, community services, ambulance services and the expenses incurred by patients and their families would usually be costed in the same manner as health service resources.
Within the above, certain components are notoriously difficult to cost. For example, using patient or family leisure time incurs an opportunity cost, which is complex to measure as there are differing types of activity that are forgone in such situations. It is also complex to attach monetary values to activity involving voluntary care or time lost from housework. No accessible market value exists for either of these areas; therefore, it is customary to use a comparable market value from another market. As an example, Gerard used the wage rate for auxiliary nursing staff in order to cost the inputs by volunteers assisting with respite services for mentally handicapped adults.
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However, there are occasions when comparable proxy market values are not readily accessible. This is often the case for the costing of ‘time off usual activities’, such as housework, which by its nature is not of routine duration and is often irregular in its occurrence, making comparison with other occupations virtually impossible. One approach that is advocated in such circumstances is to use average female labour costs as a relatively accurate reflection of the opportunity cost of housework.
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While costing might appear to be rather simplistic and straightforward, there are a number of considerations that need to be taken into account before embarking upon such an exercise.
First, we should consider whether healthcare costs should be counted during the base year. By this, we mean that the costs should be adjusted in order to take account of inflation. If we assume that the annual inflation rate is running at 6% then £1060 would be required to purchase an item of medical equipment in a year's time that would currently cost £1000. The two values (both now and in 1 year's time) are considered to be equivalent in real terms, although of course they represent two different amounts of money. This problem becomes more acute if we are considering a comparison of two or more health programmes that have their costs spread at differing proportions over a different number of years. To illustrate this point, let us consider the following example from Auld et al.
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where surgical and drug treatment options are considered for the same hypothetical condition (
Table 2.2
). We assume that each option has the same effect, but the cost streams are different between the two options, and the inflation rate is 5% per annum. This rate means that a cost of £1050 in a year's time is equivalent to £1000 now (i.e. £1050/1.05), and likewise £1102.5 in 2 years' time is also equivalent to £1000 now (i.e. £102.5/1.052). If we compare the costs between the different options in this example, we would conclude that surgery is the more efficient option when compared with the unadjusted drug option, since it is the least costly of the two but equally effective. However, it should be noted at this point that the drug therapy option is only greater in terms of cost owing to inflation. Therefore, if the costs are adjusted to take account of inflation, by adjusting costs to year 0 prices, then both therapies cost exactly the same, with the same effectiveness, and neither of the options can be considered superior to the other.
Table 2.2
Adjusting costs to base year (assuming 5% inflation)
Not all costs and benefits of healthcare programmes are observed to occur at the same point in time. For example, the costs associated with a vaccination programme are incurred very early in order to provide benefits to the individual, or society, in later life. In general, individuals prefer to reap the benefits sooner rather than later and prefer to incur the costs later rather than sooner. The most common method of allowing for such circumstances is to apply a discount rate to future costs and benefits.
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This leads us to consider whether the costs (and benefits) occurring at differing time points should be allocated equal weighting. There is not a consensus amongst health economists over what the appropriate discount rates are, or whether costs and benefits should be discounted at the same rate. Choosing the appropriate discount rate can have significant implications for the results of evaluations; the current recommended rates in England and Scotland are 3.5%. Consequently, sensitivity analysis is essential to assess the implications of varying the discount rate. Recent convention dictates that costs should be discounted at the same rate as benefits,
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though again this should be done in conjunction with sensitivity analysis to assess variations in such assumptions. Issues of discounting of costs and benefit may have a particularly dramatic effect on conclusions if different options have marked differences in the timing of expenditure or outcomes. This is particularly important when considering screening programmes and preventative treatments.
The marginal cost is the cost incurred or saved from producing one unit more, or one unit less, of a healthcare programme. This is in contrast to the average cost, which is the total cost of a programme divided by the total units produced.
