economic appraisals: overview of key concepts for product...

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Donald S. Shepard, Ph.D. Schneider Institutes for Health Policy

Heller School, Room 275, MS 035 Brandeis University

Waltham, MA 02454-9110 USA

Tel: 781-736-3975 • Fax: 888-429-2672 Web: http://www.brandeis.edu/~shepard

E-mail: [email protected]

Population Council, New York Jan. 23, 2013

Economic Appraisals: Overview of Key Concepts for Product

Development Partnerships

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A. Descriptive tools 1.  Cost of illness 2.  Cost of an intervention or program B. Comparative (analytical) tools 1.  Cost minimization 2.  Modeling 3.  Cost-effectiveness analysis 4.  Cost-utility analysis 5.  Willingness to pay 6.  Cost-benefit analysis 7.  Broader impacts on health system

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Definition: Descriptive analysis that measures the amount of money or economic resources a society loses as a result of a disease or condition. Purpose: •  Quantify the economic importance of a disease in a

country or region •  Compare one disease or condition against others •  Rough guide about whether a potential preventive or

curative program would be economically worthwhile

Definition and Purpose

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Amount per case •  Direct cost: Economic value of medical care received •  Indirect cost: Economic value of lost time due to

premature death, reduced productivity, and reduced leisure time

•  Total cost per case: Sum of direct plus indirect cost

Aggregate cost of illness cases •  Total cost for all cases Prevention cost: (aggregate) •  Amount spent on prevention to control or reduce risk

of disease

Cost of Illness: Components

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Aggregate cost =

Number of cases x Total cost per case

Basic Equation

Application to dengue •  Acute febrile

illness •  Transmitted

primarily by Aedes aegypti mosquito

•  Burden has been increasing

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Source: Arc Magazine

Dengue illness worldwide

8 Source: WHO, 2006

Expansion Factors

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Sources of data for expansion factors

•  Comparison of actual cases (from cohort studies active surveillance) with reported cases (from passive surveillance systems)

•  Capture-recapture studies (comparisons between two independent data sets, such as hospital reports and surveillance systems)

•  Special data sets – FOMEMA system: screening immigrant workers – Laboratory tests in the private sector

•  Expert workshop using Delphi panel 10

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Source: Shepard DS, Undurraga E, Lees R, Halasa YA, Lum LCS, Ng C. Use of multiple data sources to estimate the economic cost of dengue illness in Malaysia. American Journal of Tropical Medicine and Hygiene 87(5):796–805, 2012 Errata: Shepard DS, American Journal of Tropical Medicine and Hygiene, 88(Feb.) 2013. *Acknowledgments: Ministry of Health, Malaysia Financial support: Sanofi Pasteur

Country-specific illustration: Cost of dengue in Malaysia*

Reported and projected cases of dengue in Malaysia, 1988-2010

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Cost of dengue illness, Malaysia

Ambulatory Hospitalized

Indirect deaths*

Total Sector Indirect Direct Total Indirect Direct Total

Estimated costs per case (2009 US$)

Public

176.36 297.93 474.29 200.55 613.65 814.20 53,336.50 617.05

Private

176.36 168.68 345.03 200.55 697.88 898.43 53,336.50 577.46

Total

176.36 239.85 416.21 200.55 651.50 852.05 53,336.50 650.70 Estimated aggregate costs from EF-adjusted dengue cases (58% ambulatory; 2009 US$1,000s) Public 8,851 14,952 23,803 7,288 22,301 29,589 4,451 53,392

Private 7,223 6,908 14,131 5,948 20,697 26,645 3,633 40,776

Total

16,073 21,860 37,933 13,236 42,998 56,234 8,084 102,252

Range†

(17,150-233,637)

(44,197-88,593)

(77,942-310,657)

EF = expansion factor. *The unit cost of death reported is the average cost; the actual values were estimated on the basis of the age distribution of reported deaths caused by dengue in 2009 (Ministry of Health Malaysia, unpublished data) †The range corresponds to the 95% certainty levels (centered on the median) in our projections, and is given by the simultaneous variation of parameters as indicated in Table 3.

