Cost-Benefit Analysis

Cost-Benefit Analysis Audrey Hsu, PhD, RPH Adjunct Assistant Professor Department of Pharmacy Practice Rascati K.L. (2021). Chapter 7, Cost-Benefit Analysis. Essentials of Pharmacoeconomics: Health Economics and Outcomes Research, 3e. Wolters Kluwer. Learning Objectives 1. Define and describe Cost-benefit analysis (CBA) 2. Address the advantages and disadvantages of CBA 3. Discuss the methods of measuring productivity and intangible benefits • Human capital (HC) • Willingness-to-pay (WTP) 4. Compare three types of calculation methods used in CBA • Net benefits (or net costs) • Benefit-to-cost (or cost-to-benefit) ratios • Internal rate of return (IRR) 2 CBA: Introduction • CBA compares both costs and benefits in monetary units. furn monetary mi follows • CBA methodology was first used to set policy for water projects and other public goods. • In 1960s, CBA was first used in health care, including assessing the costs and benefits of a vaccination program for children. in Cost-Benefit Analysis= 𝑪𝒐𝒔𝒕𝒔 𝒎𝒆𝒂𝒔𝒖𝒓𝒆𝒅 𝒊𝒏 $ = 𝑩𝒆𝒏𝒆𝒇𝒊𝒕𝒔 𝒎𝒆𝒂𝒔𝒖𝒓𝒆𝒅 𝒊𝒏 $ 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒𝑠 𝑐𝑜𝑛𝑠𝑢𝑚𝑒𝑑 𝑏𝑦 𝑝𝑟𝑜𝑔𝑟𝑎𝑚/𝑖𝑛𝑡𝑒𝑟𝑣𝑒𝑛𝑡𝑖𝑜𝑛 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑜𝑢𝑡𝑐𝑜𝑚𝑒 𝑔𝑎𝑖𝑛𝑒𝑑 𝑓𝑟𝑜𝑚 𝑝𝑟𝑜𝑔𝑟𝑎𝑚/𝑖𝑛𝑡𝑒𝑟𝑣𝑒𝑛𝑡𝑖𝑜𝑛 3 Components of CBA transportsm hotel Direct medical Direct nonmedical 𝐂𝐨𝐬𝐭𝐬 ($) 𝐁𝐞𝐧𝐞𝐟𝐢𝐭𝐬 ($) Direct benefits Indirect benefits Productivity Intangible benefits Patient preferences; 4 Pain and suffering Components of CBA (2) * Costs Send A Direct Benefit Indirect Benefits ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ Need to incluse Not Intangible Benefits No, categorized as a cost comparison or cost analysis consisered cost True CBA? (according to economists) malisi Yes ✓ Yes intiret A 5 CBA in the Literature 5 dig areas • Common application of CBA in the literature: • Preventative strategies (58%) • Vaccination programs (influenza, hepatitis B) • Pharmaceuticals (25%) • Usually vaccines • Education and counseling (21%) PpDes • Diabetes and asthma education programs • Screening strategies (18%) • Cancer, HIV/AIDS • Diagnostic test (17%) * • Note: These areas were not mutually exclusive Not equal % 100 (Source: Zarnke KB, Levine MA, O'Brien BJ. Cost-benefit analyses in the health-care literature: don't judge a study by its label. J Clin Epidemiol. 1997;50(7):813-822. doi:10.1016/s0895-4356(97)00064-4) 6 CBA in the Literature: Examples • Gabot A, Lavitas P, Bacon R, et al. Cost-benefit analysis of sacubitril/valsartan in a Medicaid population. Am J Manag Care. 2022;28(7):349-352. doi:10.37765/ajmc.2022.89181 • Miarons M, Marín S, Amenós I, Campins L, Rovira M, Daza M. Pharmaceutical interventions in the emergency department: cost-effectiveness and cost-benefit analysis. Eur J Hosp Pharm. 2021;28(3):133-138. doi:10.1136/ejhpharm-2019-002067 • Lou J, Lim NW, Cai CGX, Dickens BSL, Huynh VA, Wee HL. Cost benefit analysis of alternative testing and quarantine policies for travelers for infection control: A case study of Singapore during the COVID-19 pandemic. Front Public Health. 2023;11:1101986. Published 2023 Feb 23. doi:10.3389/fpubh.2023.1101986. • Wilkes S, Zaal RJ, Abdulla A, Hunfeld NGM. A cost-benefit analysis of hospital-wide medication reviews: a period prevalence study. Int J Clin Pharm. 2022;44(1):138-145. doi:10.1007/s11096-021-01323-1 • Wu CW, Huang YJ, Chen YW, et al. Cost-Benefit Analysis of Involving Pharmacist for Medication Therapy Management in a Heart Transplant Clinic. Transplant Proc. 2023;55(2):426-431. doi:10.1016/j.transproceed.2023.01.015 • Okafor CE, Ekwunife OI. Introducing rotavirus vaccine in eight sub-Saharan African countries: a cost-benefit analysis. Lancet Glob Health. 