Abstract
Objective To present an overview of the methods of economic evaluation in health care, using examples of studies applicable to primary care.
Sources of information The main concepts discussed in this article were derived from expert opinion and substantiated with well respected textbooks and comprehensive Canadian guidelines. Examples of cost-effectiveness estimates were taken from the published literature.
Main message We describe the basic principles of economic evaluation and provide an introduction to its interpretation, using examples of studies applicable to primary care.
Conclusion A basic understanding of health economics will allow primary care practitioners to begin to incorporate economic data, including that from economic evaluations when they are available, into resource planning for their practices.
Primary care physicians have traditionally played an indirect but important role in the allocation of health care resources. Every decision to order a diagnostic test, prescribe a therapy, or request a consultation from a specialist, each with the goal of improving or maintaining patient health, inevitably reduces the pool of available health care funds. However, while physicians specialize in understanding the safety and effectiveness of tests and treatments, most have less experience assessing the costs and economic implications. This task has traditionally fallen to government policy makers and health care payors.
Given the changes that have accompanied many of the primary care reform efforts across the globe, consideration of health care costs will likely become more prominent within the practice of primary care. For example, in an effort to improve access and encourage the delivery of comprehensive primary care, several provinces across Canada have introduced alternative payment models for family physicians, which often incorporate additional funds outside the usual physician remuneration that can be used for clinical care. As a result, some primary care physicians are playing a more direct role in the allocation of primary care services.1 In some cases, provinces have or are planning to introduce funding to support programs that increase access to care, support interdisciplinary team-based care, and increase the use of patient care networks and information technology. Some examples are the Ontario family health teams, the Alberta primary care networks (PCNs), and the Quebec groupes de médecine familiale.1 In the United States, the Centers for Medicare & Medicaid Services have introduced plans to support accountable care organizations, which are affiliations of providers who, as a group, agree to be accountable for quality of care and reductions in spending.2,3 The United Kingdom has gone a step further by giving large physician groups direct responsibility for commissioning care and managing publicly funded health care budgets through primary care trusts and the newly proposed GP consortia.4,5
Figure 1 depicts a hierarchical model of primary care physician payment with increasing levels of responsibility for resource allocation. As the model of primary care payment changes, practices are gaining additional responsibility for deciding how resources should be allocated across groups of patients. It is therefore becoming increasingly important for primary care physicians to develop a systematic approach to health care priority setting, including assessing the costs and benefits of interventions. If Medicare is to be sustainable, some consideration of costs seems inevitable.
Hierarchical model of primary care physician payment with increasing levels of responsibility for resource allocation
Depending on the specific financial reimbursement arrangement, primary care physicians might have more or less direct responsibility for resource allocation. For example, in Canada, physicians do not have a financial stake in the reimbursement of laboratory tests, the cost being borne by the health care system (although it should be acknowledged that the use of these resources will indirectly affect the amount of funds available for other health care programs or interventions). On the other hand, physician groups who have the responsibility of overseeing the allocation of health care funds, as in the examples noted above, are faced with deciding which health care programs to implement for their patient populations, often within fixed budgets. For example, a physician group might wish to provide after-hours care, chronic disease case management, and lifestyle modification programs, but the members find that they do not have enough funds to cover all 3. Alternatively, they might have a specific objective and type of program in mind, such as diabetes education, but are faced with several methods of implementation, each of which varies in resource intensity. In either case, they will have to carefully weigh the pros and cons of each, as well as the costs, in order to determine how best to allocate scarce resources.
While political and personal considerations will always enter into the decision-making process around health care resource allocation, economic theory can provide a framework within which decision makers, including primary care physicians, can prioritize spending. In this paper we present an overview of the methods of economic evaluation in health care, using examples of studies applicable to primary care. To better illustrate the relevance of economic evaluation to primary care practice, we use Alberta’s PCNs as a case study.
Sources of information
The main concepts discussed in this article were derived from expert opinion and substantiated with well respected textbooks and comprehensive Canadian guidelines. Examples of cost-effectiveness estimates were taken from the published literature.
Case study: PCNs
In Alberta, primary care reform has taken the form of PCNs, an example of a primary care model in which practices hold a budget to supplement care for their patients outside the usual fee-for-service model (Figure 1).6 Approximately 80% of eligible family physicians in Alberta currently participate in PCNs.6 Additional funding of $50 per enrolled patient per year (increased to $62 as of April 2012) is provided to PCNs to support activities that fall outside the typical physician-based fee-for-service model, but which are in accordance with specified objectives: improving access to primary care, increasing the emphasis on health promotion and disease management, and improving coordination of care.6 Consequently, a hypothetical group of 20 family doctors, each caring for an average of 1200 rostered patients, will be allocated $1.2 million in additional funds annually.
