Cost

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COST CONCEPTS AND ECONOMIC

EVALUATION

1

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What is cost?

2

A cost is the value of resources used to produce a

good or service

A cost is “the value of economic resources used asa result of producing or doing thing costed.

Cost is” the amount of expenditure incurred on orattributable to a given thing.”

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Types of costs in Health

3

Direct cost- these are costs which are immediately

associated with an intervention

Direct costs are mostly assessed, and categorised

as:

Capital costs (buildings, equipment)

Overheads (jointly used resources, such as heating and

lighting, administration and catering) Labour (medical and non-medical staff)

Consumables (disposable items, such as drugs,

bandages etc)

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Types of costs in Health…

4

Indirect cost- the cost can not be conveniently identified with a

particular cost unit, process or department.

-E.g -a patient’s work loss due to treatment.

- time spent in hospital

Intangible costs: are costs which can not measured in units or money

terms.

-E.g.. pain ,anxiety, isolation, depression

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Continued….

5

Total cost [TC]- is a measure of all costs entailed in

producing a given level of output/ services.

TC= FC + VC

- It represents the cost of producing a quantity of

services or goods for a particular project and program.

Average cost- is then the total cost per unit of output.

is calculated by dividing total cost by the units of

output or services produced.

AC=TC/Q

C

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Continued….

6

Fixed costs - refer to the costs that are necessarily

incurred in setting up a productive activity.

Fixed costs are born irrespective of how much output is

produced.

costs that in the short run do not vary with quantity,

usually capital, overheads . usually defined in relation to the time period under

consideration[ financial year]

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Continued….

7

Variable costs - are those costs that are directly related to how

much output is produced or costs which vary with the level of service, usually consumables

In the "long run," all costs are variable.

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8

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Continued….

9

Marginal cost [MC]- is a measure of the resources

associated with a small incremental change in output. Marginal cost is a measure of the change in costs

associated with increasing or decreasing output by oneand

is derived by calculating the change in total costs forthat one unit.

Marginal cost is the additional cost of producing onemore unit.

MC=TC (at Q+1)-TC (at Q)Or

the reduction in cost from producing one unit less.

MC=TC (at Q) -TC (at Q-1)

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Illustration

10

Number ofPatients Total Cost Average cost Variable Cost Marginal Cost

0 $ 1000 ------------ $ 0

1 $ 4500 $4500 $ 3500 $ 3500

2 $ 7500 $3750 $ 6500 $ 3000

3 $ 10000 $3333 $ 9000 $ 2500

4 $ 12000 $3000 $ 11000 $ 2000

5 $ 14500 $2900 $ 13500 $ 2500

6 $ 17500 $2917 $ 16500 $ 3000

7 $ 21000 $3000 $ 20000 $ 3500

8 $ 25000 $3125 $ 24000 $ 4000

9 $ 30000 $3333 $ 29000 $ 5000

C ti d

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Continued….

11

Capital costs- are usually defined as costs for items with a

life of more than 1 year.

E.g. construction of buildings

Purchase of equipment

Basic man power training

major capital items will fall in to the category of fixedcosts

Recurrent costs -are the costs that are necessary

incurred each year. it includes:

Salaries and wages

Supplies[ drugs, petrol]

Electricity, water

In- service training

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Contd..

12

Private cost -include out of pocket expenditures that

an individual makes to purchase health care plus

related expenses such as payments for health

insurance, loss of wages.

-Purchase of medicines, co- payments for healthservices etc.

Social cost- include indirect expenditures for health

effects such as the total value of lost production or

cost of social support for a person whose health and

work capacity has been impaired by illness.

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Continued….

13

Joint costs Joint costs are costs used by more than one projects or

programmes of an organization, therefore have to be allocated

to the projects.

e.g -a single chemical analysis of a blood sample candiagnose the presence of many diseases.

-within a hospital setting, there are many common

services (like medical records, radiology, operating theatres,

laundry, heating, lightingcatering, and cleaning)

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Economic evaluation

14

“The comparative analysis of alternative courses of action in

terms of both their costs and consequences in order to assist policy decisions” (Drummond et al)

1. Identify, measure , and value costs and Consequencesalternatives being considered

2. Comparison – technical efficiency

3. Assist - not replace - decision making

It is Systematic method to determine whether health resourcesare spent efficiently

Economics evaluations:

♦ Always compares any health care programme with analternative (e.g - no treatment or routine care).

♦ Always measure the benefits produced by allalternatives compared.