2021;9(8):e1088-e1100. doi:10.1016/S2214-109X(21)00220-5 7 Advantages of CBA • CBA allows the comparison of different outcomes Cany ins outcomes • CBA values outcomes in monetary units • CEA measures outcomes in natural clinical units, which may not be easily compared if they are different (e.g., case prevented, life years saved) [ • CBA allows the decision makers to determine which programs’ costs will exceed the benefits if the cost will be more than Tenet or profit 8 Which Program Will You Choose? Program Cost-effectiveness ratio (CEA) A. AIDS prevention and awareness program $230,000/case prevented B. Vaccinations for children $104,000/case prevented C. Smoking cessation intervention $3,700/quit D. Diabetes medication adherence program $67/normoglycemic patient E. Breast cancer screening program 50,000/life year saved 9 Comparison of Cost-effectiveness Ratios & Benefit-to-cost ratios a she said she would pick the biggest under (wore people have scout flabetes Program Cost-effectiveness Ratio (CEA) Benefit-to-cost Ratio (BCA)* A. AIDS prevention and awareness program $230,000/case prevented 8.4:1 B. Vaccinations for children $104,000/case prevented 0.3:1 not C. Smoking cessation intervention $3,700/quit 6.7:1 D. Diabetes medication adherence program $67/normoglycemic patient 15.1:1 best one E. Breast cancer screening program 50,000/life year saved sent * *For BCA (benefit/cost), the higher the number, the more cost-beneficial If CBA (cost/benefit), the higher the number, the less cost-beneficial $1 man 0 . 3 $ teneacial 2.4:1 seeests cost 10 Disadvantages of CBA • It is difficult to place economic values on medical outcomes • There is no universal agreement on one standard method to use in converting medical outcomes into monetary unit Program Cost-effectiveness ratio (CEA) Benefit-to-Cost Ratio (BCA)* A. AIDS prevention and awareness program $230,000/case prevented 8.4:1 B. Vaccinations for children $104,000/case prevented cost is arective * because its creater O more A is mure denezia * 0.3:1 cost 11 Conducting a CostBenefit Analysis (CBA) 12 Steps of Conducting a CBA Determine the program or intervention an going to evaluate Identify alternatives Identify and measure costs Identify and measure benefits Calculate results of costs and benefits 13 Case Study • Methadone is a µ-opioid receptor agonist and is used for opioid dependency. It reduces opioid cravings and withdrawal symptoms. Methadone is strictly regulated by the Drug Enforcement Administration (DEA) and is generally administered in an Opioid Treatment Program (OTP). • Standard methadone (SM) programs provide patients with opioid dependency psychosocial support with methadone treatment. However, the current SM programs are not able to meet the rising demands. 14 Case Study (Cont.) • In Maryland, the interim methadone (IM) program introduces methadone to patients at an OTP without psychosocial support for a specific period (e.g., 4 months). The goal is to transition patients from the IM program to the SM program as soon as a space becomes available (known as IM+SM program). • In the IM+SM program, methadone is delivered in the OTP through direct observation and never dispensed as an outpatient prescription until a methadone treatment appointment with psychosocial counseling becomes available. not psucosscral is available conomie 15 Case Study (Cont.) • Previous studies have reported that patients who are given methadone for opioid dependency alone and then transition into an SM treatment program have lower rates of heroin usage, higher positive urine drug screenings, and reduced incarcerations. So has unefit • Society may benefit from the reductions in arrests, incarcerations, and hospitalization. However, the costbenefit analysis of IM+SM programs has not been conducted. so its useful but not sure /f it Is cost Seneficia 16 Determine the Program/Intervention (Step 1) Type of services • Education on lifestyle changes • Medication management • Lab monitoring Target population • Diabetic patients with complications Setting • Community centers • Hospitals • Community pharmacies Outcomes • HbA1c • Adherence levels 17 Step 1: Case Study • What is the program? • What is the target population • What services will be offered? • What setting is the service provided in? • What outcomes will be measured? 