In calculating marginal costs the costs of treating an extra case, or moving from one programme to another, need to be assessed. For example, if there is currently a breast-screening programme for 50- to 65-year-old women and one wishes to consider whether breast screening is as cost-effective in women aged 40–50 years of age, this should be done by looking at the marginal costs and benefits of reducing the age at which screening is started rather than assessing average costs for the entire programme. The use of marginal rather than average costs has been found to be extremely important in screening programmes, where the marginal cost of screening an additional individual can be significantly lower than the average cost.
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Auld et al. illustrate this point with an example of hospital care.
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Although it may well cost £25 000 per annum, on average, to care for an elderly person in hospital, it is extremely unlikely that this amount would be saved if one person less were admitted to the hospital. Similarly, this figure is unlikely to equate to an additional expense if one person more were admitted to the hospital. The reasoning behind this is that some costs, such as capital and overhead costs plus some staffing costs, will not differ with small incremental changes in the numbers of patients entering the hospital.
The use of full costs or marginal costs may depend upon the purpose of an economic evaluation and also the time scale of interest. For example, if one is considering making the most cost-effective use of limited resources then the issue may be one of opportunity costs in that a change in activity may be more or less cost-effective depending upon the activity that is displaced. Marginal costing depends upon an ability to distinguish between fixed and variable costs, and this can be difficult as it may depend upon time-scale and capacity issues. In the long term most resources can be altered in line with activity, although there may be issues of economies of scale. In general the assessment of whether a new technology is considered a cost-effective use of resources will depend upon an assessment of the full costs that would be incurred; however, there may be special considerations where a particular resource has limited availability that could not be influenced by additional expenditure due to capacity constraints.
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Another issue that arises in addressing costs is the difference between the true cost of providing care or treatment and the charge that may be made for that treatment by the providing authority. In the UK in recent years the costs of treatment have been classified according to health resource groups that may cover a range of related procedures and/or diagnostic groupings. For these procedures, reference costs have been determined that represent the average costs of treatment within the NHS and a set of tariffs has been developed that determines the level of funding available to providers that deliver the services. In some cases these tariff rates or reference costs are used for economic analysis; however, they frequently cover a wide of range of procedures and case mix and may not represent true costs.
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This section highlights the importance of adhering to the appropriate methods when undertaking the costing component of an evaluation. Failure to do so might well lead to incorrect conclusions and to recommendations based upon flawed analysis. Clearly, not all studies that are published will have fully adopted the principles underlying the methods outlined in this section, and it is important when assessing the results from evaluations to consider whether appropriate analyses have been undertaken.
Within the healthcare sector, there will never be enough resources to allow the sufficient provision of healthcare to satisfy the demands of society. Quite simply, resources are scarce and choices need to be made about how best to distribute such resources. Such problems are further increased by the fact that healthcare is a mercurial environment with changing technology and population structures. This leads on to the concept of opportunity cost. Because of the scarcity of resources, choices need to be made regarding the best method for their deployment. It is therefore inevitable that choosing to use resources for one activity requires that their use in other activities must be forsaken. The benefits, often referred to as utility, that would have resulted from these forsaken activities are referred to as opportunity costs. In healthcare, the opportunity costs of the use of resources for a particular healthcare programme or intervention are equivalent to the benefits forsaken in the best alternative use of these resources.
It is necessary to identify from whose perspective the economic evaluation is undertaken. The perspective can be that of the individual patient, the NHS, the individual hospital or service provider, the government or society as a whole. If we considered the societal perspective, then we would seek to include all costs and benefits, no matter where they occur. In the UK, the methods recommended by NICE consider that the base case for cost-effectiveness analysis should include health and personal social service costs, but not all societal or costs incurred by patients, although other issues may be taken into account in evaluating technologies.
Within healthcare, economic evaluation is used as a general term to describe a range of methods that look at the costs and consequences of different programmes or interventions.
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Each of the methods involves identifying, measuring and, where necessary, valuing all of the relevant costs and consequences of the programme or intervention under review.
There are four main approaches for undertaking economic evaluation: cost-minimisation analysis, cost-effectiveness analysis, cost–utility analysis and cost–benefit analysis. A summary of the features of these is given in
Table 2.3
and each is discussed below, outlining their appropriate use in healthcare.
