# Compare and contrast the following types of economic evaluation

Problems
A. Compare and contrast the following types
of economic evaluation, and provide an example of each: A) Cost of illness
studies; B) Cost identification; C) Cost minimization studies; D) Cost
consequence analysis; E) Cost-effectiveness analysis; F) Cost-utility analysis;
and G) Cost-benefit analysis.
B. The local Department of Public Health (DPH) is
starting a set of programs aimed at reducing childhood obesity among young
children. The programs will be completely funded by a new special tax earmarked
for these programs only. An expert panel recommends 6 (six) alternatives (A to
F) for consideration depending upon budget size. All alternatives are
mutually exclusive; i.e. can be implemented as a stand-alone project. Using
cost and effectiveness data for these projects in the table, first complete the
table and then respond to the questions below:

Cost
(\$)

Effectiveness
(# of
kids)

Cost-
Effectiveness Ratio

Incremental
Cost

Incremental
Effectiveness

Incremental
Cost- Effectiveness Ratio

C

E

C/E

ΔC

ΔE

ΔC/ΔE

10,000,000

12,000

20,000,000

17,000

30,000,000

20,000

40,000,000

24,000

50,000,000

35,000

60,000,000

41,000

C. The Department of Revenue estimates that
the special tax dedicated to funding Director’s Initiative for 2014 will
be \$35 million. Guided by purely economic effectiveness concepts, which
project(s) should the Director select and why? (The Director cannot spend
more than the annual tax revenue; however, leftover funds can be carried over
to the next year.)
revenues were to be \$70 million? Why?
if the tax revenues were to be \$120 million? Why?
D. Using the following table, complete a
cost-effectiveness analysis to respond to the questions below:

Treatment

Cost
per Treatment

QALYs
Gained

800

34

400

29

0

0

1000

39

200

12

600

29

o Rank the treatments by health benefit (more
QALY = more benefit).
o Identify and indicate which treatment(s)
are dominated for elimination.
o Show your work in calculating the ICER
between each treatment option and the next most expensive option, eliminating
treatment options that are not economically rational in the process due to
extended dominance (higher ICER than next most expensive treatment).
o Given your calculations, and I recognize
there is limited information provided so do not over-complicate, make a
recommendation on which treatment should be pursued and why.
E. Consider that two drugs are available
for the management of diabetic patients. The first drug costs \$4,000 over 10
years. The new drug costs \$7,600 over 10 years. The outcome measure,
Quality Adjusted Life Years (QALY), with the first drug is 8.0 over
10 years for diabetic patients, but the QALY will improve to 9.2 with the
new drug. Show you work and calculate the ICER for the new drug.
F. A public health smoking cessation program is
designed to last for 3 years. The cost of implementing the program in Year 1 is
\$25,000; in Year 2 is \$23,000; and in Year 3 is \$45,000. Calculate the present
value of the entire program assuming a discount rate of 4% and costs
occur at the end of each year. Show your work.

Year

Cost

Discount
Factor

Present
Value

1

\$25,000

.9615

2

\$23,000

.9246

3

\$45,000

.8890

Total

\$93,000

G. The per capital annual cost of acquiring
and maintaining a CT scanner is \$427,650, while the per capital medical
benefits are \$346,125. What is the benefit-to-cost ratio for this
project? Should it be pursued?
H. The health program budget of a voluntary agency is
\$60,000. The agency wants to adopt interventions from the list of four
interventions in the table below to maximize health improvements. Which of the
interventions should the agency adopt? Why?

Intervention

Cost-effectiveness
Ratio

Budget
Needed

A

420

\$31,000

B

110

\$45,000

C

250

\$15,000

D

600

\$14,000

I. The following table, in which all figures are in
millions of dollars, summarizes the results of a recent cost-benefit
analyses of five government projects:

Project

Social
Benefits

Social
Costs

Net
benefits

B to
C Ratio

A

\$100

\$125

B

110

100

C

250

125

D

100

25

E

200

100

o Compute the net gains (i.e., net social benefits)
and the benefit-cost ratio for each project.
o If the government wanted to maximize social
welfare (i.e. net social benefit), which one project listed above should be
undertaken? Briefly explain.
o If the government wanted to maximize the
return on its investment, which one project listed above should be undertaken?
Briefly explain.
o If the government’s budget was constrained
to \$125 million, which project or projects should it choose in order to
maximize social welfare? Briefly explain. [Note: For purposes of answering this
question, assume that social costs and the government’s budgetary costs are
identical.]

J. An insurance company wishes to determine
which of five new procedures should be implemented. They decide to perform a
Cost-Benefit Analysis to help them make their determination. The results of the
analysis are shown in the table below.
Present value of Gains, Losses, and Costs of 5 different
procedures (in thousands)

Gains

Losses

Costs

Benefits
(Gain
– Loss)

Net
Benefit (Benefit – Cost)

200

25

100

200

50

200

450

50

300

100

10

100

650

0

500

o If the company decides to implement all
procedures with positive net benefits, which procedures will be implemented?
o If the company decides that it can have
total costs of up to \$550,000, which procedures should be implemented in order
to maximized total net benefits?
K. The HRQL scores of diabetic patients with and without
treatment are given in the table below. Complete the table to calculate the
effectiveness of treatment (compared to no treatment) over these five years:

Year

HRQL
Score without Treatment

HRQL
score with treatment

Difference

1

.8

.9

2

.7

.9

3

.6

.9

4

.5

.8

5

.4

.8

TOTAL

L. A middle-aged person
undergoing an amputation is expected to have a life expectancy of 30
years as a result of the procedure. However, he/she will remain in a less
than perfect health state during the remainder of his/her life. It is
assumed that the health state score will likely be between 0.6 and 0.8. Calculate
the quality adjusted life expectancy for the health state range
M. Calculate the life years lost due to car accident for
a 28 year-old driver using table below.

Age
(years)

Life
expectancy at age

15-24

78.5

25-34

79

35-44

79.6

45-54

80.6

55-64

82.3

N. Listed below are the course of events during an
Influenza season. SKETCH THESE PROBABILITIES IN A DECISION TREE MODEL. Hint:
starting point is “no vaccine”: if no vaccine is provided, 90% remain well and
10% become ill. Of those who become ill, 80% recovers without using any
medical care but 20% visit a doctor. Of those who seek care from a doctor,
99% recover and 1% will require hospitalization. Of those who
recover without any medical care, 5% are hospitalized and 95%
recover.

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