18 Identify Alternatives (Step 2) a lot of COA ↑ Similar program but is smaller or larger in scale “Do nothing” • No service • Usual care leave it as • All diabetes patients • Patients with diabetes-related complications 171 in the Past Different program • Offering an asthma clinic instead of a diabetes clinic * should re usual care in last all keep it as su instead of In tim 19 Identify & Measure Costs (Step 3) • Costs could include: • Direct medical cost (e.g., medications, labs, pharmacy visits) • Direct non-medical cost (e.g., transportation, meals, accommodations) • Must know the study perspective • Economists recommend that CBAs should be conducted from the societal perspective 20 Step 3: Case Study Costs per patient IM+SM Arm SM Arm Difference Weekly implementation cost of IM program ($) 3.5 0 3.5 Mean length of stay in 17 the IM program (weeks) 0 17 Weekly cost of SM program ($) 73.92 73.92 0 Mean length of stay in 44.26 the SM program (weeks) 41.95 2.31 Total costs ($0x0) + ($73.92x41.95)= $3,100 $3,331$3,101= $230 ($3.50x17) + ($73.92x44.26)= $3,331 21 Identify & Measure Benefits (Step 4) • Types of benefits measured in monetary values: • Direct benefits (medical or/and non-medical) • Indirect benefits • Intangible benefits • It is recommended to include indirect benefit or intangible benefit in the CBA * live first Chart • Could also be “costs avoided” due to the lent go to ICh So intervention after intervention you nur benefit Smet wrey • Reduction in costs for ER visits less (11) • Reduced suffering from asthma exacerbation le ↳ enefit can cost saving 22 Step 4: Case Study Benefits per patient IM+SM Arm SM Arm Difference 0.40 0.63 -0.23 Cost of an arrest ($) 5,306 5,306 0 Total costs- arrest $5,306x 0.40= $2,122 $5,306x 0.63= $3,342 $2,122 - $3,342= $-1,220 Number of days of incarceration 7.80 10.80 -3.00 Cost of incarceration per day ($) 103 103 0 Total costs- incarceration swet rune Number of days of residential drug abuse treatment $103x 7.80= $803 $103x 10.80= $1,112 $803 - $1,112= $-309 0.30 0.80 - 0.50 Cost of residential drug abuse treatment per day ($) 146 146 0 Total costs- drug abuse treatment $146x 0.30= $44 $146x 0.80= $117 $44 - $117= $-73 Number of arrests less well- So spe swez Shey Total benefit $1,220+$309+$73= $1,602 (Saving) so deneff sarg 23 us Calculating CBA Results (Step 5) • Three ways to calculate CBA results: • Net benefit (or net cost) calculations • Benefit-to-cost (or Cost-to-benefit) ratio calculations • Internal rate of return 24 Net Benefit (or Net Cost) Calculations • Net benefit = 𝑡𝑜𝑡𝑎𝑙 𝑏𝑒𝑛𝑒𝑓𝑖𝑡𝑠 − 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡𝑠 • Net cost = 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡𝑠 − 𝑡𝑜𝑡𝑎𝑙 𝑏𝑒𝑛𝑒𝑓𝑖𝑡𝑠 opposite D • Intervention is cost-beneficial if: A Net Benefit > 𝟎, or Net Cost < 𝟎 • Net benefit calculations are preferred to net cost calculations • Easier to interpret net benefit as higher numbers of net benefit indicate that an option is more costbeneficial 25 Benefit-to-Cost (or Cost-toBenefit) Ratio Calculations • Benefit-to-cost ratio= 𝑡𝑜𝑡𝑎𝑙 𝑏𝑒𝑛𝑒𝑓𝑖𝑡𝑠 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡𝑠 • Cost-to-benefit ratio= 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡𝑠 𝑡𝑜𝑡𝑎𝑙 𝑏𝑒𝑛𝑒𝑓𝑖𝑡𝑠 • Intervention is cost-beneficial if: Benefit-to-cost > 𝟏, or Cost-to-benefit < 𝟏 • Benefit-to-cost calculations are preferred → higher numbers indicate that an option is more costbeneficial 26 Net and