♦ Always measures the cost of any programme

Economic evaluation has 2 characteristics

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Economic evaluation has 2 characteristics1. inputs and outputs (costs and consequences)

2. choice between at least 2 alternatives

15

ChoiceChoice

Program A

Program B

Consequences A

Consequences B

Costs A

Costs B

Note: (1) If program A is subject of interest, program B can

represent some other program, or no program at all. (2) The

difference in costs is compared to the difference in consequences.

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Taxonomy of Health Evaluations1. Are both costs and con sequences of the alternatives examined?

NO YES

NO

Outcomes Only Costs Only

2 Partial

Evaluation

Outcome-CostDescription

1A Partial Evaluation 1B

OutcomeDescription CostDescription

YES

3A Partial Evaluation 3B 4 Full

Economic

EvaluationCMA

CEA

CUA

CBA

Efficacy or Effectiveness

Evaluation

Cost

Analysis

2 .

I s t h e r e c o m p a r i s o n o f t w o

o r m o r e a l t e r n a t

i v e s ?

R e p r o

d u c e d f r o m D

r u m m

o n d e t a l . ,

1 9 9 7

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Main Methods of Economic Evaluation

17

• Cost -minimisation analysis (CMA)

• Cost -effectiveness analysis (CEA)

• Cost- utility analysis (CUA)

• Cost- benefit analysis (CBA)

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Cost-Effectiveness Analysis

18

CEA is a method to determine which program or treatment

accomplishes a given objective at the least cost. Compares the costs with outcomes measured in natural units

Examples of measures of effectiveness

Cases treated appropriately

Lives saved Life years gained

Pain or symptom free days

Cases successfully diagnosed

CEA is concerned with technical efficiency issues, such as: what is the best way of achieving a given goal ? or

what is the best way of spending a given budget ?

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Cost-Effectiveness Analysis…

19

used when the interventions being compared can be analyzed with a

common measures.

Compare different programs aimed at the same health problem

e.g life years gained- outcome interest

-hospital dialysis versus kidney transplantation

C t Eff ti

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Cost-Effectiveness…

20

Comparisons can be made between differenthealth programmes, but with outcomes of the

same type (with a common measures)

E.g.

- Life-years gained- outcome of interest

• Kidney transplantation versus heart surgery

– Disability days avoided- outcome of interest

• Influenza immunization program versus

community safety education program

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The most commonly used method of economic

evaluation in health care However, it is not comprehensive. The outcome

is uni-dimensional under this analysis, but oftenhealth programmes generate multiple outcomes.

Advantages Relatively simple to carry out.

Often able to use outcome measures which aremeaningful in a particular field

Disadvantages

Interventions with different aims/goals cannot becompared with one another in a meaningful way.

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When two or more interventions have beendemonstrated to be equivalent in outcome or

consequence. CMA is used to find the least expensive alternative

Is concerned only with technical efficiency

Can be regarded as a narrow form of cost-effectiveness

analysis Evidence is given on the equivalence of the outcomes of

different interventions

E.g. Decision to prescribe a generic drug instead of a

brand-name drug, achieving the same outcome at lesscost.

Minor surgery ( day/ night)- operations successfullycompleted

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CMA…

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Advantages

Simple to carry out, requires costs to be measured but only

that outcomes can be shown to be equivalent

Avoids needlessly quantifying data

Disadvantages Can only be used in narrow range of situations.

Requires that outcomes be equivalent

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Cost Utility Analysis CUA)

25

It compares the costs of different procedures with

their outcomes measured in “utility based” unitmeasurement

Utility is a term used by health economists to refer to the

subjective level of wellbeing that people experience indifferent states of health.

The most widely used utility-based measure in cost-utility

analysis is the quality adjusted life years (QALYs).

CUA is able to incorporate simultaneously both thechanges in the quantity of life (mortality) and the

changes in the quality of life (morbidity).

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CUA…

26

Both technical efficiency and also allocative efficiency(within the health care sector) can be addressed.

CUA can potentially be used to compare two or moreinterventions that cater for different groups

i.e. surgical treatment for heart disease with

screening and treatment of high cholesterol(Thisaddresses the issue of allocative efficiency).

Health years assume that people value both the lengthof time that they might live but also the quality of life in

that time.

A shorter period in good health may be valued morehighly than a longer period in poor health.

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CUA…

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Definition of QALY

Number of years at full health that would be valued equivalentlyto the number of life years as experienced

QALY takes into account both quantity and the quality of life

generated by healthcare interventions.

