Section 3: Overview of Health Economics Data Including Costs and Outcome Measures
Dr. Asif Khowaja and Kristin Mechelse
Section Overview
In this section, you will be introduced to costs and outcome measures reported in health economics literature supporting decisions of resource allocation. The concepts are described with examples in the context of LTC homes in Canada.
Section Objectives
By the end of this section, you will be able to:
- Describe the commonly reported financial and opportunity costs of programs in health care; and
- Describe the commonly used outcome measures in health economics modeling.
Test Your Knowledge
Complete the following activity to assess how much you already know about the content that will be covered in this section.
Health Economics Data
Health economics data refer to costs and outcome measures which are commonly reported in the literature surrounding decision-making in health care. A comprehensive understanding of costs and outcomes data are important to inform policy decisions for allocating resources in health care (Fuchs, 2000). Table 5.1 presents various types of cost data and relevant examples in the context of LTC homes in Canada.
| Cost Data | Description | Example in the Context of Canadian LTC Homes |
|---|---|---|
| Direct Medical Costs
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The direct medical costs refer to patient care, such as diagnostic, in-patient hospitalization, procedures, and/or interventions, and ambulatory visits for acute, chronic, or follow-up care. In Canada, there is a universal health care system and the direct medical costs are almost entirely (except drugs and certain cosmetic procedures) paid for by a public payer (O’Brien et al., 2001). | Programs and services associated with the LTC home, such as nursing, physiotherapy, and recreation services, are examples of direct medical costs. |
| Indirect Medical Costs | The indirect costs refer to a wide range of other costs (albeit not directly related to patient care) that are important in providing and utilizing health care services. For example, overhead costs associated with human resources, volunteer services, hydro, heating, laundry, information technology, maintenance, etc. Additionally, vulnerable patients (e.g., children, older adults, people with chronic conditions) may require assistance from a family member or friend to accompany them to and from the hospital. Therefore, if somebody in the family is taking time off from work to accompany a patient to and from the hospital, these are also considered indirect medical costs (Merkesdal et al., 2001). | Everyday expenses such as heating, electricity, office supplies, entertainment programs, food costs, and iPads (technological devices used for resident communications, programming opportunities, and online medical appointments) are examples of indirect medical costs. |
| Incremental Cost | The incremental cost represents the additional cost incurred due to providing one service over another. The incremental cost looks at the differential between a new program and an old or existing program cost. For example, a recent study reported incremental frailty costs of $10,845 for persons with and without dementia in residents aged 50 years or older in Ontario (Mondor et al., 2019).
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A new Wound Care Application was purchased and introduced in the Niagara Region LTC homes. This application allows registered staff to photograph, measure, and track worsening or improvement of wounds and share this information with other members of the interdisciplinary health care team. Prior to introducing this application, wounds were manually measured, could not be shared, and allowed room for human error. Utilizing the new approach and moving on from the older one represents an example of a relatively higher incremental cost. |
| Marginal Costs | The marginal cost is the cost of producing one more unit of a good or service (Jackson et al., 2011). For example, inviting one additional participant to join in a lifestyle modification program or treating one additional patient with a new drug or health technology.
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During the COVID-19 pandemic, the Niagara Region LTC homes provided additional recreation staff (work hours) to engage residents in day-to-day activities and to improve mental health outcomes. The marginal increase in recreation hours was deemed necessary to keep residents and family members connected and engaged as the pandemic continued. For example, a part-time staff member that was typically scheduled to work 16 hours per week was offered to work up to 40 hours per week (in this case an additional 24 hours = approximately $600 per week). Each home may have different staffing capabilities based on many variables, but this is an example of a marginal cost. |
| Intangible Costs | The intangible costs represent expenses associated with the pain, anxiety, or distress of receiving treatment or participating in the health care program. Traditionally, intangible costs are not explicitly captured in the economic evaluation of public health interventions (Inter-Parliamentary Union, 2008). | Emotional costs such as pain or anxiety suffered by residents from not being able to see their family members during the pandemic-imposed visitor restrictions are an example of an intangible cost that is immeasurable and cannot be itemized. |
| Fixed Costs | This refers to fixed capital and overhead costs, such as furniture, fixtures, or buildings, which do not depend on the level of activity and are usually incurred by the facility regardless of people or patients attending the program (Roberts et al., 1999). | Upfront capital costs for purchasing diagnostic or technological devices in LTC homes are examples of fixed costs. |
| Variable Costs | The variable costs refer to expenses depending on the amount of activity and/or frequency of services (Roberts et al., 1999). For example, patients hospitalized due to severe respiratory problems may need more frequent testing as opposed to non-severe patients with the same medical diagnosis. The variable costs are also affected by the change in demand and supply of services. | The Niagara Region contracted personal protective equipment (PPE) supplies where costs increased from $0.03 to up to $1.25 per surgical mask during the pandemic due to overwhelming demand and limited supply (an increase of almost 42x the contracted price). This is an example of variable costs. |
Commonly Reported Outcome Measures
In order to evaluate the cost-effectiveness of health care interventions, it is critical to use appropriate outcome measures when evaluating health care programs. Researchers often model a wide range of clinical and non-clinical outcome measures in the economic evaluation of health care interventions. Table 5.2 presents commonly used outcome measures for decisions on resource allocation and relevant examples in the context of LTC homes in Canada.
| Outcome Measures | Description | Example in the Context of Canadian LTC Homes |
|---|---|---|
| Health-Related Quality of Life
|
The health-related quality of life represents a generic measure of well-being which is measured as quality-adjusted life years (QALY). The QALY ranges from 0 (representing death) and 1 (representing one year of perfect health). Thus, measuring QALY takes into account the quality and quantity of life years lived (Vergel & Sculpher, 2008). | In a previously conducted quality improvement study in long-term care homes, reducing the inappropriate use of antipsychotic medications was found to have higher QALYs (mean score of 0.859) compared to residents in the control group (Khowaja et al., 2021). |
| Quality of Care
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Quality of care represents generic measures and/or disease-specific indicators related to the effectiveness, efficiency, safety, equity, and time-to-diagnosis or provision of treatment (Van Servellen et al., 2006). The continuity or quality of care measures could be used either as primary or secondary outcome measures depending on the research question under investigation. | Health economics studies conducted in LTC homes report quality of care variables, such as the number of falls or injuries prevented (Patterson et al., 2011; Hewitt et al., 2019), length of hospital stay avoided (Stern et al., 2011), cognitive improvement (Twigg et al., 2019), reduction in the disease incidence (Makai et al., 2010), and infection prevention (Cohen et al., 2016). |
Summary
The economic analysis of health care interventions requires a thorough understanding of all the necessary costs and outcome measures of the health care program. The program development often presents fixed costs which are usually paid upfront. However, the variable costs (operating costs) of health care programs can vary over a long period of time, and this is a crucial consideration for health promotion or disease prevention programs that yield an impact in the long term. It is not uncommon that clinicians would prefer to see the cost relative to health gains (i.e., clinical improvement) in patients treated with a new program compared to standard care. In addition, quality of life or health-related quality measures generally provide a generic measure that combines health and quality of life, which are more comparable outcome measures between different health programs. The decision to include clinical or other non-clinical outcome measures depends on the nature of the health care intervention and the time frame to assess the relevant outcomes.
Test Your Knowledge
Complete the following activity to assess how much you learned about the content that was covered in this section.
The interrelated conditions in which something exists or occurs (Merriam-Webster, 2022).
Achieving parity in policy, process, and outcomes for historically and/or currently underrepresented and/or marginalized people and groups while accounting for diversity (The University of British Columbia, n.d.).
