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Elementary Economic Evaluation in Health Care
There is a growing reliance on all health care workers to understand and practice economic evaluation. This comprehensive book written in jargon-free language provides a basic introduction to the subject. It succeeds in explaining both the principles of economic evaluation and how to use them.
The second edition has been revised throughout and now includes a chapter on decision making, which explains the tools of systematic reviewing so bringing the book right up to date.
The second edition has been revised throughout and now includes a chapter on decision making, which explains the tools of systematic reviewing so bringing the book right up to date.
136 pages, Paperback
First published January 1, 1997
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October 2, 2025
Just class notes
INTRODUCTION
Health care evaluation of the effects of health done by medical
Estimation of costs for admin by managers
Values and wishes of users by social scientists
Some concepts like calculation of productivity losses are controversial
ABOUT HEALTH ECONOMICS
Several areas of resource allocation:
Public/private debate about financing (international comparative studies)
Supply and demand (barriers, incentives, access)
Valuing health (relationship with income)
Needs assessment (societal weighting of different diseases)
It’s a population view that nearly all healthcare needs must be satisfied, no matter the cost
Healthcare workers often are asked what tech to buy and to what point the need for healthcare should be met
Alan Maynard: The most efficient thing to do is to do nothing
Technical efficiency: need X will be met, how most efficiently to do it
Allocative efficiency: compare costs and benefits of alternatives
BASIS OF ECONOMIC EVALUATION
Resources
Tangible: equipment, drugs
Intangible: time, knowledge
CMA: cost minimisation analysis
Cheapest way
CEA: cost effectiveness analysis
Competing interventions compared by cost of unit of consequence
CUA: cost utility analysis
Competing interventions compared by cost per QALY
CBA: cost benefit analysis
Interventions expressed in monetary units
Inputs must be identified, measured, and valued
Some have hidden/unknown costs
Not all can be measured
Prices only cover a minority
Discounting allows the calculation of present values of inputs/benefits accrued in the future
Sensitivity analysis repeats the comparison between inputs and consequences while varying assumptions underlying the estimates
COST OF ILLNESS STUDIES
Weighing health problems
Occurrence: incidence and prevalence
Seriousness: mortality
Overall weight: cost
First identify all cases - limited by epi data
Identify costs
Direct: healthcare system and patient
Indirect: productivity losses
Intangible: pain, grief, suffering
Incidence: appearance to disappearance of dx; more precise
Prevalence: short period unrelated to dx stage; more assumptions, but only way to cost chronic dx
Willingness to pay: in order to avoid problem
Purchasers do not pay different amounts for first and last day of admission
80% of hospital costs are unavoidable fixed costs
COI do not define choices or help make them
Over reliance on average not marginal costs leads to systematic over valuation
Majority of sick losses fall on person and employer not society
‘Friction method’ relies on knowledge local employment market and lower estimates than human capital method
COST MINIMISATION ANALYSIS
Identifies intervention with lowest costs
Must be sure the consequences are the same
Problem with valuing future costs or time preference
Overhead costs are not directly linked but necessary for the intervention
Divide total running costs by # bed days to get average
When they are a small proportion, discard those not directly used by intervention
Shadow prices: private providers
COST EFFECTIVENESS ANALYSIS
If you can express the effect in a single dimension eg mortality
Doesn’t usually include indirect costs eg costs or anxiety of screening
Often used alongside RCT
Decision tree for analysis
Sensitivity analysis: see if conclusions differ when a parameter is changed
Probabilistic, extreme, threshold (where cut off is known)
Criticised as arbitrary and biased
COST UTILITY ANALYSIS
Rating scale: health rated from 0 to 1
Time trade off: how much life expectancy you’d trade for perfect health
Standard gamble: gamble between perfect health and death
These inform QALYs, which do assume that preference is independent of a time spent in a certain health state – chronic v acute
Capability of generalising across contexts is limited by difference in dx frequency, health services etc
COST BENEFIT ANALYSIS
Social welfare exists and can be maximised by moving productive resources around
Aims to answer is the intervention worth doing at all?
