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Dollars and sense: A primer for the novice in economic analyses (Part I)
Ask an Expert Edited by Patricia W. Stone Patricia W. Stone, PhD, MPH, RN, C, is Assistant Professor and Associate Director of the Center of Research and EvidenceBased Practice at the University of Rochester School of Nursing and Department of Community and Preventive Medicine, Rochester, NY 14642.
Dollars and Sense: A Primer for the Novice in Economic Analyses (Part I)
T
OTAL U.S. HEALTH CARE COSTS are rising at a slower rate than in the past. However, national health care spending still accounts for nearly 14% of the U.S. gross domestic product (GDP), or $1.1 trillion (Levit, Lazenby & Braden, 1998). Because of this level of spending, it is no longer sufficient simply to assess the efficacy of an intervention. Increasingly, nurses and other health policy decision makers find themselves interested in economic evaluations. However, many nurses (even seasoned nurse researchers) are in unfamiliar territory. The intent of this column is to introduce nurses to the basic concepts and vocabulary frequently associated with economic evaluations. Economic evaluations may be conducted in conjunction with a research project or independently after the efficacy of the intervention has been established. Just measuring the costs of a new treatment (although useful information as part of an economic analysis) is an exercise in accounting, not economic analysis. A valid economic analysis of a new health care service compares sensible alternative courses of action. For example, a nursing home administrator may want to investigate the cost-effectiveness of employing advanced practice nurse consultants for her residents with the diagnosis of or risk for urinary incontinence. However, the administrator will be comparing this with other Copyright © 2001 by W.B. Saunders Company 0897-1897/01/1401-0009$35.00/0 doi:10.1053/apnr.2001.21025 54
alternatives that may include doing nothing (i.e., status quo) and/or the use of non-nurse consultants. There are different methods commonly used in economic evaluations of health care. As in most research projects the question at hand determines the methods employed. In the previous example regarding urinary incontinence consultants, it may be a reasonable assumption that all consultants offer equal patient outcomes. If this is the case, then the only concern for measurement would be the incremental costs. This type of analysis is called a cost minimization analysis. However, frequently the efficacies of different strategies are not equal, and there are trade-offs. Using the above example, if we had evidence that nurse consultants were more effective than other consultants, a cost minimization analysis would not be adequate for this comparison. Similarly, if we wanted to compare the cost-effectiveness of a pharmaceutical urinary incontinence prevention intervention compared with a behavioral intervention, we would want to also include some measure(s) of patient outcomes or efficacy of the interventions. In these cases, a cost-effectiveness analysis, a cost-consequences analysis, or a cost-benefit analysis is needed. In a cost-effectiveness analysis, the incremental effectiveness is measured in a single unit of measurement (such as dollars per cases avoided or dollars per life year gained). Cost-consequence analysis is similar, but an array of outcomes are reported, versus attempting to aggregate the outcome in a single measure (i.e., outcomes may include number of patients diagnosed with urinary Applied Nursing Research, Vol. 14, No. 1 ( February), 2001: pp 54-55
DOLLARS AND SENSE (PART I)
incontinence as well as number of skin breakdowns in these patients). In cost-benefit analysis, the outcome is measured in a monetary unit and a single dollar figure will inform which intervention offers the biggest health bang for the buck, so to speak. Difficulties with cost-benefit analysis include how the health outcomes are converted into dollar figures. Should we value life based on potential earning power (which devalues the elderly and favors children), or can we even put a monetary value on life? These ethical questions on assigning a dollar value to life are encouraging more clinicians to look to other forms of economic evaluation. In all economic evaluations, the measurement of costs requires two steps. First, the resources used in an activity must be identified. The relevant resources to consider are those that could have been deployed elsewhere had the activity not taken place. Second, valuation of the resources must be assigned in a common currency. There are a variety of different resources that may be identified in an economic evaluation. Direct health care services include not only the resources directly related to the intervention itself, but also those related to future hospitalizations, outpatient visits, long-term care, and other health care services such as pharmaceuticals and/or alternative health care services. Non–health care resources include family or caregiver time, social services such as special education, and/or patient time. To use a clinical example, a comprehensive economic evaluation of different hepatitis B virus (HBV) immunization programs would include the costs of obtaining and administering the immuni-
55
zation. In addition, it would include future downstream resource utilization (or savings), such as hospitalizations, outpatient visits, and other health care services associated with the diagnosis of HBV itself. Related diseases such as cirrhosis or cancer may also be included, depending on the time horizon of the analysis. Similarly, the time a patient and/or his or her family spends seeking care or participating in an intervention constitutes a real use of resources for the individual as well as for society. If costs and benefits are included for a time period greater than one year, these future costs and benefits are often discounted. Discounting has been astutely described in a recent evidence-based medicine text by the old adage, “a bird in hand is worth two in next year’s bush!” (Sackett, Straus, Richardson, Rosenberg & Haynes, 2000). Discounting has been controversial, but it is generally accepted that to increase comparability of published reports, economic results should be presented both without discounting as well as with multiple discount rates ranging from 3% to 10%. Patricia W. Stone, PhD, MPH, RN, C Editor, Ask an Expert REFERENCES Levit, K.R., Lanzenby, H.D., & Braden, B.R. (1998). National health care spending in 1996. National Health Accounts Team. Health Affairs, 17, 35-51. Sackett, S.L., Straus, S.E., Richardson, W.S., Rosenberg, W. & Haynes, R.B. (2000). Evidence-based medicine. How to practice and teach EBM (2nd ed.). Edinburgh: Churchill Livingstone.
