School of Medicine, Health Policy & Practice, University of East Anglia Health Economics (and Antimicrobial Resistance) Richard Smith Reader in Health.

School of Medicine, Health Policy & Practice, University of East Anglia

Health Economics(and Antimicrobial Resistance)

Richard SmithReader in Health Economics

School of Medicine, Health Policy and PracticeUniversity of East Anglia


Economics is about …

Limited resources

Unlimited “wants”

Choosing between which ‘wants’ we can ‘afford’ given our resource ‘budget’


Economics is about choice

Budget

Good ‘A’ Good ‘B’


Opportunity cost

“The value of forgone benefit which could be obtained from a resource in

its next-best alternative use.”


Implications of opportunity cost

Deciding to do A implies deciding not to do B (i.e. value of benefits from A>B).

Cost can be incurred without financial expenditure.

Value not necessarily determined by “the market”.


Economists view of the world...

Pessimist: bottle ½ empty

Optimist: bottle ½ full

Economist: bottle ½ wasted

inefficient!


Efficiency

Efficiency = maximising benefit for resources used

Technical = meeting a given objective Efficiency at least cost

Allocative = producing the pattern of Efficiency output that best satisfies the pattern of “consumer

wants”


Topic versus discipline

Topic = area of study

Discipline = conceptual apparatus

Health economics is the discipline of economics applied to the topic of

health.


Task of economics

Descriptive = quantification

Predictive = identify impact of change

Evaluative = relative preference over

situations


Health economics ‘map’

B. What influencesHealth? (other than

health care)

B. What influencesHealth? (other than

health care)

E. Market Analysis

E. Market Analysis

A. What is Health? What is it’s value?

A. What is Health? What is it’s value?

D. Supply ofHealth Care

D. Supply ofHealth Care

G. Planning, budgeting,regulation mechanisms

G. Planning, budgeting,regulation mechanisms

H. Micro-Economic AppraisalH. Micro-Economic Appraisal

C. Demand forHealth Care

C. Demand forHealth Care

F. Macro-Economic Appraisal

F. Macro-Economic Appraisal


Antimicrobial resistance (AMR)

AMR occurs where a micro-organism previously sensitive to an antimicrobial therapy develops resistance to its effect, rendering it ineffective

It is associated with antimicrobial usage (over & under use) and the interaction of micro-organisms, people and the environment

It is potentially irreversible once developed: some resistances are linked (therefore reduction in

all associated antimicrobials is necessary) the resistance mechanism/gene encoding may

provide an unrelated selective advantage to the organism

the 'genetic cost' to the organism of maintaining AMR in the absence of selection pressure may be minimal


Importance of AMR

“Despite the multifactorial nature of antibiotic resistance the central issue remains quite simple: the more you use it, the faster you lose it” (The Lancet, 15/4/95)

“We may look back at the antibiotic era as just a passing phase in the history of medicine, an era when a great natural resource was squandered, and the bugs proved smarter than the scientists” (Cannon, 1995)

“We are further away from mastering infectious diseases than we were 25 years ago” The Times, 4/4/95


Importance of AMR


Application of economics to AMR

Economic conceptualisation of AMR Cost of resistance - country, hospital,

disease Micro-economic evaluation of

strategies to contain AMR Macro-economic evaluation of impact

of AMR and strategies to contain AMR


Economic conceptualisation of AMR

Externality = Effect on those other than the immediate consumer (cross-sectional & temporal ext.)

Resistance = Negative externality (i.e. cost) associated with consumption

of antimicrobials now

Implication = Sub-optimal (over) consumption of antimicrobials


Equilibrium with a negative externality

Quantity

Price/Cost



Quantity

Price/ Cost

D (MPB/MSB)

S (MPC)



Quantity

Price/Cost

A

D (MPB/MSB)

S (MPC)

QA

EquilibriumPrice PA



Quantity

Price/ Cost

A

D (MPB/MSB)

S (MPC)

MSC

QA

EquilibriumPrice PA



Quantity

Price/ Cost

B

A

D (MPB/MSB)

S (MPC)

MSC

QB QA

EquilibriumPrice PA



Quantity

Price/ Cost

B

A

D (MPB/MSB)

S (MPC)

