Health Economic Evaluation:

From Theory to Practice

Assoc Prof Dr Arthorn Riewpaiboon
Director,
Master and Doctor of Philosophy Program in Social, Economics
and Administrative Pharmacy (SEAP)
Division of Social and Administrative Pharmacy
Faculty of Pharmacy, Mahidol University, Thailand
Email: arthorn.rie@mahidol.ac.th/
http://www.pharmacy.mahidol.ac.th/staff/arthorn/
1
Behavioral objectives
• At the end of the lecture, students are
able to understand overview of health
economic evaluation.
• Course description
• This lecture is composed of both theory
and case study of health economic
evaluation focusing on decision tree
modeling approach.

2
 Outlines
• Concepts and economic evaluation methods
• Effectiveness measurement
• Cost measurement
• Cost-effectiveness analysis (CEA), Cost-Utility
analysis (CUA), Cost-benefit analysis (CBA),
Sensitivity analysis

3
Building blocks of health system
Information
and
evidence

Medical
Leadership
products
and
and
governance
technologies
Service
delivery

Health Health
financing workforce

4
• Medical products and technologies-equitable
access to essential medical products and
technologies of assured quality, safety, efficacy
and cost-effectiveness.
• Health financing-ensure people can use
needed services and are protected from
financial catastrophe or impoverishments
associated with having to pay for them.

5
• Health economics is a discipline that analyses
the economic aspects of health and health
care and that usually focuses on the costs
(inputs) and the consequences (outcomes) of
health care interventions using methods and
theories from economics and medicine.
Berger et al 2003.
• Economic evaluation is the comparative
analysis of alternative courses of action in
terms of both their costs and consequences.
Drummond et al 2005.
6
 Economic evaluation (EE)

• The comparative analysis of alternative

courses of action in terms of both their costs
and consequences.
Consequences A
Program A
Cost A
Choice
Cost B Consequences B
Program B
EE_TP_theory.pptx 7
 Conventional Alternative Decision
Drug A; efficacy Drug B; efficacy 85% no
70% with ADR, ADR, $0.15/tab
$0.2/tab
Drug A; efficacy Drug B; efficacy 70% with
70% with ADR, more ADR, $0.3/tab
$0.2/tab
Drug A; efficacy Drug B; efficacy 85% no
70% with ADR, ADR, $0.3/tab
$0.2/tab
Drug A; efficacy Drug B; efficacy 85% with
70% with ADR, more ADR/ pain, $0.2/tab
$0.2/tab EE_TP_theory.pptx 8
 Principles of EE
Effectiveness Costs of the option
of the option
Higher Lower
Higher EE Accept

Lower Reject EE
(rare case)

EE_TP_theory.pptx 9 9
Economic, clinical and humanistic outcomes (ECHO model)

Technology
Pathogens Humanistic

Patient Treatment Outcomes Clinical

Socio-economic factors Economic

Healthcare facilities

Health financing 10
 Outcomes of Health Care
• Clinical outcomes;
mortality, morbidity, disability, clinical end points e.g.
blood pressure, serum glucose concentrations.
• Humanistic outcomes;
effects on physical, social, and emotional well-being
e.g. patient satisfaction, QALYs (Quality-adjusted life
years), DALY (Disability-adjusted life year).
• Economic outcomes;
impact on total health resource utilization and cost
e.g. savings (change) on treatment cost due to health
care intervention. EE_TP_theory.pptx 11
 Cost of illness (CoI)
• CoI measures the economic burden of disease and
illness on society.