Totals: Economic burden of dengue illness in Malaysia per year

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•  Aggregate US$102 million •  Aggregate 95% CI: 78– 311 million •  Aggregate MYR 360 million •  Per capita US$3.72 (MYR 13.08)

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Distribution of costs, Malaysia

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Sources: Undurraga EA, Halasa YA, Shepard DS. Use of expansion factors to estimate the burden of dengue in Southeast Asia: A systematic analysis. PlosNTD, in press. Shepard DS, Undurraga EA, Halasa YA. Economic and disease burden of dengue in Southeast Asia. PlosNTD, in press. *Financial support: Sanofi Pasteur

Regional illustration:

Dengue in Southeast Asia*

Total reported dengue episodes in Southeast Asia, 1988-2010

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Empirical and predicted reporting rates for total dengue*

18 *R2=0.93, HQI significant at p<0.01

Summary of under-reporting for 12 countries in Southeast Asia

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•  Average reporting rate 13.2% of the total symptomatic dengue episodes

•  Expansion factor of 7.6 for converting reported cases into estimated actual cases.

•  Analogous principles apply to other regions of the world

•  Process extends to other diseases reported through surveillance systems.

•  See Murray CJL et al. The Lancet

Direct costs per non-fatal dengue episode

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Indirect costs per non-fatal dengue episode

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Summary of burden for 12 countries in Southeast Asia

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•  We estimated annual average of 2.9 million dengue episodes and 5,906 deaths.

•  Annual cost per capita of U$1.67 (0.02% GDP per capita)

•  Disease burden: 373 disability-adjusted life years (DALYs from 1994 definition) per million population.

•  DALY rate exceeds that of 18 other conditions, including Japanese encephalitis, upper respiratory infections, and hepatitis.

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Illustrative cost per child: 3-dose pentavalent vaccination program*

Input and usual payer Quantity Unit Cost Total Cost

Vaccine doses (donor) 3 $2.58 $7.74

Clinic visits (country) 3 $2.00** $6.00

TOTAL $5.58 $13.74

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*Factors to consider in refinements and adjustments: vaccine wastage, cost of vaccination materials, incomplete series, price changes **Estimate

Number of manufacturers and price of pentavalent vaccine

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*Pentavalent vaccine: DTP-hepB-Haemophilus influenzae type b. Source: http://www.gavialliance.org/library/news/roi/2010/gavi-impact-on-vaccine-market-behind-price-drop/

Cost allocation

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Unit cost of hospital days and visits using macro costing

Row Item Source UMMC 2005

UMMC 2009

(1) Admissions Hosp. Report† 41,000 46,977

(2) Number of registered beds (official) Hosp. Report 875 983

(3) Occupancy rate Hosp. Report 92% 69% (4) Occupied beds (2) x (3) 805 681 (5) Annual bed days (4) x 365 293,825 248,645 (6) Ambulatory clinic visits Hosp. Report 491,000 776,420 (7) Emergency visits Hosp. Report 68,000 103,442 (8) Total ambulatory visits (6) + (7) 559,000 879,862 (9) Rel. cost: visit/inpatient day Shepard et al. 0.20 0.20 (10) Ambulatory bed-day equivalents (8) x (9) 111,800 175,972 (11) Total bed day equivalents (5) + (10) 405,625 424,617 (12) Operating expenditure, US$ million Hosp. Report 73 112*

(13) Cost per bed day equivalent, US$ (12) / (11) 181 263

(14) Cost per ambulatory visit, US$ (13) x (9) 36 53

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Refrigerator options: annual costs* Electricity Solar Kerosene

Compressed gas

I- PersonnelHours 50 60 100 70Unit Cost ($) 0.50 0.50 0.50 0.50Total Costs ($) 25 30 50 35II- RepairsExpert (number) 0 1 0 1Unit Cost ($) 80 80 80 80Local (number) 1 0 2 0Unit Cost ($) 20 20 20 20Total Costs ($) 20 80 40 80III-Source of EnergyUnit of measurement kwh liters kgQuantity 500 200 165Unit Cost ($) 0.20 0.50 0.90 Total Costs ($) 100 0 100 148.5IV- Capital CostRefrigerator cost($) 600 5200 900 800Useful life (years) 5 10 5 5Discount Rate (%) 0.03 0.03 0.03 0.03Annualized Cost($) $131 $610 $197 $175

Grand Total $276 $720 $387 $438* Solar has useful life of 10 years; all others have 5 year useful life.