Table 2.3
Methods of economic evaluation
| Type of economic evaluation | Units of measurement |
| Cost-minimisation analysis | Outcomes are the same between the different options; evaluation based upon cost |
| Cost-effectiveness analysis | Benefits are quantity or quality of life, which are measured in natural units (e.g. life-years gained, cases avoided, etc.) |
| Cost–utility analysis | Benefits are quantity and quality of life, which are measured using QALYs or HYEs |
| Cost–benefit analysis | Benefits are quantity and quality of life, which are measured in monetary terms such as human capital or willingness to pay |
HYE, healthy years equivalent; QALY, quality-adjusted life-year.
Cost-minimisation analysis is often considered to be a form of cost-effectiveness analysis but is treated here as a separate method of economic evaluation. This particular form of economic evaluation is appropriate in circumstances where, prior to investigation, there is no reason to expect that there will be any therapeutic difference in the outcomes of the procedures under consideration. For example, we might wish to consider two different settings of treatment for varicose veins, such as day-case and inpatient treatment. Here, one might assume that there would be no expected differences in outcome between the two forms of treatment, and therefore the preferred option would involve choosing the treatment method that was the least costly of the two. Care should be taken in applying cost minimisation and it should be borne in mind that the lack of evidence regarding differences in outcomes is not the same as evidence that such differences do not exist. If there is potential for such differences then a safer approach is to carry out cost-effectiveness analysis with a sensitivity analysis to examine the effect of possible differences in outcome (see below). It is not unusual to find that plausible but unsubstantiated differences in outcome would outweigh the cost differences, which might have led to incorrect conclusions had analysis been confined to cost-minimisation techniques.
Cost-effectiveness analysis should be used when the outcomes from the different programmes or interventions are anticipated to vary. The outcomes are expressed in natural units, though the appropriate measure to be used in such studies depends ultimately upon the programmes that are being compared. For interventions that would be expected to extend life, natural units such as life-years gained would be an appropriate measure. However, there might be a programme, such as the surgical approach for a hernia repair, where other measures might be considered appropriate, in this case, for example, recurrence rates or time taken to return to work. Likewise, there might be a comparison of two different preventative treatments for coronary heart disease, where heart attacks avoided might be a suitable measure to use. In order to assess the cost-effectiveness, or otherwise, of the interventions, cost is expressed per unit of outcome (cost-effectiveness ratios). The outcome of interest in the appraisal of two or more interventions must be exactly the same for each of the alternatives that are considered. Therefore, the results from cost-effectiveness studies cannot often be generalised in order to assess the impact of interventions for differing conditions unless a unified measure that reflects both quantity and quality of survival is used (see cost–utility analysis). In conclusion, cost-effectiveness analysis is a useful tool for informing choices between alternatives where common outcomes have been used for the analysis.
As an example, one might assess the cost per stroke avoided in comparing the cost-effectiveness of a drug treatment for stroke prevention with that of carotid endarterectomy. However, such figures would be of little help in comparing the value of these treatments with that of a treatment for a different condition, such as joint replacement.
As has been discussed above, one of the potential limitations of cost-effectiveness analysis is that it does not allow for decisions to be made regarding different treatments for differing diseases or conditions if the units of outcome differ between disease areas.
Cost–utility analysis can be thought of as a special case of cost-effectiveness analysis where the outcomes are expressed in generic units that are able to represent the outcome for different conditions and treatments. Therefore, the units of outcome combine both mortality and morbidity information into a single unit of measurement (such as QALYs or HYEs). This two-dimensional outcome measure allows comparisons to be drawn between treatments for different therapeutic areas. These units of measurement are often expressed in terms of a universal unit, usually cost per QALY gained. Such units have resulted in league tables that compare the outcomes for treatments in different areas, and these will be discussed below.
Cost–utility analysis expressed in terms of cost per QALY gained has become the predominant form of cost-effectiveness analysis in recent years.