It is the arithmetic product of life expectancy and a measure ofthe quality of the remaining life years.

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CUA…

28

Quality of life index 1.0 = normal health

0.0 = death (extremely bad health)

Example

Losing sense of sight

Quality of life index is 0.5

Life = 80 years

0.5 x 80 = 40 QALYs Most debate about the quality of life estimates

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CUA…

29

Advantages

Enables consideration of more than one outcome dimension. Enables comparisons of interventions in different health

care areas and for different types of outcome.

Disadvantages

The benefits of intervention are limited to those that impacton health.

Can only make statements about how health care

sector spending can be allocated.

Does not make any statements about the optimal size of thehealth sector.

Difficulties in deriving health state utilities.

Cost Benefit analysis

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Cost-Benefit analysis

30

CBA is an evaluation method for comparing themonetary value of all resources consumed (costs) inproviding a program or intervention with the monetaryvalue of the outcome (benefit) from that program orintervention.

In CBA, both costs and outcomes are measured indollars.

The goal of analysis is to identify whether a

programme‟s benefits exceed its costs, CBA is broader in scope than CEA Because it

converts all costs and benefits to money,

Cost Benefit

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Cost-Benefit…

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It is not restricted to comparing programmes withinhealth care, but can be used to inform resource

allocation decisions both within and between sectors ofthe economy.

It is concerned with allocative efficiency.

Advantage:

CBA allows comparison of programs or interventionswith entirely different outcomes

Disadvantage

CBA is difficult to perform because it requires that bothcosts and benefits be measured in (or converted into)

monetary terms-Therefore, needs to cost things which have no

market value

i.e. changes in health, quality of life, length of life,pain, etc

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Summary on the differences

between each type of analysis?

32

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Economic Evaluation Methodologies

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Method Cost Outcome Focus

CMA Dollars Equivalent

outcomes

Efficiency

CBA Dollars Dollars Most beneficial use

of limited resources

CEA Dollars Natural units (e.g

Life-years gained)

Least costly way to

achieve an objective

CUA Dollars Natural units

(QALYs)

Least costly way to

achieve an QALY

gain

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CBA vs. CEA

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Uses dollar values for

outcome measurements

Maximizes benefit of

investment/intervention Assumes limited

resources

Compares programs with

different objectives

Uses nonmonetaryoutcome measurements

Minimizes cost of program

Assumes adequateresources

Compares programs with

the same objectives

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HMIS Health Management

Information System

35

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Outline

36

Introduction

Concepts in HMIS

Benefits of HMIS

Guiding Principles of HMISOverview of HMIS in Ethiopia

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Introduction

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Resources are always scarce; decision makers should

measure whether policies & programs are working &progress is being made towards development goals.

Sound & reliable information is the foundation to moni tor

performance & make decis ions across the health system.

It is essential to describe & verify performance in terms ofi nput , process , output & con text measures of the health

system.

Effective management of health system depends on

appropr iate use of t imely & accurate information bypersonnel at all levels of the system.

Use of information, in turn, depends on the ability of Health

Information System (HIS) to generate useful information.

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Concept:Ac t ionable Info rmation

38

Information you can use to make a decision & take action.

Helps identify performance gaps & find ways to fill the gaps.

To be actionable , information must be based on useful

indicators produced in a simple format that is on t ime forthe planning or reporting cycle.

“Actionable” means di f ferent things to dif ferent cl ients .

Different administrative levels have different roles &

information needs. Information the manager needs is not the same as

information the minister would use for reporting to donors,

politicians or media.

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Concepts:

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Management Info rmation Sys tem (MIS)

A communication structure set up to collect, organize, store &

retrieve data for making organizational decisions.

Typically used in patterned, habitual task areas where spotty &

incomplete information is replaced by a system of catalogued &

interpreted information.

Health Information System (HIS):

A system that integrates data collection, processing, reporting &

use for improving health service effectiveness & efficiency

through better management at all levels of health systems.

Any organized effort to systematically collect, maintain &

disseminate data relevant to performance of a health system or

any of its component parts.

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Concept:Health Management Info rmation System (HMIS)

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Incorporates all “routine institutional” data needed by

policy makers, clinicians & health service users to

improve & protect population health.

A HIS which generates information from operat ions of

health & other institutions, not from populations.

Draws data fromrou t ine services

&administrat ive

records & provides an ideal sou rce for f requently

reviewed indicators to moni tor & ref ine program

implementation.