• Primary illness and consequences; complications,

sequelae/ not include co-morbidity

• Complication: A secondary disease, an accident, or a negative reaction

occurring during the course of an illness
• Sequela: A pathological condition resulting from a prior disease, injury, or
attack. / A secondary consequence or result of primary illness.
• Co-morbidity: a medical condition existing simultaneously but independently
with another condition in a patient

EE_TP_theory.pptx 12
 Scope of the illness
Diabetes

coronary artery diseases

coronary artery diseases
nephropathy
High blood sugar
foot ulcer
cataracts retinopathy

pneumonia diarrhea car accident cataracts

13

EE_TP_theory.pptx
 Hospitalizatio
Medical n, OPD visits,
cost lab, medical
Direct services
Transportation
cost , meal,
Non- accommodatio
Cost of Medical n, devices,
illness cost patient time
Indirect Work
due toabsence:
sick leave,
treatment,
cost disability,
EE_TP_theory.pptx informal care14
Costs in different perspectives

EE_TP_theory.pptx 15 15
 Persons: Persons: illness
healthy/ risk -case avoided
Persons: Health KAP
-case detected
-success cases
Health Clinical
promotion CEA CEA intervention
-Diagnosis
Disease -Treatment
prevention/control -Rehabilitation
Persons: illness
CEA -case averted
-success case
Cost of healthcare -life year gained CEA Cost of
program -death averted Illness:
-DMC
CUA -DNMC
Persons: quality -IDC
KAP=knowledge, attitude, practice of life CUA
DMC=direct medical cost
DNMC=direct n0n-medical cost -QALY gained
IDC=indirect cost -DALY avoided
CoI=cost of illness
CEA=cost-effectiveness analysis
CUA=cost-utility analysis
CBA=cost-benefit analysis CBA Persons: illness CBA
-change on CoI 16
 Study designs
• EE alongside RCT (piggyback study)
• EE using observational/ real world data
• EE using modeling designs
Decision tree model
Markov model
Dynamic model
• Combination designs

EE_TP_theory.pptx 17
 Steps of CEA
Define the problem

Identify the alternative interventions

Identify and measure cost and outcomes

Value costs and effectiveness

Analyse

Interpret and present results

EE_TP_theory.pptx 18
Defining problem and intervention
• Research question and objectives
• Perspective, time horizon, approach
• Intervention and comparator
• Model formulation

EE_TP_theory.pptx 19
 Effectiveness measures
Clinical;
• Case averted (morbidity avoided)
• Successful case (eg controlling blood pressure,
sugar, cholesterol)
• Life year gained
• Life saved (death averted/ avoided)
Humanistic;
• Quality-Adjusted Life Year (QALY)
• Disability-Adjusted Life Year (DALY)
EE_TP_theory.pptx 20
 Quality-Adjusted Life Year (QALY)
• is a universal health outcome measure combining
gains or losses in both quantity of life (mortality)
and quality of life (morbidity).
• Years adjusted by a preference-based quality
weight; utility score (full health =1, death=0, worse
than being dead = negative scores)

• QALY = (Number of years with full health x 1) +

(Number of years with illness x Utility score of the
illness)
• Ten years of full health, 20 years of health state
with a quality weight of 0.5
QALYS = (10 years x1) +(20 yearsx0.5)
= 10+10 = 20 QALYS
EE_TP_theory.pptx 21
 Disability-Adjusted Life Year (DALY)
A unit of measurement of the impact of disease in terms of both time
lost due to premature death (mortality) and time lived with disability
(morbidity).

DALY =Years of life lost (YLL) + Years live with disability (YLD)

YLL = Average Life Expectancy – Age at Death

YLD = DW x L
• DW = disability weight
• L = average duration of the case until remission or death (years)

(YLD = years live with disability or years lost due to disability)

Berger et al 2003

EE_TP_theory.pptx 22
200 admitted cases + 1 death at 1year old
DALYs =Years of life lost (YLL)
+years lost due to disability (YLD)
Admitted cases =0.402x(5.83/365)x200
= 1.28 DALYS
Dead case = 71-1=70 DALYS
201 cases = 1.28 + 70 = 71.28 DALYs

Disability weight = 0.402 Hospitalization day =5.83

Life expectancy = 71 years
EE_TP_theory.pptx 23
 DISABILITY WEIGHTS
• A disability weight is a weight factor that reflects
the severity of the disease on a scale from 0
(perfect health) to 1 (equivalent to death).
• Disability weight is from a panel of health care
workers.