In comparing the results of cost-effectiveness analysis for different treatments it is usual to report the incremental cost-effectiveness ratio (ICER). The ICER is the ratio between the additional cost that is incurred and the additional benefit (frequently measured in QALYs). Thus, for example, if a treatment produces 0.5 of a quality-adjusted life-year more than the next best treatment but costs an additional £5000, the incremental cost-effectiveness ratio would be £5000 divided by 0.5 or £10 000 per QALY. If the treatment that produces greater clinical benefit is less costly than the alternative then the ICER is negative and the treatment with better outcomes is said to ‘dominate’, thus being the preferred option in that it produces greater benefit at lower cost.
Where the ICER is positive it reflects the fact that the additional benefit comes at an additional cost and the ICER can be compared with other alternative uses for the available resources. Such calculations have been used to produce league tables to compare the cost of providing benefits by treatment in different clinical settings.
Decision-makers face difficult decisions when asked how to allocate resources in healthcare. Such decisions are increasingly influenced by the relative cost-effectiveness of different treatments and by comparisons between healthcare interventions in terms of their cost per life-year or per QALY gained. The first compilation of such league tables was undertaken by Williams, who calculated the cost per QALY of a range of interventions and divided them into strong candidates for expansion and less strong candidates for expansion.
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Advocates of such analyses argue that if properly constructed, these tables provide comprehensive and valid information to aid decision-makers.
There are, however, problems with the use of such tables and these can make interpretation and comparison between studies problematical.
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First, the year of origin for the studies varies and, because of technological changes and shifts in relative prices, the ranking might not be truly reflective of the intervention under current practice. Second, differing discount rates have been used in the studies, some appropriately and others inappropriately, which impacts upon the results. Third, there have been a variety of preference values for health states, and currently it is difficult to determine which measure of quality of life has been used to derive the estimates concealed within the statistics presented in the league table. Clearly, if there is a high degree of homogeneity between the methods used to derive such estimates then these statistics might well aid decision-makers. Fourth, there is a wide range of costs used within the studies, and often costs are presented at an insufficient level of detail to allow recalculation to reflect local circumstances. In addition, many studies used in such league tables are often compared with differing programmes from which the incremental cost per QALY has been assessed. For example, some might compare with a ‘do nothing’ or ‘do minimum’ alternative, while other programmes would compare with the incremental cost per QALY of expanding services to other groups of patients. Finally, the setting of the study will prove important in drawing comparisons between the statistics in such tables, especially in situations where the studies are undertaken in different countries, requiring adjustments for exchange rates.
There has been a substantial amount of literature on the topic,
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and while these tables might aid the decision-maker they also need to be interpreted with extreme caution as there is ample opportunity to mislead the casual observer.
A more common practice in recent years has been to compare incremental cost-effectiveness ratios against a ‘willingness-to-pay’ (WTP) threshold rather than directly against the ICER of other specific treatments. The WTP threshold is a figure that represents the amount that those who fund the healthcare consider is the maximum that should be paid to generate one unit of benefit, usually one QALY. This figure may be specific to local circumstances, depending upon the population and funding arrangements. In the UK, there has been some discussion in recent years on the appropriate level of WTP thresholds and the theoretical basis for the figures.
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On one hand it may be thought of as representing the amount that society is prepared to pay to generate additional healthcare benefit. An alternative interpretation is that if one assumes that the resources available to health are finite then additional expenditure on a new treatment will displace expenditure elsewhere. Assuming that healthcare provision was fully efficient, the WTP threshold would be the level of cost per additional QALY at which the activity displaced resulted in a net loss of health benefit that was equivalent to that produced by the new treatment. Thus, any treatments that fell below the threshold would displace activities that produced less overall benefit, providing a net gain in health, whilst any treatment that was purchased above the threshold would be displacing greater health gain than was provided by the new treatment.
At present there is active empirical research to try to establish a realistic WTP threshold. In the UK setting NICE works with a threshold of £20 000–30 000 per QALY,
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although early empirical research suggests that this may be set rather high.
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