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Stratified cost-effectiveness analysis: a framework for establishing efficient limited use criteria.

The cost-effectiveness of new health care technologies is conditional upon who receives what therapy and under what circumstances. Understanding this heterogeneity in cost-effectiveness, health care payers often limit reimbursement of therapies to a more restrictive sub-group of patients than that indicated in a product's licensing. Such limits may be based upon clinical or demographic criteria that are prognostic of costs, outcomes or both. However, there is little guidance on how to estimate and interpret stratified cost-effectiveness analysis. In this paper we present a framework for estimating the benefits from stratification that permits consideration of both the opportunity cost resulting from a lack of adherence with criteria and the efficiency loss associated with incorporating equity concerns.

Cost-Benefit Analysis↗

Illustrating the impact of including future costs in economic evaluations: an application to end-stage renal disease care.

There are strong theoretical arguments for including future costs for related and unrelated medical care and non-medical expenditures within economic evaluations. Nevertheless, there is limited data on how inclusion of such costs affects the cost effectiveness of medical interventions in practice. For a low-cost intervention that improves survival in end-stage renal disease (ESRD) patients, we sought to determine how the inclusion of future costs for related medical care (i.e. dialysis and transplantation) and for unrelated medical care and non-medical expenditure would affect the magnitude of the cost per QALY ratio. We performed a cost-utility analysis comparing hemodialysis using a synthetic dialyser (the current treatment of choice in Canada) with the historical gold-standard treatment (use of a cellulose dialyser). We contrasted the results of the analysis including and excluding various measures of future costs. While the inclusion of future costs for unrelated medical care and non-medical expenditures had a significant impact on the cost per QALY ratio, the size of the cost per QALY ratio was most sensitive to inclusion of future costs for related medical care. Our analysis shows that even relatively inexpensive interventions that extend survival of dialysis patients may not be cost-effective since, by extending survival, the extra outpatient dialysis costs that are incurred are large. Inclusion of such costs (which, in and of itself, is methodologically correct) in economic evaluations in this area may mitigate against the acceptance of interventions that are relatively inexpensive themselves but which improve patient survival.

Adult↗

Cost-effectiveness analysis and health care resource allocation: decision rules under variable returns to scale.

We argue that health programs are administered in settings that often violate the frequently stated assumption of constant returns to scale in the provision of health services. Three types of returns to scale are identified from the general economic literature: returns to scale with respect to population, effectiveness, and quality. We show that decision rules based on incremental cost-effectiveness ratios or cost-benefit tests are not optimal if returns to scale are not constant. We derive the optimal decision rules under variable returns to scale using optimization techniques, and employ several examples to illustrate the concepts and methods.

Cost-Benefit Analysis↗

Analysis of hospital length of stay and discharge destination using hazard functions with unmeasured heterogeneity.

The hospital length-of-stay and the discharge destination of a Medicare patient are the outcomes of one decision process involving the interests of the patient, the hospital, and the firms offering covered post-hospital care. We use a competing risk hazard estimation procedure and adjust for unobserved heterogeneity with a non-parametric technique to identify significant factors in the decision process. A patient's health and socio-economic characteristics, the availability of informal care, local market area conditions, and Medicare policies influence length-of-stay and discharge destination. The substitution we find between hospital and post-hospital care and among post-hospital care alternatives has policy implications for Medicare.

Health Services Research↗

Excess capacity and expense preference behaviour in National Health Systems: an application to the Spanish public hospitals.

The aim of this paper is to study excess capacity in National Health System (NHS) hospitals, which have the characteristics of a bureaucracy, within a theoretically consistent framework. In this sense, we develop and estimate an empirical model which has not previously been applied to this problem. This model, based on an input distance function, is attractive for at least two reasons. Unlike the production function, the input distance function is valid for multiproduct technologies such as that of hospitals, and in contrast to the cost function it permits testing of the cost minimisation hypothesis and therefore allows expense preference behaviour in the context of NHS hospitals. We present an application to the Spanish public hospital sector and observe persistent allocative inefficiency in variable inputs and overcapitalisation in these hospitals. Hence, our results suggest that this sector is not in long-run equilibrium and that adjustments in variable inputs and capital equipment investments are necessary to control hospital cost.

Health Services Accessibility↗

What difference does the choice of SES make in health inequality measurement?

This note explores the implications for measuring socioeconomic inequality in health of choosing one measure of SES rather than another. Three points emerge. First, whilst similar rankings in the two the SES measures will result in similar inequalities, this is a sufficient condition not a necessary one. What matters is whether rank differences are correlated with health - if they are not, the measured degree of inequality will be the same. Second, the statistical importance of choosing one SES measure rather than another can be assessed simply by estimating an artificial regression. Third, in the 19 countries examined here, it seems for the most part to make little difference to the measured degree of socioeconomic inequalities in malnutrition among under-five children whether one measures SES by consumption or by an asset-based wealth index.

