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i 93 : Primary Health Care: Open Access Leung. Primary Health Care ZOIE, 6.2 DOl. l0 4172121674079 l000223 Health Economic Evaluation: A Primer for Healthcare Professionals Lawrence Leungm\" Department of Family Medicine, Queen's University, Canada ZCentre of Studies in Primary Care, Queen's University, Canada Abstract In its broadest term, economic evaluation (EE) is a comparative analysis of the input (costs) and the output (consequences, outcomes) of two or more alternatives to see if they are economically benecial or feasible. The earliest form of economic evaluation took place in mid-19th century and since then; three main forms of EE have evolved which are employed in various settings: cost-benet analysis (CBA), cost-effectiveness analysis (CEA) and cost-utility analysis (CUA). Intended as a primer reading for clinicians, this article starts with the fundamental concepts of economics (e.g., costs, benets, supply and demand, utilities and efciency) and then combine them into principles for each tool for EE. The article will present a narrative critique of each EE in the context of modern healthcare system. As a conclusion, the article will mention some of the major challenges of these EE tools plus the role of sensitivity analysis. Keywords: Health economic evaluation; Costetfective analysis; Cost-benet analysis; Cost-utility analysis Fundamental Concepts Costs, benets, supply and demand In any non-utopic society, resources (or goods) are nite (hence scarce) and they are constantly distributed to individuals to satisfy their needs (wants and preferences). Resources have to be produced (by sellers) to replenish consumption by individuals(consumers), who willingly let go of other resources (money) to accrue the resource(s) of their preference (consumer choice). Such transaction (bought and sold) between a consumer and seller is a reallocation of resources (supplier's good versus consumer's money) at a mutually agreed price, where consumers' willingness to pay meets sellers 'willingness to accept. Here, consumers enjoy a benet from the good/service by paying sellers the costs of the goods. In any market free from monopoly or regulation, this transaction price indicates equilibrium between supply and demand (Figure 1). However, when more than one individual consume the same set of resources, competition will arise: as the net resources decrease the equilibrium price will shift, so that only the individual(s) who can now pay a higher price will continue to consume the decreasing resources. On the contrary, when resources become more available than needed, an excess will be left around and hence the demand falls and pulls down the equilibrium price. Iohn Locke, an English philosopher and physician, rst described this inverse supply-demand relationship in his writings in 1691, but the actual term \"supply and demand\" was Simply (Marginal costs) Price Transaction price Demand (Marginal benefits.) Qt: Quantity Figure 1: Classic Supply and Demand curve that determines the agreed/ transaction price of any utility in a free consumers' nonebartar economy. not coined until 1767 by Denham-Steuart and Adam Smith, in his famous work of \"the Wealth of Nations" [1,2]. By denition, supply and demand for any resource or commodity are susceptible to external constraints like weather (under- or over-production) and disasters that will compromise human viability (under-demand of luxurious items and over-demand of basic commodities) (Figure 2). wrung 2015 a. Q; a; 0: Quantity Figure 2: Scenarios when supply and demand curves shift. For a commodity X in a society, there exists an equilibrium where supply curve 51 intersects demand curve D1, at the agreedutility(prlce) of U3 for a Q4 quantity of X. An epidemic came killing 15% of population and sent the economy to recession, shifting the demand curve for X to the left to D2 (now less people in total and less money earned). If the supply remained the same St, it will be relatively in excess and hence the agreed utility (price) will fall to U4 for a lesser quantity of X (QB), Now, if the production ofX also tell, the supply curvewill be shifted up to 52(harder to produce the same unit olgoodlservlce), leading to a higher agreed utllitylpn'ce of U2 for a much less quantity of X.