Health Economics

Hi, my name is Dr. Sanjay Sharma. I am a Professor of Ophthalmology and Epidemiology at Queen's University. As a researcher, I am very interested in a particular area of epidemiology called health economics. Part of the goal of health economics is to work out the cost-benefit numbers for new interventions in a way that can help doctors and policy makers make the often difficult decisions on which interventions to pay for and which may be too expensive for public healthcare to fund.

I want to give you a high level overview of how we do this...

The key thing is being able to put a value on a new drug or procedure.  In healthcare we measure value in a unit called the QALYs or quality adjusted life years. One QALY is equal to living for one year in perfect health.

So how do we work this out? Well, what we do is we look at the average person with a specific disease and then we look at all the outcomes of that disease both with and without the intervention that we are evaluating.

For each possible outcome, we assign a probability and a utility score. The utility score is a measure of how much your quality of life would decrease with a certain outcome. For example, someone with wet macular degeneration might say that if they went blind, their quality of life would decreases by 55% - this would mean a utility score of 0.45.

Using a mathematical model called a Markov model, we combine the utility scores and probabilities and other factors to determine the average benefit to someone with a disease who takes the drug we are evaluating. We calculate that benefit over the course of the treatment, and end up with the increase in QALYs caused by the drug.

The next thing we do is look at the costs to society as a result of each outcome. Most obviously we have to look at the cost of paying for the drug treatments, but then we also have to take into account the total cost of each possible outcome associated with both receiving treatment and not receiving treatment.

For example, in eye-care, we also have to consider the costs to the healthcare system if a patient went blind, including personal assistance, patient education and continuing medical care. In this case, the blindness could have been caused by adverse effect of the drug or through not taking the drug at all.

Once we have determined the costs we can calculate the cost per QALY, or, how much does it cost us to gain the equivalent of a year in perfect health for a patient. This cost per QALY becomes a standardized metric to evaluate new interventions

The typical scenario is that a new intervention provides an improvement in the length or quality of life, but costs money. Then health economists and doctors argue it out as to whether government should pay for the intervention. Most governments fund things that cost less than $50,000 per QALY and do not pay for others that are more costly.
It is a complex analysis and we have only brushed the surface, but I hope I have been able to give you a small glimpse into how health economists work and how their analysis helps us run our healthcare system with a reasoned approach.