Ratio Calculations Proposal A Proposal B Cost $1,000 $5,000 Benefit $2,000 $7,500 Youj Net benefit 2000 1000 1000 30 $2,000 − $1,000 = $1,000 Net cost - = -100040 $1,000 $2,000 = −$1,000 1000 −2000 = - guj Benefit/cost ratio zou $2,000ൗ 1900= 2.0 = 23 $1,000 - 1000 Cost/benefit ratio loos $1,000ൗ = 0.5 goy $2,000 0 341 = - 2000 This is % 5000= 250 20 7500 $7,500 − $5,000 = - East $2,500 -250 0 Wu 5000 7500 $5,000 − $7,500 = −$2,500 = - 7500 $7,5001ൗ 321 good $5,000 = 1.5 - 5000 5000 . $5,000ൗ 5041900 0$7,500 = 0.7 - 7500 - I . beneficial 27 Net and Ratio Calculations (Cont.) Somehmct give different conclusion Net benefit calculation Benefit/cost ratio calculation • Net benefit of proposal A= $1,000 wither net benef • Net benefit of amony proposal B = $2,500(M1 rollers) Proposal B is more cost-beneficial • B/C ratio of proposal A= 2.0 higher return ofinveste • B/C ratio of proposal B = 1.5 Proposal A is more cost-beneficial ↑ The two methods lead to different conclusion! 28 Step 5: Case Study • IM+SM program was associated with $230 higher in cost per patient • It also led to $1,602 in total benefits (based on the societal perspective) • Benefit/cost ratio=Geneft 1,602/230= 6.95 Cost • For every dollar spent on the IM+SM program, about 7 dollars would be saved in the society as a whole. • IM+SM program would be considered costbeneficial 29 X Which Method to Use? • Amount of money available for investment • Ex: If the available budget is $1,500, proposal A would * available for you do inver so call to proposal E be adopted • Return on investment • Proposal A (B/C ratio =2) has a higher return than does proposal B (B/C ratio= 1.5) if budget Joeser watter • Actual net benefit amount in ragic choos anysel AA • Proposal B has a higher net benefit amount in follars 30 Internal Rate of Return (IRR) • IRR= Present value (PV) of benefits/Present value (PV) of cost • IRR is compared with a specified hurdle rate a • IRR> hurdle rate: the project can yield a higher rate of return compared with other investment always • Decision rule: accept a project with an IRR greater rat than the hurdle rate Mart • Example: IRR for the asthma clinic is 6.3%. The Murg market rate of return is 4.5% for other investment the (hurdle rate). Do you choose to invest in the were asthma clinic? ashtun clier) FRR - les higher turn u 54. . 31 Components of CBA Direct medical Direct nonmedical 𝐂𝐨𝐬𝐭𝐬 ($) 𝐁𝐞𝐧𝐞𝐟𝐢𝐭𝐬 ($) Direct benefits Indirect benefits Productivity Intangible benefits Patient preferences Pain and suffering 32 What are Indirect and Intangible Benefits? Indirect Benefits: Definition can mark I says instead of s so can welly more mently • Cost-savings that result from an increase in productivity or earnings due to an intervention • It could be related to the patient or unpaid caregivers No Intervention Annual lost productivity due to an illness $60,000 Indirect Benefits= $40,000 With Intervention Annual lost productivity due to an illness $20,000 • in CBA, indirect cost is not included in the numerator because it has been used to estimate indirect benefit in the denominator (if taking a societal perspective) 34 - - Intangible Benefits: Definition • Cost-savings that result from a reduction in pain and suffering, anxiety, or fatigue due to an intervention • Example: alleviation of nausea and fatigue in chemotherapy • If a person is willing to pay $50 for a ½ hour visit with a pharmacist to improve the side effects of chemotherapy, then the intangible benefit for such pharmacist intervention would be $50 35 Indirect and Intangible Benefits • It is recommended to estimate indirect benefits in addition to direct benefits when conducting a CBA, irrespective of the perspective taken • If taking the payer or provider perspectives, most studies do not follow the recommendation to include indirect