Anthropometry↗

Insomnia, biological clock, and the bedtime decision: an economic perspective.

While insomnia can be a symptom of numerous mental and physical illnesses, it is frequently diagnosed as a sleep disorder in its own right, caused mainly by stressful life events or by non-synchronization of individuals' biological sleep-wake cycle with the one they choose to practice. Because of irregular work schedules, late-night entertainment, or rapid crossing of several time zones, individuals might retire to bed earlier or later than their biological bedtime, experiencing difficulties in falling asleep. The present paper develops a simple economic model of the bedtime decision, viewing the individual as a rational decision-maker who determines her insomnia level through consciously weighing the cost and benefit of deviating from her biological bedtime. The model is then used to examine the individual's response to stress, yielding a prediction which is consistent with observed behavior, although not with sleep therapists' recommendations. Finally, the model is applied to the case of transmeridian flights, explaining jet lag as a rational adjustment to a misalignment between the individual's slow-to-adapt internal clock and her external environment.

Biological Clocks↗

Measuring income related inequality in health: standardisation and the partial concentration index.

The partial concentration index (PCI) is commonly used as a measure of income related inequality in health after removing the effects of standardising variables such as age and gender which affect health, are correlated with income, but not amenable to policy. Both direct and indirect standardisation have been used to remove the effects of standardising variables. The paper shows that with individual level data direct standardisation is possible using the coefficients from a linear regression of health on income and the standardising variables and yields a consistent estimate of the PCI. Indirect standardisation estimates the effects of the standardising variables on health from a health regression which excludes income. The coefficients on the standardising variables include some of the effects of income on health if income is correlated with the standardising variables. Using these coefficients to remove the effects of the standardising variables also removes some of the effect of income on health and leads to an inconsistent estimate of the PCI. Indirect standardisation underestimates the PCI irrespective of the signs of the correlations of standardising variables and income with each other and with health. An adaptation of the PCI when the marginal effect of income on health depends on the standardising variables is also proposed.

Female↗

Modelling non-demanders in choice experiments.

Discrete choice experiments have the advantage that they can study preferences in health care where revealed preference data is not readily available. However, as a substitute for actual observed market led data, the experimental set-up for hypothetical situations must mimic the circumstances under which actual choices are made. One situation that a consumer/patient might face is an opt-out option. They might not choose to accept any of the positive actions available and as such will be a non-demander of the health care on offer. This paper explores issues raised in the modelling of such data within an experiment looking at women's preferences for cervical screening services.

Choice Behavior↗

Scale and scope economies in nursing homes: a quantile regression approach.

Nursing homes vary widely between facilities with very few beds and facilities with several hundred beds. Previous studies, which estimate nursing home scale and scope economies, do not account for this heterogeneity and implicitly assume that all nursing homes face the same cost structure. To account for heterogeneity, this paper uses quantile regression to estimate cost functions for skilled and intermediate care nursing homes. The results show that the parameters of nursing home cost functions vary significantly by output mix and across the cost distribution. Estimates show that product-specific scale economies systematically increase across the cost distribution for both skilled and intermediate care facilities, with diseconomies of scale in the lower deciles and no significant scale economies in the higher deciles. As for ray scale economies, estimates show economies of scale in the lower deciles and diseconomies of scale or no significant scale economies at higher deciles. The estimates also show that scope economies exist in the lower cost deciles and that no scope economies exist in the higher cost deciles. Additionally, the degree of scope economies monotonically decreases across the deciles.

Bed Occupancy↗

Wage policy in the health care sector: a panel data analysis of nurses' labour supply.

Shortage of nurses is a problem in several countries. It is an unsettled question whether increasing wages constitute a viable policy for extracting more labour supply from nurses. In this paper we use a unique matched panel data set of Norwegian nurses covering the period 1993-1998 to estimate wage elasticities. The data set includes detailed information on 19,638 individuals over 6 years totalling 69,122 observations. The estimated wage elasticity after controlling for individual heterogeneity, sample selection and instrumenting for possible endogeneity is 0.21. Individual and institutional features are statistically significant and important for working hours. Contractual arrangements as represented by shift work are also important for hours of work, and omitting information about this common phenomenon will underestimate the wage effect.

Adult↗

Why do the sick not utilise health care? The case of Zambia.

