Health Economics Information Resources: A Self-Study Course

Module 4: An Introduction to the Principles of Critical Appraisal of Health Economic Evaluation Studies

Key areas for critical appraisal - 2 continued

2b) are the appropriate costs measured?

The costs reported in an economic evaluation may suffer from a number of problems which require consideration at appraisal. These problems are:

• effects of inflation (link to content),
• double counting (link to content)
• un-thinking acceptance of market values (link to content)

The key point to consider here is, has the economic evaluation attempted to correctly identify the opportunity cost of the resources used?

Effects of Inflation

To adjust for the effects of inflation health care costs should be counted in a base year. Where costs are incurred over a period of years it is important to correct for the effects of inflation. Finally, adjustment for inflation is required to provide real resource cost.

Here is an example of how costs are adjusted for inflation. The table shows alternative treatments for a hypothetical condition. The alternatives include surgery or drugs.

Hypothetical example of adjusting costs to base years* (costs in $ per person per annum)

Note: The rate of inflation is 5% per annum

* Adapted from: Donaldson C, Shackley P. Economic studies. In: Oxford Textbook of Public Health. 3rd ed. Detels R et al. (eds.). Oxford. Oxford University Press. 1997.

Each treatment has the same effect but different costs. With an inflation rate of 5% a cost of $1050 occurring in one year’s time is equivalent to $1000 ($1050/1.05) now. With an inflation rate of 5% a cost of $1102.5 occurring in two year’s time is equivalent to $1000 ($1102.5/1.05²) now.

By adjusting costs for the rate of inflation the two treatments are shown to be equally efficient in terms of resources used.

Use of unadjusted costs would lead to the conclusion that surgery is more efficient than drug therapy as it would appear less costly.

Double Counting

Counting the same cost twice - double-counting - is a potential hazard in economic evaluation. An example of double-counting is counting the cost of a surgeon’s time for an operation when that cost is already included in the fee.

Un-Thinking Acceptance of Market Values

The last consideration is the un-thinking acceptance of market values. The market value of a resource may not be an adequate reflection of opportunity cost.

An example is voluntary care - the market price is zero but there is an opportunity cost in terms of the alternative ways in which the carer could have utilized the time. A value would have to be assigned/attributed, perhaps based on the salary of a paid caregiver.

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