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Benefit of HMIS

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Generally,

Generates information to enable decision makers at all levelsof health system to identify problems, make evidence based

decisions on health policy & allocate scarce resources

optimally.

Specif ic al ly, it helps :

1. Detect & control emerging & endemic health problems;

monitor progress towards health goals & promote equity

2. Empower individuals & communities with timely &

understandable information & drive quality improvements3. Strengthen evidence base & innovation for effective policies

through evaluation & research

4. Improve governance, mobilise resources & ensure

accountability .

Basic concepts…

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Information Cycle

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Collect

process

Analyze

Present

Interpret

use

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esired characteristics of information in health services

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Correctness- implies free-of-error.

Completeness -shows the proportion of the necessary

values that are formally registered.

Timeliness -reflects how up-to-date the data is with respect

to the task it is used for.

Appropriateness: relevance of information in relation to

objectives of the organization

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concepts…

Common sources of HMIS data

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HMIS data

Bank

Census, birth anddeath registration

HMIS routinereport, including

NGO & Private HFs

Logistics and financialinformation systems:such as records ofequipment, furniture, etc

Personnel informationsystem: personneldata records

Profile data, HSDP,annual plans…

Surveys, rapidassessment, research

Supervisory reports,observation,discussion with staff,communities

Diseasesurveillance

report, sentinelreport

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Basic concepts…

Current problems of HMIS data sources

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Emphasis on data collection rather than on data analysis

and use.

Quality of data is often poor

Data is not processed in a timely manner and infrequent

feedback from higher level.

Inadequately trained personnel and capacity to process and

utilize data collected

Information from private health facilities and NGOs missing

Inadequate writing materials, computers and other supplies

Guiding Principles of HMIS

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Guiding Principles of HMIS

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Principle Description

Simplification Collecting, analyzing & interpreting only immediate ly relevant inform at ion for

performance improvement for best use of scarce resources, esp. HR.

Emphasizes on user-f r iendly appl icat ions & guidelines.

Standardization Common d efin i t ions of indicators, instruments, data processing &

analysis procedures.

Harmonizes act ion among stakeholders on agreed technical standards &normative guidance.

Without consistent standards & definitions, performance cannot be

systematically measured & improved across locations or over time.

Flexibility or

Integration

Permits adaptat ion to suit the needs & demands of each cou ntry set t ing .

A sing le HMIS plan , shared by all partners , is a cornerstone of health

sector plan.

Integrat ing data from different programs in to an integrated ch annel

from which all derive their information.

Standardization And Integration…

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What could be standardized?

The data elements

Data collecting tools

Data collection procedures

Data set by developing essential (minimum) data

set

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Standardizing the data elements

There is a need to define all the data elements and

cases according to a standard.

E.G. One may diagnose malaria purely on clinical

symptoms while others may strictly depend on

laboratory exams.

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All the data collection tools such as registers, tally sheets

and formats should be developed according to astandard.

Doing so helps in maintaining the data quality as well as

in making reports comparable across all the health sector

hierarchical levels.

Standardizing the data collecting tools

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In standardizing data collecting tools, it is important to make

them:

S- Simple- easy to use (layout)

O- No Overlap- no duplication on the data elements

U- Useful for calculating indicators

R- Relevant for making decisions and plans

C- Clear- easily understandable

E- Effective in making decisions

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Standardizing the data collection procedures

Again there is a need to standardize the way inwhich data are collected.

E.g. In some hospitals recording and reporting of

the inpatients‟ data is made on discharge while inthe others it is made on admission.

The diagnosis that is made on admission may

change after investigating the patient thoroughly

and hence the true diagnosis of the patient is the

one that is recorded on discharge.

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Standardizing data set by developing essential (minimum)

data set

At the health sector, there is a tendency of collecting all

possible data.

Most healthcare providers are supposed to fill in data inendless forms that are not relevant to the task they perform

and without understanding the meaning and importance of

the data.

This overburdens health professionals who have to collect

health data in addition to their primary task, which is giving

health service for their community.

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Standardizing data set …

The common problem in most developing countries is that

data elements to be collected are mostly decided by national

and international requirements as well as by donors and

funding agencies rather than by local needs.

This leads to a situation where most of the data collected at

the local level are not relevant to local management needs,

and is therefore not used effectively.

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In such conditions, health professionals will collectinformation only for the sake of reporting to the higher

officials and not to use it for their own action.

