9.1 Economic evaluation fundamentals
Economic evaluation in value-based healthcare is essential because it provides a framework for comparing the cost-effectiveness of various health programs and interventions, ensuring that resources are allocated to those that offer the greatest value for patient outcomes (Yang et al., 2019). Evaluation helps to identify which treatments yield the most significant health benefits relative to their costs, supporting the prioritisation of interventions that improve quality of care while managing expenses (Goodrich et al., 2012; Turner et al., 2021). Through evaluation, healthcare systems can make informed decisions that balance patient needs with financial sustainability, promoting efficient spending without compromising the quality of care. Additionally, evaluation facilitates transparency and accountability in healthcare spending by demonstrating the return on investment in terms of health gains for the population served. Finally, economic evaluation is key for policymakers and stakeholders to justify funding decisions and to ensure that healthcare spending aligns with the broader goal of maximising patient health and wellbeing within available budgets (Turner et al., 2021).
Cost-minimisation analysis (CMA)
Cost-minimisation analysis (CMA) is an economic evaluation method used in healthcare and pharmacoeconomics to compare the costs of various interventions when it is assumed or has been demonstrated that their effectiveness is equal. CMA aims to find the most cost-effective option among alternatives that deliver identical health outcomes. This approach is only suitable when the effectiveness of the interventions being compared has definitively been shown to be the same, thus making cost the sole factor for consideration.
To verify that health outcomes are the same typically requires an examination of existing research, data from clinical trials or new studies to ensure there is no meaningful difference in effectiveness among the options. CMA is especially valuable in contexts where financial limitations are critical and there is a necessity to choose the option that is most financially feasible without sacrificing the quality or effectiveness of care.
AN EXAMPLE OF CMA
Mariño and colleagues evaluated a community-based oral health promotion program against traditional chairside oral hygiene instructions for improving the gingival health of immigrant older adults in Melbourne, Australia (Mariño et al., 2014). The program, called Oral Health Information Seminars/Sheets (ORHIS), comprised group seminars and individual brushing sessions led by a non-oral health professional educator. Health outcomes were measured as a reduction in gingival bleeding. Clinical outcomes showed a significant 75 per cent reduction in mean gingival bleeding scores among participants, indicating effectiveness equivalent to that of one-on-one chairside instructions. Conventional one-to-one chairside oral hygiene instruction was provided by dental hygienists working in a public dental clinic in Melbourne.
The analysis compared the costs of the ORHIS program and the standard chairside instruction model. ORHIS, serving 100 older adults, was found to be considerably less expensive, costing $6,965.20, in contrast to $40,185.00 for the chairside model. The cost per participant for the ORHIS program was $69.65, significantly lower than $401.85 for the traditional approach.
The findings underscore the cost-effectiveness of community-based oral health interventions. ORHIS not only proved to be an efficient use of financial resources but also highlighted the potential for significant savings without compromising the quality or effectiveness of care. The study advocates for further investment in such community-based programs, emphasising their role in improving public oral health, particularly among older adult immigrant populations.
Cost-effectiveness analysis (CEA)
Australian state and federal authorities employ cost-effectiveness analysis (CEA) to determine the most strategic use of limited healthcare resources. This method weighs the costs against the health improvements provided by various healthcare actions, thereby guiding policy formulation (Hutubessy et al., 2003).
In its application, CEA conducts an organised assessment of various healthcare strategies by juxtaposing their economic implications against health or social benefits such as mortality or hospital admission rates. This method evaluates and contrasts the expenditure for each health outcome unit that is not directly monetary. Depending on the scenario, this could involve improvements in medical conditions, a decrease in gambling instances, or other specific health targets.
The advantages of CEA include offering crucial insights to policymakers for the effective distribution of funds, favouring those options that provide the most benefit within budgetary constraints. Nevertheless, CEA’s effectiveness can be hindered by its dependency on theoretical assumptions, the complex nature of outcome measurement and comparison, and the uncertainties involved in forecasting outcomes over the long term.
