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Cost-Benefit and Cost-Effectiveness Analysis

Kevin Frick, PhDJohns Hopkins University

Section A

Where Does CBA/CEA Fit into Health Services Research?

4

Where Does CBA/CEA Fit into Health Services Research?

Usually efficacy has already been doneGenerally look at effectiveness−

Pharmaceutical

−

Treatment−

Intervention program

5

Where Does CBA/CEA Fit into Health Services Research?

Usually efficacy has already been doneGenerally look at effectiveness−

Pharmaceutical

−

Treatment−

Intervention program

Effectiveness may already be established or effectiveness research may be simultaneousFits in with multiple study designs−

Modeling

−

Randomized controlled trial

6

Measurement of the Effectiveness of a Treatment, Program, or InterventionStudy DesignEpidemiologyRandomized TrialsModeling

Statistical Analysis Uncertainty

CostTheory of whatto measure

Primary Data Collection Methods

Incorporating Secondary Data

ValuationEconomic Theory

Personal and Societal Valuation

Instruments from Economics and Decision Sciences

Validity and Reliability

TimeDiscountingInflationAccounting for Possibilities Offered by TechnologicalChange

Incremental Cost-Effectiveness Ratio orNet BenefitCalculationTheory of how tocalculate

Theory of how to use in decisionmaking

Sensitivity (or “whatif”) Analyses

Inference

Problemand PotentialSolution Identificationfrom ClinicalAreas, PopulationSpecific Interests,or the GeneralPolicy Process

Choosing which Program to Fund or Treatment to RecommendPoliticsEthics

Economic Reasoning

Economic Reasoning, Public Health, and Medical Epidemiology: Cost-Effectiveness and Cost Benefit Results

Notes Available

7

Measurement of the Effectiveness of a Treatment, Program, or InterventionStudy DesignEpidemiologyRandomized TrialsModeling

Statistical Analysis Uncertainty

CostTheory of whatto measure

Primary Data Collection Methods

Incorporating Secondary Data

ValuationEconomic Theory

Personal and Societal Valuation

Instruments from Economics and Decision Sciences

Validity and Reliability

TimeDiscountingInflationAccounting for Possibilities Offered by TechnologicalChange

Incremental Cost-Effectiveness Ratio orNet BenefitCalculationTheory of how tocalculate

Theory of how to use in decisionmaking

Sensitivity (or “whatif”) Analyses

Inference

Problemand PotentialSolution Identificationfrom ClinicalAreas, PopulationSpecific Interests,or the GeneralPolicy Process

Economic Reasoning

Economic Reasoning, Public Health, and Medical Epidemiology: Cost-Effectiveness and Cost Benefit Results

Notes Available

Choosing which Program to Fund or Treatment to RecommendPoliticsEthics

8

CostTheory of whatto measure

Primary Data Collection Methods

Incorporating Secondary Data

ValuationEconomic Theory

Personal and Societal Valuation

Instruments from Economics and Decision Sciences

Validity and Reliability

TimeDiscountingInflationAccounting for Possibilities Offered by TechnologicalChange

Incremental Cost-Effectiveness Ratio orNet BenefitCalculationTheory of how tocalculate

Theory of how to use in decisionmaking

Sensitivity (or “whatif”) Analyses

Inference

Problemand PotentialSolution Identificationfrom ClinicalAreas, PopulationSpecific Interests,or the GeneralPolicy Process

Economic Reasoning

Economic Reasoning, Public Health, and Medical Epidemiology: Cost-Effectiveness and Cost Benefit Results

Notes Available

Choosing which Program to Fund or Treatment to RecommendPoliticsEthics

Measurement of the Effectiveness of a Treatment, Program, or InterventionStudy DesignEpidemiologyRandomized TrialsModeling

Statistical Analysis Uncertainty

9

CostTheory of whatto measure

Primary Data Collection Methods

Incorporating Secondary Data

ValuationEconomic Theory

Personal and Societal Valuation

Instruments from Economics and Decision Sciences

Validity and Reliability

TimeDiscountingInflationAccounting for Possibilities Offered by TechnologicalChange

Incremental Cost-Effectiveness Ratio orNet BenefitCalculationTheory of how tocalculate

Theory of how to use in decisionmaking

Sensitivity (or “whatif”) Analyses

Inference

Problemand PotentialSolution Identificationfrom ClinicalAreas, PopulationSpecific Interests,or the GeneralPolicy Process

Economic Reasoning

Economic Reasoning, Public Health, and Medical Epidemiology: Cost-Effectiveness and Cost Benefit Results

Notes Available

Choosing which Program to Fund or Treatment to RecommendPoliticsEthics

Measurement of the Effectiveness of a Treatment, Program, or InterventionStudy DesignEpidemiologyRandomized TrialsModeling