This may also contribute to a reporting of data of a poorquality as the possibility of correcting gross errors while

using the information is lost in such cases.

One should note that systems that are not found to be

useful locally tend to be less useful at higher levels.

Standardizing data set …

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standardization And Integration…

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In order to be changed into action, data must be processedand analyzed.

This is the most important part of the information cycle.

In analyzing data, we use the three epidemiologic analytic

tools what, why and how. „What‟ and „how‟ describes the situation and how a certain

program is running,

„why‟ helps to assess why the figures appear that way and

helps to compare between different seasons and places. Calculating indicators helps in assessing performance

according to these three epidemiologic analytic tools.

Data Processing And Analyzing Data

D fi i i f I di

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Definition of Indicators

56

A quantitative or qualitative variable (somethingthat changes) that provides a simple and reliable

measurement of one aspect of performance,

achievement or change in a program or project

All the information that should be collected at the

health sector has to be changed into indicators inorder to be useful.

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Why Indicators?

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Directing resources to areas where needs are greatest Reducing large amount of data down to its simplest form

Measuring program or project towards targets and desiredoutcomes

Measuring trends over time Providing a yardstick whereby organizations, facilities etc. can

compare themselves to others doing similar work

Providing evidence for achievement (or lack) of results andactivities

What‟s a Good Indicator?

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Measurable: The indicator must be able to bemeasured.

Appropriate: Does the indicator measure what youintend?

Sensitive: Is the indicator sensitive to yourintervention? Will it change quickly enough to bemeaningful?

Specific: Is the indicator specific to what you want tomeasure?Repeatable: Can the measurement be repeated with

equivalent results?Comparable: Do others use it? Can it be used to

compare with other regions/countries?Simple: Easy to understandTimely: Must have current information to make good

decisions for action.

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Overview of HMIS in Ethiopia

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It has been a priority in all strategic plans since 1997 (HSDP-

I)

One strategic objective of the present plan, HSDP-

IV(2010/11-2014/15), is about HMIS:

„Improve evidence based decision making through

enhanced partnership, harmonization & alignment; &

integration of programs at service delivery point .’

Each facility & administrative level puts in place

institutional mechanisms (HMIS technician/team).

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A total of 108 indicators - divided in to 04 major

categories

While Pt cards & registers capture all Pt related

data, reports are based on the 108 indicators.

Facilities supply data to relevant administrativelevels through routine reporting mechanism as

per the calendar.

Indicator Category Number of Indicators

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A. Family Health 21

1. RH 12

2. Child Health 3

3. EPI 6

B. Disease Prevention & Control 47

1. All Diseases 5

2. Communicable Diseases 39

a. Malaria 4

b. TBL 10

c. TB/HIV Co-infection 2

d. HIV/AIDS 17

e. Other Communicable Diseases 6

3. Non-Communicable Diseases 1

4. Hygiene & Environmental Sanitation 2

C. Resources 28

1. Assets 7

2. Finance 93. HRH 4

4. Logistics 2

5. Lab & Blood bank 6

D. Health Systems 12

1. Health Services Coverage & Utilization 8

2. Management 23. HMIS & M&E 2

HMIS Reporting Calendar

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HMIS Reporting Calendar

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Quarterly reports should be received by the Supervisory

Health Office according to the following calendar:

Previous year‟s report should be received by MOH within

45 days of next year (no later than August 15).

Quarter Reporting

month

Time the report should be

received by

WoHO ZHD RHB MOH

Q. 1 Oct. 8 15 21 28

Q. 2 Jan. 8 15 21 28

Q. 3 April8 15 21 28

Q. 4 July 8 15 21 28

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Fig. Example of HMIS Reporting Flow Diagram: Ethiopia

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Council of Ministers,

Other Ministries,

Development Partners

Regional Council

FMOH

RHB

Woreda Council

ZHD

International bodies;

WHO, UN, ….

HP

HC/Clini

c

WoHO

Kebele Council

Woreda/District hospitals

(MOH, NGO, Private)

Zonal hospitals (MOH,

NGO, Private)

Federal & regional

hospitals, report to the

appropriate levels

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Recent prog ress:

Demonstrating evidence based management &exercising bottom up planning approach through- woreda

based annual planning.

Accelerated pre-service trainings of HIT & epidemic

intelligence officers. Electronic Medical Records Management System

(eMRMS) is under way as part of hospital reform

initiative.

Electronic HMIS (eHMIS) or electronic reporting systemis currently being piloted in Oromia region.

Cost

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