MSC

Equilibrium Output

QB QA

EquilibriumPrice PA



Quantity

Price/ Cost

B

A

D (MPB/MSB)

S (MPC)

MSC

Economically Efficient Output Equilibrium Output

QB QA

EquilibriumPrice PA


A difficult balance

The best interests of the individual

Society’s need for sustainable

antimicrobial use


Form of negative externality

ERt = f(At, Xi

t)

ERt = extent of externality (AMR) in time t

At = quantity of AMs consumed in time t

Xit = vector of exogenous factors


Form of positive externality

EPt = f(At, ER

t, Xit,)

EPt = externality associated with reduced

transmission of disease during time t

At = quantity of AMs used in time t

ERt = extent of externality (AMR) in time t

Xit = vector of exogenous factors


Optimisation of AM use

NBAt = f(Bt, Ct, St, Dt, EP

t, ERt, At, Xi

t)

NBAt = net benefit from AMs used in time t

Bt = direct benefit to patient of AMCt = drug (+ administration) costSt = cost associated with side-effectsDt = represents difficulties in diagnosis(EP

t, ERt, At, Xi

t as before*)*EP

t = externality associated with reduced transmission during time t; At = quantity of AMs used in time t; ER

t = extent of externality (AMR) in time t; Xit = vector of exogenous factors


Implications of AMR as externality

NOT eradication, but containment of AMR

Importance of optimisation over time - use (and benefit from) AMs now and in future

Importance of assessing costs and benefits of AM use and strategies to contain AMR


Cost of AMR

Additional investigations Additional treatments Longer hospital stay Longer time off work Reduced quality of life Greater likelihood of death Impact on wider society (health and

economic)


Cost of AMR

By country (e.g. USA) $4-7bn pa to medical care sector (American

Soc. for Microbiology, 1995; John & Fishman, 1997)

By institution (e.g. hospital) ~£500,000 to contain 5 week outbreak of MRSA

in general hospital (Cox et al, 1995) By disease (e.g. Tuberculosis)

Double cost of standard treatment ($13,000-$30,000) (Wilton et al, 2001)


Micro-economic evaluation of strategies to contain AMR

Systematic review of strategies (GFHR/ WHO)

Specific economic policies (WHO, CMH, UNDP, CIDA/Health Canada, US NAS)

Development of WHO ‘Global Strategy’


Strategies to contain AMR

FOCUS OF STRATEGYLEVEL OFSTRATEGY Reduce transmission Prevent emergence

Micro E.g. handwashing inhospitals

E.g. ‘cycling’ drugswithin hospitals

Macro E.g. restrictinginternational travel

E.g. restriction policies(eg taxation, permits)



Objective Strategy Intervention Selection Pressure* Antimicrobial use in

humans and agriculture

Education of professionals Education of patients Rapid diagnosis of bacterials Control of sensitivity data released

to prescribers Antibiotic policies Restriction of availability Financial incentives/disincentives Antimicrobial cycling Regulation on the use of

antibiotics in agriculture Opportunity forResistance Emerging*

Optimal use of existingagents

Ensuring optimal agent, dose anddose frequency for each infection

Removal of potential septic foci Emphasising/ensuring compliance Use of antibiotic combinations

Range of AgentsAvailable

Consider use ofalternative treatmentoptions

Antiseptics Cranberry juice for UTI Probiotics

Requirement forAntimicrobials

Immune competence Vaccination Nutrition Minimise time patient is

immunocompromised



Objective Strategy Intervention Transmission Early recognition of

resistant organisms• More rapid techniques• Surveillance• Screening patients/staff

Infectivity Use of antimicrobials OPPORTUNITIESFOR TRANSMISSION

Isolation Handwashing General Hygiene Patient/Staff ratios Bed spacing

Susceptibility toinfection

Immunity Nutrition

3. DEVELOP NEW ANTIMICROBIALS Range of AgentsAvailable

Discover/develop newagents

1. Modification of existing agents/discovery of new antimicrobials

2. Discovery of new drug targetsthrough microbial gene analysis

4. Genetic manipulation5. Computer modelling


Evidence: literature review

127 studies of strategies to contain AMR. Most are:

of poor methodological quality (high risk of bias)

from developed nations (principally the USA) not measuring the cost impact of AMR micro (institution) not macro (community) concerned with transmission not emergence


Importance of transmission versus emergence

Equilibrium resistance

X X+n

% of organism resistant to an anti-microbial

Time

Lag phase

0


Importance of time

Because of uncertainty, evaluation of strategies to reduce transmission easier to undertake than evaluation of strategies to control emergence

Because of discounting of future benefits, strategies to reduce transmission likely to appear to be more cost-effective than strategies to control emergence


The problem

Micro policies – generally to contain transmission – are more likely to be rigorously evaluated ...

