ECON
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ch03.pptGetzen’s Health Economics & Financing, 5th Edition
Copyright © John Wiley & Sons, Inc.
Chapter 3: Cost-Benefit and Cost-Effectiveness Analysis
QUESTIONS
How much is too much to spend to save someone’s life? Is one life worth more than another?
Is the effort expended to save one more life a total, average, or marginal cost?
Is it more beneficial to screen high-risk or low-risk people for disease?
Can the statistical probability of death among teenagers be compared to ordinary mortality among the retired elderly?
QUESTIONS cont.
Which are better measures of the value of care: patient choices or professional judgments?
Is there necessarily a trade-off between health and money?
Why do decisions based on the average benefit from treatment lead to too much medical care?
3.1 COST-BENEFIT ANALYSIS IS ABOUT MAKING CHOICES
- An Everyday Example: Knee Injury
- Stepwise Choices: Yes or No? How Much?
- Decision Rule:
Marginal Benefit > Marginal Cost Try doing more
Marginal Benefit < Marginal Cost Try doing less
Marginal Benefit = Marginal Cost Stop––
this is the best
one can do
3.1 COST-BENEFIT ANALYSIS IS ABOUT MAKING CHOICES cont.
- Calculating Marginal and Average Costs
- Defining Marginal: What Is the Decision?
- Quality Margin Example: What Treatment?
- Severity Margin Example: Which Patients to Treat? How Many?
3.2 MAXIMIZATION: FINDING THE OPTIMUM
- Declining Marginal Benefits
- Optimization: Maximum Net Benefits
Maximum net gains at
Marginal Benefit = Marginal Cost so that
MB − MC = 0
3.2 MAXIMIZATION: FINDING THE OPTIMUM cont.
- Expected Value
- Expected Value of Z = (Probability that Z will occur) × (Value of Z)
- An option is chosen if
(Probability of Gain)×(Benefit)>(Probability of Loss)×(Cost)
(Number of people for whom Zi occurs) x (Value of Zi)
- Expected Value = ------------------------------------------------------------------
Total number of people
3.3 THE VALUE OF LIFE
3.4 QUALITY-ADJUSTED LIFE YEARS (QALYs)
- Discounting Over Time
- QALY League Tables
3.5 PERSPECTIVES: PATIENT, PROVIDER, PAYER, GOVERNMENT, SOCIETY
- Distribution: Whose Costs and Whose Benefits?
- CBA and Public Policy Decision Making
- CBA Is a Limited Perspective
Copyright 2013 John Wiley & Sons, Inc.