Although these additional funds are substantial, they are not enough to support every foreseeable initiative, and budget overruns are not covered by provincial health ministries. Therefore, PCNs are faced with deciding how to efficiently allocate these additional resources to best meet the needs of their patients, considering the priorities laid out by the province. Among other factors, consideration must be given to the populations and disease areas to be targeted. Once a local set of priorities has been identified, the next step is to decide which specific initiatives will produce the best results within the budget. Broadly speaking, then, one of the important objectives for a PCN is to maximize the health gains for its patient population using a fixed sum of money. This can be accomplished through a systematic comparison of the relative costs and health effects of candidate programs—economic evaluation.
Main message
Basic concepts of economic evaluation
Economic evaluation can be defined as the comparative analysis of alternative courses of action in terms of both their costs and their consequences.7 For health care programs, costs are the monetary inputs required to fund the program, and consequences are the health effects, both positive and negative, that occur as a result of the program. Two important concepts are fundamental to economic evaluation: opportunity cost and efficiency. Opportunity cost is based on the principles of scarcity and choice. Given scarcity (ie, not enough resources exist to meet all the desires of a society), societies must make choices, and, in the case of health care, these choices include which health care programs to implement and which to forego. The opportunity costs of health care programs are the benefits associated with those programs that are not chosen.
In health care, efficiency is a measure of how much health benefit is produced for a given cost. In health economics, 2 types of efficiency are often considered: technical and allocative efficiency. Technical efficiency measures the extent to which health outcomes in a specific group of patients are maximized with a given set of resources. On the other hand, allocative efficiency attempts to maximize health outcomes across different patient populations by choosing between programs that use a variety of inputs. Knowing whether you are asking a question of technical or allocative efficiency aids in selection of the correct economic evaluation.
Types of economic evaluation
Economic evaluations can be classified into 3 broad categories: cost-effectiveness studies, cost-utility studies, and cost-benefit studies. All 3 consider costs in a similar fashion, but each differs in how it measures health benefits. The 3 types of economic evaluation are outlined briefly below.
Cost-effectiveness analysis: In cost-effectiveness analysis, which can be used to address technical efficiency, health outcomes are measured in naturally occurring units such as units of blood pressure reduction, life-years gained, or deaths avoided. The specific outcome chosen will depend on the purpose of the intervention, and comparisons can only be made among interventions that can be measured in terms of the same health outcomes for similar populations of patients.
Costs and health effects are summarized in a cost-effectiveness ratio, a measure of the cost per unit of health effect. For example, Sekhar et al conducted a cost-effectiveness analysis of screening healthy children to detect cases of chronic kidney disease using urine dipsticks. Using observational cohort data, they determined the cost per case of chronic kidney disease detected, noting that 800 children would have to be screened at a cost of $2779.50 (US) for 1 case to be detected.8
Cost-minimization analysis is a special case of cost-effectiveness analysis in which the health outcomes of 1 or more interventions are assumed to be the same, reducing the problem to one of determining which intervention is least costly. Cost-minimization analyses should be viewed with caution, however, as it is rare that any 2 technologies will have the exact same clinical effect.7
Cost-utility analysis: When the goal is to maximize health outcomes across a population, an example of allocative efficiency, comparisons might need to be made between programs that target different patient groups. For example, if resources were limited, it might be necessary to compare a program for monitoring international normalized ratio for patients with atrial fibrillation with a program for diabetes case management. The goal of the first program is a reduction in the overall number of strokes, while that of the second is a reduction in diabetes complications. While the health outcomes of interest vary across these 2 programs, they can each be translated into life expectancy and quality of life, and their costs can be expressed in monetary units, allowing the programs to be compared on a common scale.
Cost-utility analysis enables comparison across different health outcomes by measuring health effects with a utility-based scale, the most commonly used being the quality-adjusted life-year (QALY). Quality-adjusted life-years incorporate the preferences that are placed on health outcomes by weighting the length of life by its quality. Utility scores range from 0, for a state equivalent to death, to 1, for a state equivalent to perfect health. Translating health outcomes into QALYs serves 2 important functions. First, it provides a common scale on which to measure disparate health outcomes. Second, it allows the evaluator to take into account the values that individuals and society place on health outcomes.