BUT ... macro policies – generally to contain emergence – are more likely to be socially optimal (and) in the long-term.


Macro-economic strategies to contain AMR

Charges/taxes (equal to marginal external cost of AMR) – changes private cost to equal social cost

Regulation of overall quantity (rationing)

Tradable permits (licences) - set quantity and let price adjust in market through physician ‘trading’


Macro-economic impact of AMR

Requires macro-economic model – Computable General Equilibrium (CGE) is most ‘popular’.

Model solved to find prices at which quantity supplied equals quantity demanded across all markets (sectors)

Describes economy using representative agents: consumers, producers, and government Consumers allocate time to employment/leisure

and income to consumption/saving to max utility Producers combine labour/capital inputs to max

profit Government collects tax revenue to finance

expenditure & redistribute as benefits


Macro-economic impact of AMR

AMR is a (negative) exogenous shock on the labour supply and productivity of inputs, and a (positive) shock (cost) to healthcare delivery

No UK data of impact on productivity or labour supply so use data from other areas/countries

Assumptions: Prevalence of AMR ~20% in UK AMR reduces labour supply by 0.1% to 0.8% AMR reduces productivity by 0.5% to 10% AMR increases healthcare cost by 0.5% to 10%


Macroeconomic impact of AMR in UK

Change in: Different Scenarios Productivity (%) -0.5 -0.5 -1.0 -1.0 -0.5 -1.5 -1.5 -2.0 -2.0 Healthcare delivery cost (%) +0.5 +0.5 +1.0 +1.0 +0.5 +10 +5.0 +5.0 +10 Labour supply (%) -0.1 -0.8 -0.2 -0.8 -0.5 -0.2 -0.1 -0.8 -0.8 Impacts on macroeconomic indicators in percentage Household income -0.070 -0.098 -0.140 -0.174 -0.085 -0.234 -0.257 -0.327 -0.327 Government transfers +0.740 +0.721 +1.690 +1.407 +0.753 +2.092 +2.119 +2.802 +2.817 Tax Revenues -0.081 -0.110 -0.160 -0.196 -0.086 -0.216 -0.269 -0.352 -0.324 Unemployment +4.210 +4.919 +9.630 +9.159 +4.644 +12.98 +13.66 +17.71 +17.80 Household utility -0.590 -0.612 -1.200 -1.211 -0.600 -1.816 -1.821 -2.413 -2.425 Real GDP -0.400 -0.381 -0.810 -0.776 -0.387 -1.199 -1.174 -1.574 -1.582 Welfare (EV/GDP) -0.270 -0.282 -0.560 -0.559 -0.276 -0.834 -0.841 -1.121 -1.121 Inflation (CPI index) +0.004 +0.004 +0.010 +0.008 +0.004 +0.013 +0.013 +0.017 +0.017 Total Savings -0.500 -0.531 -1.000 -1.017 -0.525 -1.449 -1.512 -1.990 -1.980 Healthcare and social -0.566 -0.585 -1.131 -1.156 -0.575 -2.621 -2.105 -2.613 -3.139 Services (average) Social services -0.537 -0.558 -1.074 -1.100 -0.547 -1.803 -1.717 -2.242 -2.344 Health administration -0.575 -0.594 -1.150 -1.174 -0.584 -2.894 -2.234 -2.736 -3.404 Hospitals -0.576 -0.594 -1.150 -1.175 -0.584 -2.894 -2.235 -2.737 -3.405 Family health services -0.575 -0.594 -1.150 -1.174 -0.584 -2.892 -2.234 -2.735 -3.403


