Lecture no55 cost benefit analysis in the healthcare sector

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Cost-Benefit Analysis in the

Healthcare Sector

Lecture No 55 Chapter 16 Contemporary Engineering Economics

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Contemporary Engineering Economics, 6 th edition

Cost-Effectiveness Analysis in Healthcare

• What constitutes a cost?

o Direct cost

o Indirect cost

o Intangibles

• What constitutes a health effect?

o Years of life saved (gained)

o Quality of life improved

• Cost-effectiveness ratio

• Discounting

– All cost items in the future are discounted.

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How to Use a CEA?

• Independent interventions

– Cost-effectiveness ratios be calculated for each program and

placed in rank order Select all the programs as long as the budget permits.

• Mutually exclusive interventions

– Incremental cost-effectiveness ratios ( ΔCERs) should be used

to make the selection.

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Example 16.1: Cost-Effectiveness for

Independent Interventions

Given : Cost and health effect for three

drug-intervention programs

Find : Which project to fund as a function of available budget?

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Solution

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Example 16.2: Mutually Exclusive

Intervention Programs

 Given : Five drug intervention programs

fund out of five programs

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Incremental Analysis

• P1 versus “do-nothing”

• P1 versus P2

– Select P2.

– No dominance

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(continued)

– Select P4.

– No dominance

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Remaining Mutually Exclusive Alternatives After

Eliminating All Dominated Programs

If the available budget is $140,000, all patients should receive

intervention P4.

If the available budget is $170,000, all patients should receive

the more effective P5.

If the budget is $150,000, 2/3 patients receive P4 and 1/3 receive

P5

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Cost-Effectiveness Diagram: Life Years Gained

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