AN EXAMPLE OF CEA
In Australia, before a new pharmaceutical product is listed on the pharmaceutical benefits scheme (PBS), which subsidises medicines to make them more affordable for the public, it must undergo a rigorous CEA. For instance, a CEA was conducted to evaluate the inclusion of a new antiviral drug regimen for the treatment of hepatitis C (Scott et al., 2022). This analysis compared the new drug’s cost with the health outcomes it delivered, such as the number of hepatitis C transmissions prevented, the number of liver diseases averted and improvements in the quality of life of patients. The CEA demonstrated that, despite the high upfront cost of the drug regimen, it was cost-effective overall due to the significant health benefits and the reduction in the need for more expensive treatments for advanced liver disease. This CEA was pivotal in the decision to subsidise the antiviral regimen under the PBS, making it accessible to a broader segment of the Australian population and significantly impacting public health outcomes.
Cost–benefit analysis (CBA)
Cost–benefit analysis (CBA) methodically assesses the overall impact of a proposal on the community and the economy, taking into account broad and specific effects beyond just the immediate or direct financial impacts. CBA aims to assign financial values to all advantages and disadvantages of a proposal, offering a detailed assessment of its overall effect. This approach establishes an unbiased basis for evaluating various outcomes across different timescales by converting all effects into their present monetary worth. CBA serves as a clear guide for decision-making, even when not all outcomes can be precisely quantified in financial terms (Bonner, 2022).
Widely adopted by state and national authorities in Australia, as well as globally, CBA is a principal method for analysing policy or budgetary alternatives. It consolidates the financial impacts of a policy or initiative into a unified analysis. However, one limitation of CBA is the necessity to translate all outcomes into financial figures, which might be dependent on debatable assumptions. It is essential to transparently articulate these assumptions and conduct sensitivity analyses to address potential challenges. Occasionally, it may be challenging to assign monetary values to certain outcomes.
The benefit–cost ratio (BCR) is an important financial measure used to evaluate the return on investment of a project or intervention. It is easily understood by decision-makers and the general public. Essentially, the ratio compares the total benefits received from a project to the total costs of implementing it. For example, if a project has a BCR of 3.5, it means that for every dollar spent on the project, the community gains $3.50 in benefits. This could include economic advantages, improvements in quality of life or environmental enhancements, depending on the project’s goals.
AN EXAMPLE OF CBA
Kuklinski and colleagues (2012) conducted a CBA on the Communities That Care (CTC) prevention program. This public health approach is aimed at reducing risks, enhancing protection and diminishing the prevalence of adolescent health and behavioural problems on a community-wide scale. The analysis was grounded on a longitudinal study from grade 5 through grade 8 involving 24 communities across seven states. Prior results had demonstrated that CTC successfully reduced the initiation rates of cigarette smoking, alcohol use and delinquency by the end of eighth grade in the communities where it was implemented, compared to control communities.
The CBA study focused on the monetary benefits associated with the significant effects on cigarette smoking and delinquency prevention versus the cost of implementing the intervention. It presented a conservative estimate, which placed the net present benefit (the current value of all future benefits) at $5,250 per youth. This includes $812 from preventing cigarette smoking and $4,438 from preventing delinquency. The BCR was positive, indicating a return of $5.30 per every dollar invested. Under less conservative and still plausible cost assumptions, the BCR could increase to $10.23 per dollar invested.
The study found that the program was cost-beneficial even when only accounting for the prevention of cigarette smoking and delinquency. The inclusion of alcohol use prevention and quality-of-life gains would have further increased the program’s BCR. Overall, the analysis concluded that CTC is a good investment of public funds, offering substantial economic benefits alongside its health and social advantages.
Cost-utility analysis (CUA)
Cost-utility analysis (CUA) assesses the value for money of various health interventions by examining their expenses and their effects on health. This method is commonly applied in healthcare to guide resource distribution decisions (Robinson, 1993). The key metric used in CUA is the quality-adjusted life year (QALY), which encapsulates the extension and enhancement of life resulting from healthcare interventions.