Summary results

GDP loss = ~£3-11 billion (~ 6-20% of total NHS expenditures) Welfare losses imply society willing to pay ~ £8 billion to avoid

AMR

Parameter of interest Impact of MRSA (% change) Household Income -0.070 to -0.327 Government Transfers +0.721 to +2.817 Tax Revenues -0.081 to -0.352 Unemployment +4.210 to +17.800 Household Utility -0.590 to -2.425 GDP (real) -0.381 to -1.582 Welfare(EV/GDP) -0.270 to -1.121 Inflation(CPI) +0.004 to +0.017 Total National Savings -0.500 to -1.990 Health and Social Services Social Services -0.537 to -2.344 Health Administration -0.575 to -3.404 Hospitals -0.576 to 3.405 Family Health Services -0.575 to -3.403

Note: All results are relative to 1995 economy in the absence of MRSA.


Evaluation of strategies

Impact of Impact of Impact of

Parameter of interest Regulation Taxation Permits Household Income +0.014 +0.005 +0.015 Government Transfers -0.150 -0.048 -0.151 Tax Revenues +0.017 +0.005 +0.017 Unemployment -0.862 -0.278 -0.870 Household Utility +0.119 +0.039 +0.120 GDP (real) +0.078 +0.025 +0.079 Welfare(EV/GDP) +0.055 +0.018 +0.055 Inflation(CPI) +0.000 +0.000 +0.000 Total Savings +0.101 +0.033 +0.102 Health and Social Services Social Services +0.108 +0.035 +0.109 Health Administration +0.115 +0.037 +0.116 Hospitals +0.115 +0.037 +0.116 Family Health Services +0.115 +0.037 +0.116 CAM and MRSA CAM (%) -10.00 -0.968 -10.00 MRSA Level (%) -10.00 -0.968 -10.00

Note: All results are relative to 1995 model that includes the adverse impacts of MRSA on the economy in the absence of any intervention.


Key conclusions of macro approach

AMR substantially affects wider economy, not just healthcare

Concentrating on healthcare sector alone may therefore underestimate the societal impact of AMR/strategies

Of ‘macro’ strategies, taxation appears to be the least efficient & tradable permits the most efficient


Conclusions – applying economics to the analysis of AMR

Conceptualisation of problem: Optimisation and balance Importance of temporal factors (trade-off now

vs future) Technical analysis:

Micro-economic evaluation of strategies Macro-economic assessment

Strategies: Financial incentive structures (e.g. permits) Tackling ‘public good’ issues globally


Further references

Externality & micro-economic evaluation: Coast J, Smith RD, Miller MR. Superbugs: should antimicrobial resistance be

included as a cost in economic evaluation? Health Economics, 1996; 5: 217-226.

Coast J, Smith RD, Karcher AM, Wilton P, Millar MR. Superbugs II: How should economic evaluation be conducted for interventions which aim to reduce antimicrobial resistance? Health Economics, 2002; 11(7): 637-647.

Wilton P, Smith RD, Coast J, Millar MR. Strategies to contain the emergence of antimicrobial resistance: a systematic review of effectiveness and cost-effectiveness. Journal of Health Services Research and Policy, 2002; 7(2): 111-117.

Macro policies & macro-economic analysis: Coast J, Smith RD, Millar MR. An economic perspective on policy for

antimicrobial resistance. Social Science and Medicine, 1998; 46: 29-38. Smith RD, Coast J. Controlling antimicrobial resistance: a proposed

transferable permit market. Health Policy, 1998; 43: 219-32. Smith RD, Coast J. Antimicrobial resistance: a global response. Bulletin of the

World Health Organisation, 2002; 80: 126-133. Smith RD, Coast J. Resisting resistance: thinking strategically about

antimicrobial resistance. Georgetown Journal of International Affairs, 2003; IV(1): 135-141.

Yago M, Smith RD, Coast J, Millar MR. Assessing the macroeconomic impact of a healthcare problem: the application of computable general equilibrium analysis to antimicrobial resistance. Journal of Health Economics (in press).

School of Medicine, Health Policy & Practice, University of East Anglia Health Economics (and Antimicrobial Resistance) Richard Smith Reader in Health.

Documents

health policy practice

topic of health

supply of health care

n value

n technical

disease n

n optimist

n pessimist