When ill the individual faces the options of seeking health care, using self-medication or doing nothing. In an economic perspective, an individual's propensity to utilise health care is determined by the costs of utilisation and the perceived benefits of health care. The propensity to utilise health care may hence be expected to vary between individuals. In this paper we attempt on the one hand to determine what factors influence sick individuals' propensity to seek health care at a health facility or use self-medication (or do nothing), and on the other hand attempt to determine the factors that influence the magnitude of their expenditures for health care, in particular what other factors than just health status influence utilisation. For the empirical analysis, data, covering 9700 individuals, from the 1998 Living Conditions Monitoring Survey (LCMS) is used. We use a Multinomial Logit selection model to estimate the equation, which allows us to analyse health-care utilisation through two separate processes, the decision to seek care and the magnitude of expenditures incurred. In general, we find that the individuals are influenced by income, insurance, type of illness and access variables such as distance and owning a vehicle.

Cost of Illness↗

Economics of self-medication: theory and evidence.

A pervasive phenomenon in developing countries is that self-prescribed medications are purchased from drug vendors without professional supervision. In this article we develop a model of self-medicating behavior of a utility-maximizing consumer who balances the benefits and risks of self-medication. The empirical investigation focuses on the role of income and health insurance on the use of self-medication. Our data are from the World Bank's Living Standards Measurement Survey of Vietnam, 1997-1998. The results show that self-medication is an inferior good at high income levels and a normal good at low income levels, and it shows a strong and robust negative insurance effect.

Adolescent↗

Measuring inequality in self-reported health-discussion of a recently suggested approach using Finnish data.

Health surveys often include a general question on self-assessed health (SAH), usually measured on an ordinal scale with three to five response categories, from 'very poor' or 'poor' to 'very good' or 'excellent'. This paper assesses the scaling of responses on the SAH question. It compares alternative procedures designed to impose cardinality on the ordinal responses. These include OLS, ordered probit and interval regression approaches. The cardinal measures of health are used to compute and decompose concentration indices for income-related inequality in health. Results are provided using Finnish data on 15D and the SAH questions. Further evidence emerges for the internal validity of a method used in a pioneering study by van Doorslaer and Jones which was based on Canadian data on the McMaster Health Utility Index Mark III (HUI) and SAH. The study validates the conclusions drawn by van Doorslaer and Jones. It confirms that the interval regression approach is superior to OLS and ordered probit regression in assessing health inequality. However, regarding the choice of scaling instrument, it is concluded that the scaling of SAH categories and, consequently, the measured degree of inequality, are sensitive to characteristics of the chosen scaling instrument.

Female↗

Determinants of access to physician services in Italy: a latent class seemingly unrelated probit approach.

We examine access to general practitioners and specialists who work in the public and private sectors in Italy using a seemingly unrelated system of probits. We use a latent class formulation that provides a rich and flexible functional form and can accommodate non-normality of response probabilities. The empirical analysis shows that patient behavior can be clustered in two latent classes. We find that income strongly influences the mix of services. Richer individuals are less likely to seek care from GP's and more likely to seek care from specialists, and especially private specialists. Health status and societal vulnerability are the most important indicators of class membership.

Delivery of Health Care↗

Money for health: the equivalent variation of cardiovascular diseases.

This paper introduces a new method to calculate the extent to which individuals are willing to trade money for improvements in their health status. An individual welfare function of income (WFI) is applied to calculate the equivalent income variation of health impairments. We believe that this approach avoids various drawbacks of alternative willingness-to-pay methods. The WFI is used to calculate the equivalent variation of cardiovascular diseases. It is found that for a 25 year old male the equivalent variation of a heart disease ranges from 114,000 euro to 380,000 euro depending on the welfare level. This is about 10,000 euro - 30,000 euro for an additional life year. The equivalent variation declines with age and is about the same for men and women. The estimates further vary by discount rate chosen. The estimates of the equivalent variation are generally higher than the money spent on most heart-related medical interventions per QALY. The cost-benefit analysis shows that for most interventions the value of the health benefits exceeds the costs. Heart transplants seem to be too costly and only beneficial if patients are young.

Age Factors↗

Co-payments for prescription drugs and the demand for doctor visits--evidence from a natural experiment.

The German health care reform of 1997 provides a natural experiment for evaluating the price sensitivity of demand for physicians' services. As a part of the reform, co-payments for prescription drugs were increased step up to 200%. However, certain groups of people were exempted from the increase, providing a natural control group against which the changed demand for physicians' services of the treated, those subject to increased co-payments, can be assessed. The differences-in-differences estimates indicate that increased co-payments reduced the number of doctor visits by about 10% on an average.

Adolescent↗