Dollars and Sense: A Primer for the Novice in Economic Analyses (Part I)
T
OTAL U.S. HEALTH CARE COSTS are rising at a slower rate than in the past. However, national health care spending still accounts for nearly 14% of the U.S. gross domestic product (GDP), or $1.1 trillion (Levit, Lazenby & Braden, 1998). Because of this level of spending, it is no longer sufficient simply to assess the efficacy of an intervention. Increasingly, nurses and other health policy decision makers find themselves interested in economic evaluations. However, many nurses (even seasoned nurse researchers) are in unfamiliar territory. The intent of this column is to introduce nurses to the basic concepts and vocabulary frequently associated with economic evaluations. Economic evaluations may be conducted in conjunction with a research project or independently after the efficacy of the intervention has been established. Just measuring the costs of a new treatment (although useful information as part of an economic analysis) is an exercise in accounting, not economic analysis. A valid economic analysis of a new health care service compares sensible alternative courses of action. For example, a nursing home administrator may want to investigate the cost-effectiveness of employing advanced practice nurse consultants for her residents with the diagnosis of or risk for urinary incontinence. However, the administrator will be comparing this with other Copyright © 2001 by W.B. Saunders Company 0897-1897/01/1401-0009$35.00/0 doi:10.1053/apnr.2001.21025 54
alternatives that may include doing nothing (i.e., status quo) and/or the use of non-nurse consultants. There are different methods commonly used in economic evaluations of health care. As in most research projects the question at hand determines the methods employed. In the previous example regarding urinary incontinence consultants, it may be a reasonable assumption that all consultants offer equal patient outcomes. If this is the case, then the only concern for measurement would be the incremental costs. This type of analysis is called a cost minimization analysis. However, frequently the efficacies of different strategies are not equal, and there are trade-offs. Using the above example, if we had evidence that nurse consultants were more effective than other consultants, a cost minimization analysis would not be adequate for this comparison. Similarly, if we wanted to compare the cost-effectiveness of a pharmaceutical urinary incontinence prevention intervention compared with a behavioral intervention, we would want to also include some measure(s) of patient outcomes or efficacy of the interventions. In these cases, a cost-effectiveness analysis, a cost-consequences analysis, or a cost-benefit analysis is needed. In a cost-effectiveness analysis, the incremental effectiveness is measured in a single unit of measurement (such as dollars per cases avoided or dollars per life year gained). Cost-consequence analysis is similar, but an array of outcomes are reported, versus attempting to aggregate the outcome in a single measure (i.e., outcomes may include number of patients diagnosed with urinary Applied Nursing Research, Vol. 14, No. 1 ( February), 2001: pp 54-55
DOLLARS AND SENSE (PART I)
incontinence as well as number of skin breakdowns in these patients). In cost-benefit analysis, the outcome is measured in a monetary unit and a single dollar figure will inform which intervention offers the biggest health bang for the buck, so to speak. Difficulties with cost-benefit analysis include how the health outcomes are converted into dollar figures. Should we value life based on potential earning power (which devalues the elderly and favors children), or can we even put a monetary value on life? These ethical questions on assigning a dollar value to life are encouraging more clinicians to look to other forms of economic evaluation. In all economic evaluations, the measurement of costs requires two steps. First, the resources used in an activity must be identified. The relevant resources to consider are those that could have been deployed elsewhere had the activity not taken place. Second, valuation of the resources must be assigned in a common currency. There are a variety of different resources that may be identified in an economic evaluation. Direct health care services include not only the resources directly related to the intervention itself, but also those related to future hospitalizations, outpatient visits, long-term care, and other health care services such as pharmaceuticals and/or alternative health care services. Non–health care resources include family or caregiver time, social services such as special education, and/or patient time. To use a clinical example, a comprehensive economic evaluation of different hepatitis B virus (HBV) immunization programs would include the costs of obtaining and administering the immuni-
55
zation. In addition, it would include future downstream resource utilization (or savings), such as hospitalizations, outpatient visits, and other health care services associated with the diagnosis of HBV itself. Related diseases such as cirrhosis or cancer may also be included, depending on the time horizon of the analysis. Similarly, the time a patient and/or his or her family spends seeking care or participating in an intervention constitutes a real use of resources for the individual as well as for society. If costs and benefits are included for a time period greater than one year, these future costs and benefits are often discounted. Discounting has been astutely described in a recent evidence-based medicine text by the old adage, “a bird in hand is worth two in next year’s bush!” (Sackett, Straus, Richardson, Rosenberg & Haynes, 2000). Discounting has been controversial, but it is generally accepted that to increase comparability of published reports, economic results should be presented both without discounting as well as with multiple discount rates ranging from 3% to 10%. Patricia W. Stone, PhD, MPH, RN, C Editor, Ask an Expert REFERENCES Levit, K.R., Lanzenby, H.D., & Braden, B.R. (1998). National health care spending in 1996. National Health Accounts Team. Health Affairs, 17, 35-51. Sackett, S.L., Straus, S.E., Richardson, W.S., Rosenberg, W. & Haynes, R.B. (2000). Evidence-based medicine. How to practice and teach EBM (2nd ed.). Edinburgh: Churchill Livingstone.