benefits and only estimate direct benefits • However, if taking the societal perspective, at the least, you must measure indirect benefits • You may or may not include intangible benefits 36 Measuring Indirect & Intangible Benefits 37 Components of CBA Direct medical Direct nonmedical 𝐂𝐨𝐬𝐭𝐬 ($) 𝐁𝐞𝐧𝐞𝐟𝐢𝐭𝐬 ($) Direct benefits Indirect benefits Productivity HC; WTP Intangible benefits Patient preferences Pain and suffering WTP HC 38 Measuring Indirect and Intangible Benefits • The two methods most seen in the literature include: Human capital (HC) method • Measures indirect benefits Willingness-to-pay (WTP) method • Measures intangible benefits 39 Human Capital Method • The most commonly used method to measure indirect benefits • It estimates wage and productivity losses due to illness, disability, or death • Assumption: Value of health benefits = the economic productivity they permit • Cost of disease = lost productivity= wage rate x missed time (days or years) 40 HC Method: Wage Rate Calculation • Yearly wage rate (income per year) • Suitable for a program that would reduce long-term disability or death • Example: pneumococcal vaccination program • Daily wage rate = 𝑦𝑒𝑎𝑟𝑙𝑦 𝑖𝑛𝑐𝑜𝑚𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑎𝑦𝑠 𝑤𝑜𝑟𝑘𝑒𝑑 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 • Suitable for an intervention targeted at an acute or chronic illness with short-term disability • Example: episodic asthma attacks • See next slide for the daily wage rate calculation 41 HC Method: Daily Wage Rate • To calculate a daily wage rate, both income and number of days worked per year must be assessed • Number of days worked per year = 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑎𝑦𝑠 𝑖𝑛 𝑎 𝑦𝑒𝑎𝑟 365 𝑑𝑎𝑦𝑠 − 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑤𝑒𝑒𝑘𝑒𝑛𝑑 𝑑𝑎𝑦𝑠 104 𝑑𝑎𝑦𝑠 − 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑣𝑎𝑐𝑎𝑡𝑖𝑜𝑛 𝑑𝑎𝑦𝑠 14 𝑑𝑎𝑦𝑠 − 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠𝑖𝑐𝑘 𝑙𝑒𝑎𝑣𝑒 𝑑𝑎𝑦𝑠 (7) = 240 𝑑𝑎𝑦𝑠 42 HC Method: Indirect Benefit Calculation Example • Intervention: Asthma clinic • Average annual income of population served by clinic = $40,000 • Number of days worked per year = 240 days 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑎𝑛𝑛𝑢𝑎𝑙 𝑖𝑛𝑐𝑜𝑚𝑒 • Daily wage rate = = $40,000 240 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑎𝑦𝑠 𝑤𝑜𝑟𝑘𝑒𝑑 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 = $167 𝑝𝑒𝑟 𝑑𝑎𝑦 Daily Wage Rate Average # of Missed Day per Year Average Value of Lost Productivity ($) Before: $167 20 3,340 After: $167 7 1,169 Cost savings or indirect benefit due to the clinic= $3,340 43 $1,169= $2,171 (value of increased productivity) HC Method: Advantages • Estimation of indirect benefit is easy and straightforward • Income estimates can be obtained or estimated from publicly available sources, such as the Bureau of Labor and Statistics, Census Bureau, and self-report • Days lost from illness can be readily obtained from the patient or another secondary source Easy in general 44 HC Method: Disadvantages • May be biased against certain demographics • Unemployed individuals, such as children and unemployed elderly • This method assumes that if a person is not working , he/she has little or no economic benefit • Value of health benefits may not equal economic productivity • Earnings for some individuals may not equal to the value of their output NO plaser has more value for teacher A • Solution: wage rates should be based on those of the average population not extrace on Piers a - - • If pain and suffering do not impact productivity, they are not included in the consideration Ex : menopaus unconcordate let loved call wee wer so supering would 45 be considered Willingness-to-pay (WTP) Method • The WTP method is used to measure both indirect and intangible benefits • WTP method determines how much