Question

There are three treatment methods for a disease: A, B and C.  Effect A=20, Effect B=25, Effect C=50; cost ($000's) A=$60,  cost ($000's) B=$75,  cost ($000's) C=$125; benefit ($000's) A=$64,  benefit ($000's) B=$60,  benefit ($000's) C=$200.

a. Calculate Incremental cost-effectiveness ratio, cost benefit analysis and average cost-effectiveness ratio in $000's (show the formulas and calculations).

b. Compare these three projects within the framework of economic evaluation.

Answer 1

a) Incremental cost-effectiveness ratio measures the economic value of an option compared with an alternative. ICER is computed by taking the difference between the costs divided by the difference in their effects. Comparisons are organized in increasing order of effectiveness.

ICER_A,0 = cost of A - 0/Effect of A - 0 = 60/20 = 3,

ICER_B,A = cost of B - cost of A/Effect of B - Effect of A = 75-60/25-20

= 15/5 = 3 = incremental cost per unit of benefit, so here B is more expensive but more effective too.

ICER_C,B = Cost of C - Cost of B/Effect of C - Effect of B = 125-75/50-25

= 50/25 = 2 , = incremental cost/unit of benefit, so here C is more expensive but more effective too.

Average cost-effectiveness ratio is computed by dividing the total cost by the total effect/outcome of a particular activity. This is done without comparing it to or taking reference of another activity.

So, here ACER _A = 60/20 = 3

ACER_B = 75/25 = 3

ACER_C = 125/50 = 2.5

Now, coming to cost-benefit analysis, this method analyses the overall value of a proposed project or activity. It is computed by divding the total benefits by total cost.

So, BC for A = 64/60 = 1.067

BC for B = 60/75 = 0.8

BC for C = 200/125 = 1.6

b) Now, when we compare the three projects based on the three parameters:

i) ICER:

So, ICER is comprehended in the way that is say the cost per disease prevented or cost per death avoided, so, in this case, as it is the treatment of a diseasese, it is the cost per unit of effect, so it is quite obvious that the lower the cost incurred per unit of effect, the better it is.

So, in this case, we see ICER_C,B = 2 < ICER_B,A = 3 = ICER_A,0,

So, extra cost per extra unit of health effect = 2 for the more expensive treatment i.e. C as compared to B, extra cost per extra unit of health effect = 3 for B as compared to A ad similarly, = 3 for A compared to no treatment. So, cost incurred per benefit is the least for C as compared to B and A.

ii) ACER:

Similarly, ACER computes the cost per unit of outcome for the individual activity, with no reference to another alternative. So, the lower the cost incurred per unit of effect, the better it is.

So, ACER of C = 2.5 < ACER of B = 3 = ACER of A

So, here we see, treatment C incurs the lowest cost per unit of effect as compared to B and A.

iii) Cost-Benefit Analysis:

As this ratio measures benefits divided by cost, it basically has to be a positive ratio with a value greater than as benefits should exceed the costs. So, in this case, the higher the ratio the better, as it implies greater benefits per unit of costs. So, we see:

BC for C = 1.6 > BC for A = 1.1 > BC for B = 0.8 ,

So, the highest benefit provided per unit of cost is by treatment C as compared to A and B.

So, if we were to analyze, and take a decision, Treatment C would be the best option.