Results of cost-utility analyses are reported as the cost per QALY gained. For example, Cameron et al studied the cost-effectiveness of self-monitoring of blood glucose in patients with type 2 diabetes managed without insulin, and found that, compared with no self-monitoring, self-monitoring was associated with a cost per QALY gained of $113 643.9
Cost-benefit analysis: Like cost-utility analysis, cost-benefit analysis also aims to incorporate the value that society places on different health outcomes; however, cost-benefit analysis values health outcomes in monetary units. If the monetary value placed on the health benefits of a program is higher than its cost, the program is said to be cost-effective. Cost-benefit analysis can be thought of as somewhat broader in scope, as it can be used to estimate the effect of a program on both health and nonhealth benefits (eg, convenience and other factors). However, given the challenges associated with the methodology currently used to elicit monetary values for health outcomes, studies using this strategy are less commonly found in the literature. Further details are available elsewhere.7
Common elements in all economic evaluations
There are several basic elements common to cost-effectiveness and cost-utility studies that the critical reader should consider when interpreting an economic analysis. These details allow the reader to determine whether the analysis applies to his or her patient population and scope of practice. Key elements of economic evaluations are detailed in Table 1.7,10,11Table 2 illustrates their use within a recent economic evaluation of blood glucose self-monitoring for patients with type 2 diabetes not using insulin.9,10,12
Common elements of economic evaluations
Economic evaluation of blood glucose self-monitoring in patients with type 2 diabetes not using insulin
Economic evaluations can be conducted alongside clinical trials or using decision analysis. Often, the 2 approaches are used together. When an analysis is done alongside a clinical trial, the costs and consequences incurred and measured during the trial are used as the data inputs for the economic study. When decision analysis is used, a representative model of the events of interest is constructed, and data from multiple sources, including extrapolation from clinical trials, are used to derive model inputs. Decision analysis is particularly useful for therapies for chronic conditions, in which the applicable time horizon extends beyond the duration of clinical trials, often to the lifetime of the patient.
Interpreting the results of economic evaluations
There are 4 broad categories that an intervention, relative to its comparator, can fall into: A) more costly and more effective; B) less costly and more effective; C) less costly and less effective; and D) more costly and less effective (Figure 2).
Categories for the relative value of interventions
Clearly, interventions that fall into category B should be implemented, as they will lead to both improvements in health and real cost savings. For example, Khazeni et al estimated that vaccinating 40% of the population against pandemic influenza (H1N1) in October or November of 2009 would not only save lives but would also save nearly $400 million (US).13 For the exact opposite reason, interventions in category D should not be implemented.
When faced with interventions that fall into categories A and C, the ultimate question for decision makers is whether therapies associated with additional costs are an efficient use of health care resources. Most interventions studied fall into category A; they lead to gains in health but require additional resources. An intervention that falls into category C leads one to ask if sacrifices in health are worth the savings that would be garnered and potentially reinvested in other health-producing activities.
With respect to interventions in category A, in cost-utility analysis, the incremental cost-utility ratio, commonly referred to as the incremental cost-effectiveness ratio (ICER), is the amount of additional resources that would have to be invested in order to produce a gain of 1 QALY. Interventions that can purchase QALYs at a lower rate are deemed more attractive. The ICERs for commonly used interventions are shown in Table 3.9,14–18
Cost per QALY for selected interventions
Using ICERs for commonly used interventions as a benchmark, some guidelines suggest that all interventions with a cost-utility ratio below a particular threshold should be deemed cost-effective and appropriate for adoption. For instance, Laupacis et al suggest that, in Canada, a cost-utility ratio less than $20 000 per QALY gained should provide strong evidence for adoption and appropriate use, a ratio between $20 000 and $100 000 per QALY gained provides moderate evidence for adoption and appropriate use, and a ratio greater than $100 000 per QALY gained provides only weak evidence for adoption.19 The UK National Institute for Health and Care Excellence program currently uses a threshold of £30 000 per QALY.20
In the study by Cameron et al9 described in Table 2,9,10,12 the cost-utility ratio for self-monitoring of blood glucose was found to be $113 643 per QALY, a value that varied little across the subgroups. Based on this value and commonly used thresholds of either $50 000 per QALY or $100 000 per QALY, the authors stated that self-monitoring for blood glucose in stable patients with type 2 diabetes not using insulin was not likely to be an efficient use of health care resources.9
Although the use of cost-effectiveness thresholds provides a relatively clean approach, it does not fully address the issue of opportunity cost. Critics have suggested that such an approach could lead to escalating expenditures without regard to where the additional health care resources would come from.21 Unless funds are diverted from other programs, the continual addition of interventions with positive ICERs, even if they fall below a given threshold, will inevitably lead to higher total health care expenditures. Because health care budgets are not limitless, the implementation of some interventions will incur an opportunity cost. Therefore, decision makers must look past the individual cost-utility ratio and assess the costs and benefits of each program relative to others.