people are willing to pay to reduce the chance of an adverse health outcome • It incorporates patient preferences and intangible benefits such as quality of life • WTP values can be collected via face-to-face interviews, mail, telephone, or via the Internet 46 WTP Method: Contingent Valuation (CV) • Contingent valuation (CV) is a direct method to exult, to elicit the dollar values or the WTP amounts dollar vallu) • Respondents were asked to value a contingent or hypothetical market, which includes two scema general elements/steps: know ~ exact 1. Hypothetical scenario: Respondents are presented with a hypothetical market describing the benefits of a particular health care intervention IN WORDS 2. Bidding vehicle: Respondents are then asked to value the health care intervention in a dollar amount, percentage of income, or health care IN intervention premium agk to ply follow money - - arms on 47 Amount WTP Method: Hypothetical Scenario • Hypothetical scenario should include A • Description of the intervention or program no Al • Amount of time the person should expect to spend them A undergoing the intervention • Proposed benefits of the intervention • The intent is to provide the respondents with an accurate description of the good or service that he/she is being asked to value thee put follow mod it to seee ho much Be' hones to them to a on they are willing Pay 48 WTP Method: Hypothetical Scenario Example then put number out money 49 WTP Method: Bidding Vehicles • After the program or intervention has been adequately described, respondents (patients) are then asked to bid or place a value on the program or intervention • Bids can be obtained through a variety of formats: • • • • Open-ended questions Closed-ended questions Bidding game Payment card 50 WTP Method: Open-ended Questions AP • This bidding method asks respondents how much they would be willing to pay for the program or intervention • Example: What is the maximum amount that you would be willing to pay for a 1-hour consultation with a pharmacist ? open assive 20 100 1000 • Respondent would then write in their maximum WTP amount zo-lous • Disadvantages: A A • This method results in WTP values that vary widely • People usually do not know how to value health care programs For frogue don't need to pay themselves nondelerty ineuract 51 WTP Method: Closed-ended Questions • Also called “take-it-or-leave-it” questions • Respondents are asked whether they will pay a specified dollar amount for the program • Example: Would you be willing to pay $60 for a 1hour consultation with a pharmacist that might improve your asthma condition by 50%? • ___Yes ___No • This method more closely resembles the marketplace • Disadvantage: • Only one question is asked, and therefore only one WTP value can be elicited from a respondent Need large smply 52 WTP Method: Bidding Game • Several bids are offered to reach a person’s maximum WTP • It resembles an auction • Before soliciting a second response, the bids are adjusted based on the first response. • Three iterations is optimal • Example: Would you be willing to pay $60 for a 1hour consultation with a pharmacist ? __Yes If yes, ask: “Would you be willing to pay $80?” __No If no, ask: “Would you be willing to pay $40?” 