(Q1). *Corresponding author: Lawrence Leung, Department of Family Medicine, Queen's University, Canada, Tel: +17613753379303 10; Fax: +17613754470132; Ermail: leungl@queensu.ca Received April 12, 2016; Accepted April 29, 2016: Published May 05, 2016 Citation: Leung L (2016) Health Economic Evaluation: A Primer for Healthcare Professionals. Primary Health Care 6: 223. d0l110.4l72l21674079 1000223 Copyright: 2016 Leung L. This is an openeaccess article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. Primary Health Care Volume 6 - Issue 2 - 1000223 Citation: Leung L (2016) Health Economic Evaluation: A Primer for Healthcare Professionals. Primary Health Care 6: 223. doi:10.4172/2167- 10791000223 Utility, marginal utility and indi'erence curves In economics, a preference for resources/goods or their perceived satisfaction is called utility. This concept of utility enables economist to understand consumers' choices and decisionmakings for commodities and services. The term "marginal utility\" refers to the extra utility gained with acquisition of the next increment of goods! service. In 1844, French engineer Iules Dupuit described the concept of \"diminishing marginal utility\\fCitation: Leung L (2016) Health Economic Evaluation: A Primer for Healthcare Professionals. Primary Health Care 6: 223. doi: 10.4172/2167- 1079.1000223 Page 6 of 8 Country Preferred Analysis Analysis Preferred Output measure Perspectives England and CUA Cost-payer (NHS), QALY Wales societal with incremental cost- enefit ratio > f20,000 Finland All analysis if justified Societal None Canada CUA, CBA Societal, cost-payer QALY (CUA) WTP (CBA) New CUA Cost-payer QALY Zealand Netherlands | CEA, CUA Societal Natural output unit (CEA) QALY (CUA) Norway All analysis if justified, for Societal and cost- Gained year of life or avoided event (CEA) influence on functionality payer QALY (CUA) +/- quality of life: CUA or NTP (CEA) CBA Austria No explicit preference No explicit No explicit preference preference Sweden CBA, CEA, CUA and CMA Societal QALY (CUA) for same result WTP (CBA) USA CUA Cost payer for base- Life expectancy CEA when clinical ase analysis QALY outcomes and QALYs are Societal or Employer available for sensitivity nalysis Figure 9: Different HEE tools adopted by different countries, often in combinations. Taken from Riedel R, Repschlager U, Griebenow R, et al. International standards for health economic evaluation with a focus on the German approach)[62] services have to be re-allocated among individuals in the most efficient responsible to ensure such allocations are efficient and equitable and equitable fashion in order to maintain societal viability and stability. in the best interests of the end-users To achieve this, economic evaluation (EE) becomes a mandate, of which there are three possible tools: CBA, CEA and CUA. When applied in Economic efficiency is achieved when all inputs are used to healthcare, EE faces a major ontological challenge of human health and maximum outputs at the lowest costs, and scarce resources life, plus epistemological disputes for their valuations. The advocates have been re-allocated to fulfill supply-demand of individuals of WTP and subsequent QALY/DALY calculations have quietened at optimal utilities. the debate transiently. Yet, when methodologies for estimating WTP Pareto efficiency is the gold standard for economic efficiency and QALY/DALY diversify and yield differing outcomes, the original but in real-life some criteria and modifications are applied dilemma in HEE have come back to full circle. Nevertheless, different Kaldor-Hicks criteria and compensation) HEE tools appeal to different decision makers at various levels, and The three main economic evaluation tools are cost-benefit in real life they are used in various combinations with no mutual analysis (CBA), cost-effectiveness analysis (CEA) and cost- exclusions (Figure 9). utility analysis (CUA) As illustrated by the Centers of Diseases Control and Prevention CBA use monetary terms for outcome measures and are easily (CDC), at government and national levels, CBA comparing outcomes understood and adopted by healthcare decision makers interms of dollars will enable the President to arbitrate the national budget between healthcare, welfare, defense and infrastructures; at the CEA and CUA use non-monetary measures that reflect health provincial levels, CUA showing different outcomes of population health status and quality of life (QALY and DALY). can guide the Public Health Director to channel resources into various Due to differing perspectives and evaluation methods, the disease prevention initiatives. Finally, at the local hospital or clinic thresholds for QALY/DALY can vary widely and poses logistic level, CEA showing number of cases diagnosed will justify the choice issues during cross-comparison of the best glaucoma screening program [57-63]. That said, all HEE are prone to various uncertainties and should be subjected to appropriate All HEE are prone to uncertainties and should be subjected to sensitivity analysis before conclusions can be drawn. appropriate sensitivity analyses before decision-making References Take home messages: 1. Locke J (1691) some considerations of the consequences of lowering the Medical resources are scarce and needed to be allocated to meet interest and raising the value of money (Letter to a member of Parliament. an ever-increasing demand 1691). 2. Denham-Stewart J (1767) Inquiry into the Principles of Political Economy. Decision makers and policy stakeholders in healthcare are Published in The Strand. Primary Health Care Volume 6 . Issue 2 . 1000223 SSN: 2167-1079 PHCOA, an open access journal