• http://www.who.int/healthinfo/global_burden_di
sease/daly_disability_weight/en/index.html

EE_TP_theory.pptx 24
http://thaibod.net/diseases.html
EE_TP_theory.pptx 25
 Calculation of ICER
Intervention Conventional
Cost ($) X1 X2
Life year gained (LYG) Y1 Y2
QALYs gained Q1 Q2

• ICER($/LYG) = X1 – X2
Y1 – Y2

• ICER ($/QALY) = X1 – X2
Q1 – Q2

ICER = Incremental cost-effectiveness ratio

EE_TP_theory.pptx 26
 Cost-effectiveness thresholds
Following the recommendations of the Commission on Macroeconomics
and Health, CHOICE uses gross domestic product (GDP) as a readily
available indicator to derive the following three categories of cost-
effectiveness:

• Highly cost-effective (less than GDP per capita)

• Cost-effective (between one and three times GDP per capita)

• Not cost-effective (more than three times GDP per capita)

• CHOosing Interventions that are Cost Effective (WHO-CHOICE)

• http://www.who.int/choice/costs/CER_thresholds/en/index.html
EE_TP_theory.pptx 27
 Sensitivity Analysis
1. One-way sensitivity analysis
- Plausible range
- Analysis of extremes
- Threshold/breakeven analysis
2. Multi-way sensitivity analysis
3. Probabilistic sensitivity analysis;
PSA (Monte Carlo Simulation)
EE_TP_theory.pptx 28
 Monte Carlo Simulation

• Analytical tool used to assure the

random selection of the multiple input
parameters according to their
respective probability distributions for
each evaluation

EE_TP_theory.pptx 29
 Cost-effectiveness plane
• A plot of incremental cost (Y axis) vs
incremental effect (X axis), slope is the ICER.

Source: http://europace.oxfordjournals.org/content/early/2008/12/20/europace.eun342/F1.expansion
EE_TP_theory.pptx 30
 Ref: Wang et al 2009.
EE_TP_theory.pptx 31
 Cost-Benefit Analysis
measures costs and benefits in monetary units
and computes a net pecuniary gain/loss.
Benefits: E2-E1
Costs; P

P = cost of the health intervention

E2 = cost of illness after the intervention
E1 = cost of illness before the intervention
E2 –E1 = savings of cost of illness due to the intervention
32
EE_TP_theory.pptx 32
 Presentation of results

• Net Benefit (NB) or Net present value (NPV)

= Benefits - Costs
• Benefit-to-Cost Ratio
= Benefits/ Costs
• Internal Rate of Return (IRR)
= (Benefits - Costs)/ Costs

EE_TP_theory.pptx 33
 References
1. Berger ML, Bingefors K, Hedblom EC, Pashos CL, Torrance GW. Health
care cost, quality, and outcomes. New Jersey: International Society
for Pharmacoeconomics and Outcome Research, 2003.
2. Briggs A, Sculpher M, Claxton K. Decision modelling for health
economic evaluation. New York: Oxford University Press, 2006.
3. Drummond M, McGuire A. Economic evaluation in health care:
merging theory with practice. Oxford: Oxford University Press 2001.
4. Drummond MF, Sculpher MJ, Torrance GW, O'Brien BJ, Stoddart GL.
Methods for the economic evaluation of health care programmes
third edition. Oxford: Oxford University Press, 2005.
5. Glick HA, Doshi JA, Sonnad SS, Polsky D. Economic evaluation in
clinical trials. Oxford: Oxford University Press, 2007.
6. Gold MR, Siegel JE, Russell LB, Weinstein MC. Cost-effectiveness in
health and medicine. Oxford: Oxford University Press, 1996.
7. Muangchana C, Riewpaiboon A, Jiamsiri S, Thamapornpilas P,
Warinsatian P. Economic analysis for evidence-based policy-making
on a national immunization program: A case of rotavirus vaccine in
Thailand. Vaccine 2012 Apr 16;30(18):2839-47.

EE_TP_theory.pptx 34