Other important inputs into resource allocation decisions
Although the cost-effectiveness of interventions is an important piece of information to consider, cost-utility analyses do not solve priority-setting problems and other factors must always be considered when making resource allocation decisions. For instance, treatments of rare or difficult-to-treat diseases or care of vulnerable populations might not meet arbitrary cost-effectiveness criteria but might still be desirable for reasons of inclusivity and equity. Other factors to consider include burden of disease, availability of alternative treatments, and uncertainty in the available evidence. We are unable to adequately address each of these in detail, and readers who are interested in learning more about how these factors can affect the use of economic evaluations in practice are referred elsewhere.7
Primary care network case study
Returning to our case study, care of patients with diabetes was noted to be a priority for nearly all PCNs in Alberta. Consequently, these PCNs each committed a portion of their patient care budget to improving care for patients with diabetes, typically through establishment of multidisciplinary chronic disease management (CDM) programs.22 However, CDM programs for patients with diabetes, which can be categorized by the method used (Table 4),22,23 vary by relative effectiveness23 and by resource intensity (Figure 3).22 This is an ideal situation for the use of economic evaluation.
Future implementation of CDM programs, with the view to optimizing the mix of CDM programs for each PCN, could be facilitated through a systematic review of the clinical data and the use of economic evaluation. Among patient groups for whom several different CDM programs are possible, economic evaluation could be used to determine the expected costs and benefits for each of the candidate programs. Examples of clinical and cost inputs that might be relevant for such an economic evaluation are listed in Table 5. This list is not exhaustive and inputs will vary depending on the types of CDMs being compared, the type of economic evaluation (ie, cost-effectiveness vs cost-utility), and the data available. The results of an economic evaluation could then be used to aid in the selection of 1 or more CDM programs that fit the budget and style of a practice, while maximizing health benefits.
The selection of a CDM program is but 1 example of how economic evaluation can be applied to the delivery of primary care. As the responsibility for allocating resources grows, the principles of economic analysis will become increasingly important.
Resource intensities of various CDM strategies
CDM—chronic disease management, EMR—electronic medical record.
Reproduced from Campbell et al.22
Types of CDM strategies for diabetes
Example of inputs for economic evaluation of diabetes CDM programs
Conclusion
Taking into account the stresses on Canadian Medicare, including the opposing forces of a constrained health care budget and the steady advances in health care technology, the importance of incorporating economic information into health care decision making is evident. Moreover, in view of the changes that are occurring in primary care across the globe, economic evaluations are likely to become more relevant for policy makers and primary care practitioners alike. We have described the basic principles of economic evaluation and provided an introduction to its interpretation. Armed with a basic understanding of health economics, primary care practitioners can begin to incorporate economic data, including that from economic evaluations when they are available, into the care plans of their individual patients and, for those managing budgets, their practices on the whole.
Acknowledgments
The Interdisciplinary Chronic Disease Collaboration is supported by an Alberta Innovates–Health Solutions (formerly Alberta Heritage Foundation for Medical Research) Interdisciplinary Team Grant.
Notes
EDITOR’S KEY POINTS
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Primary care physicians have traditionally played an indirect role in the allocation of health care resources, while government policy makers and health care payors have maintained direct responsibility for deciding how health care funds are spent.
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Given the emergence of new primary care payment models that have accompanied health care reform, the balance of responsibility for resource allocation is beginning to shift toward primary care practices. It is therefore becoming important for primary care physicians to develop a systematic approach to health care priority setting, including assessing the costs and benefits of interventions. Economic evaluation provides a framework within which these costs and benefits can be assessed objectively.
POINTS DE REPÈRE DU RÉDACTEUR
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Les médecins en soins primaires ont traditionnellement exercé un rôle indirect dans l’attribution des ressources en santé, tandis que les décideurs gouvernementaux et les payeurs des soins de santé ont conservé la responsabilité directe de décider comment les fonds sont dépensés dans les soins de santé.
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Compte tenu de l’émergence des nouveaux modèles de rémunération dans les soins primaires qui ont accompagné la réforme de la santé, la balance de la responsabilité en matière d’attribution des ressources commence à pencher du côté des établissements de soins primaires. Il est donc important que les médecins en soins primaires élaborent une approche systématique de l’établissement des priorités en matière de soins de santé, y compris l’évaluation des coûts et avantages des interventions. L’évaluation économique offre un cadre selon lequel ces coûts et avantages peuvent être mesurés objectivement.
Footnotes
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This article has been peer reviewed.
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Cet article a fait l’objet d’une révision par des pairs.
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Competing interests
None declared
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Contributors
Dr McBrien performed the background research and wrote the first and revised drafts of the manuscript. Dr Manns provided expert knowledge, content direction, and editorial support.
- Copyright© the College of Family Physicians of Canada
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