Aim of monetary evaluation is to assess societal value not reflect market prices
Valuation
Individual
Human capital: value of life is expectancy x average annual income
Implicit: observation of social behaviour
Explicit: eliciting preferences with willingness to pay or accept
Contingent: preventative tech, rx and services, health states
Healthcare programmes have an immediate effect on resources but long term effects on health
Inflation adjustment should be based on health care specific price indexes not general retail
Conversion should be based on purchasing power rather than exchange rates
Controversy
Monetary valuation of pain, anxiety, death etc
Subject’s worth is not just their productive value
Overestimate productivity losses
Friction period of sick leave is adjusted by return or replacement
High discount rates penalise programmes whose benefits accrue in far future
DECISION MAKING
Clinical trials
EEval should go with a well designed trial
There should be economic importance to intervention
As well as practical importance
Clinically equivalent: CMA
CEA/CUA more likely
INTRODUCTION
Health care evaluation of the effects of health done by medical
Estimation of costs for admin by managers
Values and wishes of users by social scientists
Some concepts like calculation of productivity losses are controversial
ABOUT HEALTH ECONOMICS
Several areas of resource allocation:
Public/private debate about financing (international comparative studies)
Supply and demand (barriers, incentives, access)
Valuing health (relationship with income)
Needs assessment (societal weighting of different diseases)
It’s a population view that nearly all healthcare needs must be satisfied, no matter the cost
Healthcare workers often are asked what tech to buy and to what point the need for healthcare should be met
Alan Maynard: The most efficient thing to do is to do nothing
Technical efficiency: need X will be met, how most efficiently to do it
Allocative efficiency: compare costs and benefits of alternatives
BASIS OF ECONOMIC EVALUATION
Resources
Tangible: equipment, drugs
Intangible: time, knowledge
CMA: cost minimisation analysis
Cheapest way
CEA: cost effectiveness analysis
Competing interventions compared by cost of unit of consequence
CUA: cost utility analysis
Competing interventions compared by cost per QALY
CBA: cost benefit analysis
Interventions expressed in monetary units
Inputs must be identified, measured, and valued
Some have hidden/unknown costs
Not all can be measured
Prices only cover a minority
Discounting allows the calculation of present values of inputs/benefits accrued in the future
Sensitivity analysis repeats the comparison between inputs and consequences while varying assumptions underlying the estimates
COST OF ILLNESS STUDIES
Weighing health problems
Occurrence: incidence and prevalence
Seriousness: mortality
Overall weight: cost
First identify all cases - limited by epi data
Identify costs
Direct: healthcare system and patient
Indirect: productivity losses
Intangible: pain, grief, suffering
Incidence: appearance to disappearance of dx; more precise
Prevalence: short period unrelated to dx stage; more assumptions, but only way to cost chronic dx
Willingness to pay: in order to avoid problem
Purchasers do not pay different amounts for first and last day of admission
80% of hospital costs are unavoidable fixed costs
COI do not define choices or help make them
Over reliance on average not marginal costs leads to systematic over valuation
Majority of sick losses fall on person and employer not society
‘Friction method’ relies on knowledge local employment market and lower estimates than human capital method
COST MINIMISATION ANALYSIS
Identifies intervention with lowest costs
Must be sure the consequences are the same
Problem with valuing future costs or time preference
Overhead costs are not directly linked but necessary for the intervention
Divide total running costs by # bed days to get average
When they are a small proportion, discard those not directly used by intervention
Shadow prices: private providers
COST EFFECTIVENESS ANALYSIS
If you can express the effect in a single dimension eg mortality
Doesn’t usually include indirect costs eg costs or anxiety of screening
Often used alongside RCT
Decision tree for analysis
Sensitivity analysis: see if conclusions differ when a parameter is changed
Probabilistic, extreme, threshold (where cut off is known)
Criticised as arbitrary and biased
COST UTILITY ANALYSIS
Rating scale: health rated from 0 to 1
Time trade off: how much life expectancy you’d trade for perfect health
Standard gamble: gamble between perfect health and death
These inform QALYs, which do assume that preference is independent of a time spent in a certain health state – chronic v acute
Capability of generalising across contexts is limited by difference in dx frequency, health services etc
COST BENEFIT ANALYSIS
Social welfare exists and can be maximised by moving productive resources around
Aims to answer is the intervention worth doing at all?
Aim of monetary evaluation is to assess societal value not reflect market prices
Valuation
Individual
Human capital: value of life is expectancy x average annual income
Implicit: observation of social behaviour
Explicit: eliciting preferences with willingness to pay or accept
Contingent: preventative tech, rx and services, health states
Healthcare programmes have an immediate effect on resources but long term effects on health
Inflation adjustment should be based on health care specific price indexes not general retail
Conversion should be based on purchasing power rather than exchange rates
Controversy
Monetary valuation of pain, anxiety, death etc
Subject’s worth is not just their productive value
Overestimate productivity losses
Friction period of sick leave is adjusted by return or replacement
High discount rates penalise programmes whose benefits accrue in far future
DECISION MAKING
Clinical trials
EEval should go with a well designed trial
There should be economic importance to intervention
As well as practical importance
Clinically equivalent: CMA
CEA/CUA more likely
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