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this is a very quick overview of Health economics economics in a nutshell resources are scarce needs are unlimited therefore we have to make choices what we really want to do is maximize benefits and minimize resources and that really is about efficiency in healthc care we need a fair strategy that makes tradeoffs between needs and resources available to meet them in healthcare economics is a tradeoffs if I have a dollar I can only spend it once but opportunities spend present themselves repeatedly this is really about opportunity cost what is opportunity cost it's the value of foregone benefit which could have been obtained from a resource in its next best alternative use if I have multiple options before me I still have to somehow fit them within my budget no matter how good of a deal each one of those options might be so the aim is to choose the options within our given set of resources that will ma minimize the opportunities for gone we can't leave this to chance because the costs the risks and the benefits in health care are just far too dear economic evaluation then is a tool for us to help maximize the health outcomes per resource expended it's formally defined by Drummond and Stoddard in their 1997 book which has been updated in the in the Year 2005 they defined it as the comparative analysis of alternative courses of action in terms of both their costs and consequences in order to assist policy decisions economic evaluation is not about choosing the cheapest it is about value for money it's about choosing Within in our constraints to maximize the amount of Health that we gain so then Health economics really becomes a framework to help healthc Care Professionals decision makers or governments to make choices on how to maximize the health of populations given constrained Health producing resources those constrained resources really are money time attention passion amongst all the things that we could spend our limited resources on health economics really aims to understand the relationship between resources used and health outcomes achieved amongst our alternative options and it always involves comparing Alternatives so let's look at the different types of economic evaluation we have four standard types of economic evaluation and each of these involves an incremental cost per incremental benefit for two or more Alternatives so we have cost minimization analysis we have cost Effectiveness analysis cost utility analysis and cost benefit analysis the two that I've listed at the bottom are not classified as economic evaluations because they're non-comparative they are not incremental they're non-comparative analyses but it impact analysis and cost of illness studies are two examples of non-comparative analyses which are simply cost analyses they're not comparative they're only one small part of the equation so for each of these four types of formal economic evaluations I've organized a chart here that just outlines for you what each of them consist of so a cost minimization analysis really is about the Delta C the difference in cost between the Alternatives and we can do a cost minimization analysis only when the consequences between those alternatives are identical in all respects so you can imagine that it's very rarely appropriate to do a cost minimization analysis because it is very difficult to prove equivalence amongst the Alternatives cost Effectiveness analysis involves looking at the dollars per consequence but here the consequence is measured in different magnitude of a natural unit but the natural unit has to be in a common measure amongst all of the Alternatives that we're comparing so a good example is lifee gained so cost Effectiveness then is about calculating the iser which is the Delta C over the Delta e for two Alternatives cost utility analysis is a special form of cost Effectiveness analysis where we're valuing the cost in money and we're valuing the consequences as utilities and calculating quality adjusted life years the qual and here we actually have a incremental cost utility ratio that's calculated which is the Delta C over the Delta qual for the Alternatives being compared the last example here is a cost benefit analysis and here we value the costs in money and we also value the consequences in the equivalence of dollars this is very difficult to do you can imagine valuing consequences in the equivalent of dollars and what we really need to know in order to do so is what is the willingness to pay in a society for the benefits gained as you can imagine because of the difficulties of this of defining the willingness to pay we very rarely do cost benefit analyses in healthcare at this time so let's talk about each to the four types of economic evaluation first the cost minimization analysis the simplest of the two but also rarely appropriate because we have to be able to show that the consequences are equivalent between the Alternatives if we're going to truly revert to a cost minimization analysis so here we for a cost minimization analysis we're simply looking at the Delta C between Alternatives and the result is we have a least cost alternative between the um two Alternatives that we've compared the cost benefit analysis which we spoke of and which we rarely do in healthc care what it really tries to do is look at a ratio of costs to benefits where the benefits are valued in monetary terms and the result will be that you have either calculated a net benefit if you had the if you had known the willingness to pay or a cost benefit ratio cost Effectiveness analysis is where we're going to focus today as well as cost utility analysis which is a special form of cost Effectiveness analysis cost Effectiveness analysis um requires that outcomes are measured in natural or physical units so we'll have a cost per heart attack avoided for example or a cost per death avoided because we are measuring things in natural units we can only look at one domain of outcomes at a time or one type of outcome at a time and we can only compare Alternatives where the same natural unit has been measured and because of this coste Effectiveness analysis does not allow us to compare across all options available to us in healthcare and it is fairly restrictive because we're looking at only one type of outcome at a time the result of a cost Effectiveness analysis is the iser the cost the Delta cost per Delta unit of consequence for example a a cost per life you're gained when we're calculating the outcome for a cost Effectiveness analysis we really need to be clear that we're thinking about incremental cost Effectiveness not average costs per outcomes this is confusing to a lot of people so I've shown you here first on this Slide the average cost Effectiveness ratio for option b so if we have a drug B we can calculate its cost per effect and that's simply an average cost Effectiveness ratio Acer acers should not be used to compare Alternatives neither should they be used to make decisions what we are looking for is the incremental cost Effectiveness ratio the iser where we subtract the cost of a from the cost of B on in the numerator and in the denominator we look at the Delta effectiveness of the two so when we're calculating an iser the cost Effectiveness ratio what we do is we compare the Delta C of the current practice versus the new strategy of interest and when we're calculating incremental cost Effectiveness ratios the result can be considered as the price of the additional outcome purchased by switching from current practice to the new strategy for example if the iser was $10,000 per Life year gained that would be the iser for the alternative that we're considering compared with the next best alternative if the price is low enough the new strategy might be considered cost effective but here's the catch what is cost effective