Health Economics and Development

The National Health Service is considering introducing a new type of surgery for patients with unstable angina.  This surgery will be performed using keyhole techniques rather than the traditional open surgery, but patients will still be required to make an overnight stay in hospital.  You have been asked to conduct an economic evaluation of the new surgery.


  1. Explain what information on costs you would need in order to conduct this evaluation. Consider how you would identify what resources would be used; how you would measure their use and how you would assign a money value to each resource used (it may help to consider these costs in terms of direct and indirect costs) (200 Words). 12 Marks

You need to identify both direct and indirect costs. For direct cost you have to consider non health resource use like transport cost of the patient and health service resource use like inpatient and medical treatment. Indirect cost has two perspective cost to family and friends in terms of their career time and wider cost to society like their productivity effect. However, the range of cost to factor relies on the perspective of evaluation in terms of health system and societal value. Also, the units of quantification whether in days, hours, space occupied and dosage.

The resources used are valued as per the opportunity cost which is the cost of the alternative foregone. In a well functioning market, the opportunity cost reflects the market prices. Shadow pricing is used where amortised cost is used instead of the assigned market value. Alternatively, off the shelf units may be used like trust financial returns and drug costs.


From your evaluation you have found the following information on the total cost and total benefits of both the open surgery and the keyhole surgery:

(1) (2) (3) (4) (5) (6) (7)


Total Cost Total Benefit (QALYS) Added cost (£) Added benefit (QALY) Average cost per QALY Incremental Cost per QALY
Open Surgery £4,000,000 250 4,000,000 250 C E
Keyhole surgery £11,000,000 800 A B D F


  1. What figures are missing from the table (indicated by A-F) in;

(Please show your calculations)

  • Column 4 (box A) 1 Mark

Added cost =11,000,000-4,000,000=£7,000,000

  • Column 5 (box B) 1Mark

Added benefit=800-250=550

  • Column 6 (boxes C and D) 2 Marks



  • Column 7 (boxes E and F) 2 Marks




  • Why is it important to distinguish between “average” and “incremental” as in columns (6) and (7)? Which one would you use to make a recommendation and why? (4 Marks, 150 words)

Average cost accounts for the total cost per unit of the total output while the incremental cost is the additional costs of one alternative compared to the other. The incremental cost is used in making recommendation since it gives the marginal cost associated with an alternative.

  1. Explain why costs and outcome data are discounted? What are the implications of discounting? 6 Marks, 250 words)

Discounting takes into consideration of time value for money. Hence, time preference is a crucial factor in cost and outcome. The implications of discounting are that projects whose cost is a factor of time are preferred to instant cost projects. Also, projects that save life or cost immediately are preferred to those that save in the future.

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