WEEK 7
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Dec 6, 2023
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Lesson 7: Economic Evaluations and Healthcare Systems Comparison
What Do Economic Evaluations Address?
Economic evaluations answer the following questions in order to provide an objective set of criteria for making choices among alternatives given scarce resources:
1. Are health services, etc., worth doing given limited resources?
2. Are we satisfied with the way health resources are utilized among the different courses of action chosen?
The Purpose of an Economic Evaluation
The purpose of an economic evaluation is to compare alternative courses of action that are solutions to the same problem. Without systematic analysis, it is difficult to clearly identify the alternative uses for resources and the opportunity cost of employing one alternative than another in solving a problem.
Economic evaluations provide an objective way to determine resource allocations from an individual, community, or societal viewpoint. Economic evaluations link the alternative courses of actions’ inputs and outputs and provide a comparative analysis of alternative courses of action, in terms of both the value of their inputs and outputs.
Types of Economic Analyses
The identification and measurement of costs are similar across the economic evaluation methods. However, the type of output from the alternative courses of action can vary significantly across the methodologies.
I. Cost Minimization Analysis
In this case, outputs of the courses of action are identical (or at least assumed to be so) and costs only are considered. The principal decision rule is focused on the costs per procedure successfully performed,
where the least cost course of action is determined to be the efficient choice.
II. Cost-Effectiveness Analysis
In this case, the output of the courses of action is common across alternatives, but the alternatives have varying degrees of success in achieving the output. The outputs can be health effects directly or measures that show improvements in health status.
In cost-effectiveness analysis, there is a dominant dimension of success that is considered. If there is an equivalent level of effectiveness, it is best to perform a cost-minimization analysis. This analysis can be done considering any courses of action with a common output.
III. Cost-Utility Analysis
This is often considered a special case of cost-effectiveness analysis, where the output of the courses of action is valued commonly across alternatives, but the alternatives have varying degrees of success in achieving the value of the improvement in the output.
The utility of the health output is different than the health output itself. It brings in quality of life adjustments for treatment output while providing a common denominator for comparing the costs and outputs of different alternatives.
IV. Cost-Benefit Analysis
In this case, the output of the courses of action may not be a single common effect or maybe multiple effects which may or may not be common to the alternatives. We could develop a method to combine multiple effects into one common valuation.
Here, the measure of value is the dollar, translating effects into the dollar value of benefits of life-years gained, improved productivity, more convenience, etc. This comparison of dollar costs or dollar benefits is a cost-benefit analysis.
Cost and Discounting
COST
The type and scope of costs depend on the analysis viewpoint (i.e., society, government, patient, employer, program agency). Direct costs are the actual expenses incurred by participating in the alternative. Indirect costs are the productivity losses associated with the course of action, which reflect the opportunity costs of using one alternative and forgoing another. If the magnitude is small, then the study can merely identify it. Overall, economic costs go beyond simply listing expenditures, since opportunity costs need to be reflected, such as the need to consider other non-marketed resources also.
DISCOUNTING
Discounting accounts for the differential timing of costs and outputs of courses of action under consideration over multiple periods of time. The discount rate reflects this social rate of time preference and expresses this preference for the present over the future. Therefore, all costs are discounted to their
present value. The discount rate is equal to the social rate of time preference, which denotes that people
prefer their benefits now rather than in the future.
Assessment of Economic Evaluation
A sound economic evaluation has the components seen in a good empirical research study
Was a well-defined and operational question formed?
Was a complete description of the alternative courses of action provided?
Was there evidence of program effectiveness?
Were all-important costs and outputs for each course of action identified?
Were costs and outputs measured accurately?
Were costs and outputs valued credibly?
Were costs and outputs adjusted for differential timing?
Was a sensitivity analysis performed?
Did the presentation of the findings include all issues of concern to the users of the analysis?
Elements of a Healthcare System
From a societal point of view, it is difficult to determine whether a centralized or decentralized health system is superior. A healthcare system that is decentralized such as the marketplace or a system of local governments may provide more alternatives and innovations but results in diseconomies of scale and scope, and lack of coordination. Determining the best structure for a healthcare system involves quantifying the value society places on a number of alternatives and sometimes competing outcomes, such as choice, innovation, uniformity, and production efficiency.