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1.  Developing a logical and realistic relationship among parameters in a system

2.  Calibrating that relationship with the best available data

3.  Assembling data from multiple, diverse sources

4.  Using the result to predict the consequences, cost, and cost-effectiveness of a proposed intervention

Modeling

Population

Infection

Clinical Cases

DHF/DSS

Death

5%

94% 6%

0.8%

Asymptomatic Infection

DF (Non-DHF)

Survive

76% 24%

99.2%

Mild DF

Severe DF

Example: dengue progression* *Source: Shepard DS, et al. Vaccine 2004; 22:1275-1280.

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Topics

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Source: Shepard DS, Thompson MS. First

principles of cost‑effectiveness analysis in health. Public Health Reports

94:535-544, 1979; Web: http://www. brandeis.edu/

~shepard/downloads.html

Principles

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Key concepts 1.  Compute net costs to the health care system of

the intervention compared to status quo

Note: If positive, the usual case, means that the program increases costs to the health care system

2.  Compute net effects or consequences of the intervention compared to status quo.

Note: If positive, the usual case, means that the program improve outcomes.

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Compute cost‑effectiveness (CE) ratio

CE =

Net costs (in monetary terms, e.g., dollars)

Net health effects (in utility terms, e.g., DALYs or QALYs)

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Interpretation of cost effectiveness ratio (WHO)

•  Lower values are more favorable •  CE < 1 times per capita Gross National

Income (GNI) is highly cost-effective •  CE > 1 times and CE < 3 times per

capita GNI is cost-effective •  CE > 3 times per capita GNI is not

generally cost-effective

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Decision rules in cost‑effectiveness analysis

Net effects

Net costs positive Net costs zero or negative

Positive Case 1: Compute cost effectiveness ratio; select most cost-effective programs for improving health (lowest ratios)

Case 2: Program economically valuable. Should generally be implemented

Zero or negative

Case 3. Program benefits offset by morbidity and inconvenience. Program should generally not be implemented

Case 4: Compute cost effectiveness ratio; select most cost-effective programs for reducing costs (highest ratios)

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Example for prevention

Source: Shepard DS, et al. Vaccine 2004;

22:1275-1280.

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Cost of vaccination, 1 Overall cost of vaccination per

child: US$ 8.28* [US$ 4.85 public sector

US$ 39.10 private sector]

Gross cost: US$ 154/1000 population (cost allocated over the

entire population) * US$ 4.14 per dose

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Cost of vaccination, 2

Net cost: US$ 17/1000 population because of saving in health care costs from fewer dengue cases

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Effectiveness

Baseline* With vaccination

program

Gain from vaccination

Change

DALYs per 1000 pop.Total DALYs 0.420 0.077 0.343 -82%

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Cost-effectiveness ratio

Net cost: US$ 17/ 1000 population Effectiveness: 0.34 DALYs saved/ 1000 population CE Ratio: US$ 50/DALY saved Per capita GNI in SE Asia: US $1083 Interpretation: Vaccine would be highly CE

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Example: Combination of diagnostic and therapeutic

products

Source: Zeng W et al. Modeling the

returns on options for scaling up malaria programs in Ethiopia.

Unpublished, 2013.

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Results for combination example

Situation National cost ($ million) Deaths (children <5) CE ratioBaseline $89.8 113,711Bundled $88.8 97,158Increment -‐$1.0 -‐16,553 -‐$60

Baseline: Ethiopia's existing malaria control program.

Bundled: Hypothetical policy with: improved supply of antimalarials and antibiotics in health facilities, widespread access to two diagnostic tools: rapid diagnostic test for malaria and respiratory rate timer for pneumonia; and highly compliant health workers who follow test results carefully.

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Sensitivity analysis for alternative rates of compliance

(main assumption, 100%)

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•  Variant of cost-effectiveness analysis •  Quality of life ratings follow theoretical

principles of time tradeoff •  Allows a rigorous combination of quality

of life and length of life gained by an intervention.