53 WTP Method: Bidding Game (Cont.) • This method is useful in determining a person’s maximum WTP value • Disadvantages: a I • Time consuming • Best conducted via face-to-face interview or over the Internet • Starting point bias: the WTP values can be biased depending on how high (or low) the first bid is 54 WTP Method: Payment Card • This method provides the respondent with a list of possible WTP amounts (i.e., payment cards) to choose from • Example of a payment card $150 $90 $30 $130 $70 $10 $110 $50 $0 Choose I What is the maximum amount that you would be willing to pay for a 1-hour consultation with a pharmacist? Please circle your choice 55 WTP Method: Payment Card (Cont.) • This method is very easy to use • It provides respondents with a range of WTP values to choose from • Disadvantage: • Range bias: The range provided can suggest the value of the intervention and can influence what the respondents say gives them avage 6 - 0 - 73 150 people can go for themissl 56 Intangible Benefits Calculation • On average, patients were willing to pay $50 for a 1-hour pharmacist consultation to have a 50% improvement in their diabetic neuropathic pain • If 400 patients enrolled in the diabetic program, Ad total intangible benefit of the program = $50 x 400= $20,000 57 WTP Method: Advantages • Helps place a dollar value on intangible benefits • Embodies patient preferences and choice see whey they my 58 WTP Method: Disadvantages • Validity of WTP values [ AAA ret • It is difficult for people to place a dollar value on a health benefit • Because a “hypothetical” scenario is presented, respondents might give a “hypothetical response” • Compliance bias • It occurs when respondents want to ‘please’ the interviewer and may overstate their WTP values • Strategic bias • It occurs when respondents over- or understate their WTP values to strategically impact the outcome Play the Sissem • Range bias (present in payment card) • Starting point bias (present in bidding game) 59 Comparing HC and WTP Methods Human Capital • Only considers productivity (indirect benefits) • Easier to measure • Biases against specific groups • Unemployed • Children • Elderly Willingness to Pay • Mainly focuses on measuring patient preferences/pain and suffering (intangible benefits) • More difficult to measure • Biases may result in inaccurate WTP values • Compliance bias • Range bias • Starting point bias 60 Application Question 1 A pharmacy manager wants to implement either a smoking cessation program or a hypertension management program in the community pharmacy. After conducting the cost-benefit analysis on both programs, the benefit-to-cost ratios are as following: • Smoking cessation program= 5.2:1 • Hypertension management program=9.5:1 Based on the CBA results, which of the following is the correct conclusion? A. We are not able to compare these two programs based on the benefit-tocost ratios. B. Hypertension management program is more cost-beneficial than smoking cessation program. C. Smoking cessation program is more cost-beneficial than hypertension management program. D. Neither program is cost beneficial. 61 Application Question 2 After the participating in the asthma education program, patients were able to reduce missed days at work, reported significant improvement in the asthma-related discomfort such as shortness of breath, and decreased the need to visit the emergency department. Once further calculated, the program director discovered that the costsavings in the missed days at work is $2,260, cost-savings from the improvement in the discomfort is $350, and cost-savings from the emergency department is $4,780. What is the value of indirect benefit in this scenario? A. B. C. D. $2,260 $350 intangeable $4,780 direct $7,390 to let sents - - - 62 Summary • In CBA, both costs and benefits are measured in dollars • CBA is useful in: a. determining which program or intervention has the greatest benefit b. comparing multiple programs with varying outcomes • CBA values indirect benefits using the HC method and intangible benefits using the WTP method • Many of the CBA studies only measure direct medical costs and direct medical benefits **Some do not consider this to be a “true” CBA** • Three type of calculations can be conducted to determine whether an intervention is cost-beneficial: (1) net calculation, (2) ratio calculation, and (3) IRR calculations 63