In CUA, the expenditure of each health intervention is evaluated, and outcomes are normalised using QALYs, setting it apart from CEA. The calculation of QALYs involves adjusting the duration spent in any given health condition by a utility factor that signifies the life quality in that condition, based on an individual’s health state preferences. This approach enables the comparison of cost-effectiveness across various health interventions by analysing the cost per QALY gained (Bailey et al., 2021).
QALYs are premised on the idea that healthcare interventions lead to two primary benefits: prolonged life and enhanced quality of health-related life (HRQoL), allowing for efficient resource allocation across different areas of healthcare.
The strength of CUA lies in its provision of a uniform health outcome metric, making it easier to compare the effectiveness of different health interventions. This aids policymakers in allocating resources towards interventions that deliver the highest health benefits per unit of cost, measured in QALYs. However, this approach faces obstacles in the precise measurement of HRQoL and must navigate ethical considerations and the challenge of incorporating non-health benefits into its analysis.
AN EXAMPLE OF CUA
James and colleagues investigated the cost-utility of three bariatric surgery procedures – adjustable gastric banding (AGB), Roux-En-Y gastric bypass (RYGB) and sleeve gastrectomy (SG) – against usual care, which comprises conventional pharmacotherapy, diet and exercise, within the Australian public healthcare system (James et al., 2017). All bariatric surgeries were found to be cost-effective. Incremental cost-effectiveness ratios (ICERs) were $24,454 for AGB, $22,645 for RYGB and $27,523 for SG compared to usual care. These values fall below the willingness-to-pay threshold of $70,000 per quality-adjusted life year (QALY), suggesting that from a cost-effectiveness perspective, all three surgeries are viable options.
The study concluded that bariatric surgery represents a cost-effective treatment strategy for managing obesity in the Australian healthcare context, particularly for patients with diabetes, where it may lead to net savings. The findings support the broader adoption of bariatric surgery within publicly funded healthcare systems in Australia, provided there is effective follow-up care to prevent weight regain.
Social return on investment (SROI)
The social return on investment (SROI) method enables organisations and policymakers to factor non-market social advantages into their evaluations (The SROI Network, 2012). It quantifies the social, environmental and economic benefits produced by an initiative or project. SROI differs from CBA by including broader impacts on society and stakeholders, not just traditional financial results. This method involves pinpointing stakeholders, delineating outcomes and attaching financial figures to these results. It is particularly noted for encompassing social benefits and costs that might be overlooked in standard CBA. Nevertheless, SROI is not the go-to method for economic evaluation by state and federal governments in Australia.
To determine SROI, organisations adhere to principles that engage stakeholders in the evaluation and measurement of outcomes, credit changes to the initiative or project, and monetise these changes through methods like assessing the willingness to pay or accept compensation. The resulting ratio indicates the social value created for each investment unit. The advantages of SROI include showcasing an initiative’s full impact, supporting decisions on resource distribution and enhancing transparency. Yet challenges exist, such as the subjective assignment of value to social outcomes, the risk of overlapping values and difficulties in measuring long-term or indirect effects.
AN EXAMPLE OF SROI
Hyatt and colleagues conducted a study to evaluate the social value and return on investment of lung cancer supportive care services using the SROI methodology (Hyatt et al., 2022). The study foregrounded the high unmet needs of lung cancer patients and their caregivers, which lead to significant healthcare use and financial burden. It highlighted the efficacy of cancer supportive care in mitigating these issues but noted a global lack of investment due to insufficient economic evidence of benefits.
The SROI model developed in this study was based on qualitative stakeholder consultations and published evidence. It forecast the potential social value and cost savings of a hypothetical model of quality lung cancer supportive care over one-year and five-year periods. The outcomes showed that for every Australian dollar invested in supportive care, a social return of $9 is obtained in one year, increasing to $11 over five years. This indicates significant cost savings for the healthcare system and substantial benefits for patients. This study underscores the cost-effectiveness of supportive care for lung cancer patients in tertiary healthcare settings. It advocates for increased investment in supportive care services, highlighting the potential for significant economic savings and improved patient outcomes over time. The findings serve as strong evidence for policymakers, clinicians and consumers to promote further investment in cancer supportive care.