Principles of cost-utility analysis

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Example for treatment

Boston Ocular Surface Prosthesis (BOSP)

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Cost-effectiveness of BOSP Shepard, D.S., Razavi, M., Stason, W.B. Jacobs, D.S., Suaya, J.A., Cohen, M., Rosenthal, P. Economic appraisal of the Boston ocular surface prosthesis. American Journal of Ophthalmology 148(6):860-868, 2009. Web: http://www.ajo.com/article/S0002-9394(09)00510-8/abstract

Companion paper:

Stason, W.B., Razavi, M., Jacobs, D.S., Shepard, D.S., Suaya, J.A., Johns, L., Rosenthal, P. Clinical benefits of the Boston ocular surface prosthesis. American Journal of Ophthalmology 149(1):54-61. 2010

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Schematic diagram of BOSP

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Composite scores of VFQ: with ectasia/irregular astigmatism or ocular surface disease before and

after receiving a BOSP

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Relationship between time VF-14 and tradeoff

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Economic cost per patient fitted with a BOSP at Boston Foundation for Sight (BFS)

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Cost-effectiveness analysis of BOSP: mean values by baseline visual function questionnaire

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•  Survey approach that asks the respondent the amount he/she would be willing to pay for a good or service

•  Used to place an economic value on a product not currently for sale

•  Particularly useful for public goods, such as parks and environmental benefits, which cannot be sold individually

Principles of willingness-to-pay analysis

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Example for willingness to pay

Source Halasa YA, Shepard DS, Wittenberg E, Fonseca DM, Farajollahi A, Healy S, Gaugler R, Strickman D, Clark GG. Willingness-to-pay for an area-wide integrated pest management program to control the Asian tiger mosquito in New Jersey. Journal of the American Mosquito Control Association 28(3):225–236, 2012.

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Willingness to pay question: Decision tree

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Results : Perceived monetary benefit of an area-wide integrated pest management program

Item1 Both counties

No. of responses excluding protest zero (N) 29 Monthly average WTP excluding protest zero ($, PPPM) 0.79

SEM ($, PPPM) 0.24 Annual per capita WTP excluding protest zero ($) 9.54

SEM (annual) 2.88 Aggregate perceived monetary benefit per year ($, mean)2

9,610,000 SEM ($, aggregate) 2,900,000

Willing to pay through tax mechanism (N) 18 Willing to pay higher tax (% share of respondents excluding protest zero) Estimated number of residents in Monmouth and Mercer counties willing to

pay a higher tax

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625,000 Aggregate WTP among respondents willing to pay through higher tax ($, per year) 3,390,000 Average WTP per person willing to pay through tax mechanism ($) 5.42

2008 budget for all mosquito control ($) 2,615,000 2008 budget per person per year ($) 2.60 % increase in tax over 2008 budget 130

1 WTP, willingness-to-pay; PPPM, per person per month. 2 Mean maximum amount respondents in Monmouth and Mercer counties study sites were willing to pay, excluding protest zeros, 2008.

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•  Variant of cost-effectiveness analysis

•  Quality of life ratings follow theoretical principles of time tradeoff

•  Allows a rigorous combination of quality of life and length of life gained by an intervention.

Principles of cost-benefit analysis

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Cost-effectiveness analysis of BOSP: mean values by baseline visual function questionnaire

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Extension to benefit-cost study

Improved school attendance and performance: Outcome for insecticide-treated wall liner in Kenya

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Example for broader impacts on health system

Source Shepard, D.S.; Zeng, W.; Amico, P.; Rwiyereka, A.K.; Avila-Figueroa, C. A controlled study of funding for Human Immunodeficiency Virus/Acquired Immunodeficiency Syndrome as resource capacity building in the health system in Rwanda. American Journal of Tropical Medicine and Hygiene 86(5):902-907. Web: http://www.ajtmh.org/cgi/reprint/86/5/902.

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Preventive care index, 2002-2007

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Curative care index, 2002-2007

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Summary: when to use each tool

economic appraisals: overview of key concepts for product...

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