Types of Systems
The specific configuration of any health system depends on a multitude of factors, such as politics, culture, demographics, historical events, and social structures inherent to a specific country. Despite widespread variation among the healthcare systems of developed nations, at root, they represent variants or combinations of a limited number of types.
The first classification scheme centers on the dimension of the degree of government involvement in funding and provision of health care.
The second basic type of health system eases state involvement in the social insurance (Bismarck) model.
The third type and the one which might approach the government monopoly in its pure form is the National Health Service (Beveridge) model.
Financing Methods Across Countries
Because the time and amount of medical treatment costs are uncertain from an individual consumer’s perspective, third-party payers such as private insurance and the government play a major role in the healthcare economy. Also, third-party payers are responsible for managing the financing risk of purchasing medical services.
Third parties make the healthcare system much more complex because the source of third-party financing and the method of reimbursement must be worked into the model. When a government agency or public insurance company acts as a third-party payer, the financing of medical care insurance usually comes from taxes.
Various Healthcare Systems
Canada - The essential features of the Canadian healthcare system are national insurance, free choice of health care providers, private production of medical services, and regulated global budgets and fees for healthcare providers.
Germany - The dominating features of the German healthcare system include socialized health insurance
financed through sickness funds, negotiated payments to healthcare providers, free choice of provider, and private production of healthcare services.
The United Kingdom - In the case of the United Kingdom, the distinguishing characteristics include restrictions on the choice of provider, public contracting of medical services, global budgets for hospitals,
fixed salaries for hospital-based physicians, and capitation payments to general practitioners.
The United States - The pluralistic healthcare system in the United States contains a system of private production but relies more heavily on a fee-for-service method relative to other systems.
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Overall Assessment of the U.S. Healthcare System
Prices and expenditures on various medical services continue to rise, but more slowly in recent years. Choices of the physician, hospital admissions, and selection of pharmaceutical products have all been greatly limited by the movement of supply-side controls in the healthcare system. It also seems that competition in the healthcare sector may have created its own beginning of destruction.
Information on medical utilization shows that perhaps the high medical care spending in the United States shows up in a relatively large amount of inpatient and physician office visits. Comparatively high health care expenditures with lower utilization rates lead many analysts to believe that medical prices in the United States must be significantly higher than in other countries.
Medical Technology in Canada, Germany, The United Kingdom, and The United States
Health policy analysts have expressed concern that the unconstrained healthcare markets result in medical technologies that offer low benefits at high costs. As a result, many countries have adopted policies to either directly or indirectly control the adoption and diffusion of medical technologies to contain costs. Although diffusion of technology takes place more slowly in more tightly budgeted systems, the use of innovative technologies in those systems tends to catch up over time to that relative of the United States. The availability of medical technology indicates little about the overall effectiveness
of the healthcare system. To determine overall healthcare system effectiveness, a host of factors must also be considered, including the quantity and quality of other medical inputs.
The Case of Singapore
Researchers contend that the ability of the Singapore healthcare system to contain costs can only partially explain the implementation of medical savings accounts.
Strict government controls on inputs and prices, along with the rationing of medical care, have played an
even greater role in controlling costs. Other explanations include a relatively young population and the existence of a number of traditional Chinese medical practitioners that are not funded by government-
sponsored health care programs.
Conclusion
This lesson provided the reader with an introduction to the nature of economic evaluation and the main types of economic evaluations, as well as the elements of a sound economic evaluation. Different approaches can be used together for complicated problems, and at times a cost-benefit analysis is performed of the economic evaluation itself since these studies are costly to perform. Some systems rely
on centralized decision-making, whereas others answer the basic questions through decentralized processes. Healthcare systems are complex largely because third-party payers are involved. Important elements that make up a healthcare system are the financing, reimbursement, production methods, and the degree of choice over the healthcare provider. Medical care is financed by out-of-pocket payments, premiums, and/or taxes. Medical care providers are reimbursed on a fixed or variable basis. The production of medical care may take place in a for-profit, non-profit, or public setting, and medical care providers may operate independent or large-group practices. The choice of the provider may be limited. All these features are important since they
influence one operation and performance of the healthcare sector. The United States healthcare system is very pluralistic.