Statistical Analysis Uncertainty

10

CostTheory of whatto measure

Primary Data Collection Methods

Incorporating Secondary Data

ValuationEconomic Theory

Personal and Societal Valuation

Instruments from Economics and Decision Sciences

Validity and Reliability

TimeDiscountingInflationAccounting for Possibilities Offered by TechnologicalChange

Incremental Cost-Effectiveness Ratio orNet BenefitCalculationTheory of how tocalculate

Theory of how to use in decisionmaking

Sensitivity (or “whatif”) Analyses

Inference

Problemand PotentialSolution Identificationfrom ClinicalAreas, PopulationSpecific Interests,or the GeneralPolicy Process

Economic Reasoning

Economic Reasoning, Public Health, and Medical Epidemiology: Cost-Effectiveness and Cost Benefit Results

Notes Available

Choosing which Program to Fund or Treatment to RecommendPoliticsEthics

Measurement of the Effectiveness of a Treatment, Program, or InterventionStudy DesignEpidemiologyRandomized TrialsModeling

Statistical Analysis Uncertainty

11

CostTheory of whatto measure

Primary Data Collection Methods

Incorporating Secondary Data

ValuationEconomic Theory

Personal and Societal Valuation

Instruments from Economics and Decision Sciences

Validity and Reliability

TimeDiscountingInflationAccounting for Possibilities Offered by TechnologicalChange

Incremental Cost-Effectiveness Ratio orNet BenefitCalculationTheory of how tocalculate

Theory of how to use in decisionmaking

Sensitivity (or “whatif”) Analyses

Inference

Problemand PotentialSolution Identificationfrom ClinicalAreas, PopulationSpecific Interests,or the GeneralPolicy Process

Economic Reasoning

Economic Reasoning, Public Health, and Medical Epidemiology: Cost-Effectiveness and Cost Benefit Results

Notes Available

Choosing which Program to Fund or Treatment to RecommendPoliticsEthics

Measurement of the Effectiveness of a Treatment, Program, or InterventionStudy DesignEpidemiologyRandomized TrialsModeling

Statistical Analysis Uncertainty

12

CostTheory of whatto measure

Primary Data Collection Methods

Incorporating Secondary Data

ValuationEconomic Theory

Personal and Societal Valuation

Instruments from Economics and Decision Sciences

Validity and Reliability

TimeDiscountingInflationAccounting for Possibilities Offered by TechnologicalChange

Incremental Cost-Effectiveness Ratio orNet BenefitCalculationTheory of how tocalculate

Theory of how to use in decisionmaking

Sensitivity (or “whatif”) Analyses

Inference

Problemand PotentialSolution Identificationfrom ClinicalAreas, PopulationSpecific Interests,or the GeneralPolicy Process

Choosing which Program to Fund or Treatment to RecommendPoliticsEthics

Economic Reasoning

Economic Reasoning, Public Health, and Medical Epidemiology: Cost-Effectiveness and Cost Benefit Results

Notes Available

Measurement of the Effectiveness of a Treatment, Program, or InterventionStudy DesignEpidemiologyRandomized TrialsModeling

Statistical Analysis Uncertainty

13

Why Do a CBA or CEA?

Information for resource allocationUse of these tools implies rationingResults fit into a decision-making processValues and ethics also impact on decisionsFinal results may be used less than the data used to do the calculations

14

Cost-Benefit Analysis

Cost—dollarsConsequences—dollarsNet benefit is final product−

Difference between valuation of benefits and costs

−

Unique feature that can indicate explicitly whether benefits outweigh costs

15

Cost-Benefit Analysis

Cost—dollarsConsequences—dollarsNet benefit is final product−

Difference between valuation of benefits and costs

−

Unique feature that can indicate explicitly whether benefits outweigh costs

Ratio of net benefit to dollars spent (rather than benefit to dollars spent) is sometimes used to rank programs

16

Cost-Effectiveness Analysis

Costs—dollarsConsequences—non-monetary units−

Mortality/morbidity

Only compare programs with similar outcomes

17

Cost-Effectiveness Analysis

Costs—dollarsConsequences—non-monetary units−

Mortality/morbidity

Only compare programs with similar outcomesStandardized combinations of mortality and morbidity−

Quality Adjusted Life Years

−

Implies a “cost-utility”

analysis

18

Set of Types of Analyses

Cost-benefitCost-utilityCost-effectivenessCost-consequence

19

Set of Types of Analyses

Cost-benefitCost-utilityCost-effectivenessCost-consequenceCost of illness

Section B

Decision Maker Perspective

21

Decision Maker Perspective

Different perspectives−

Individual

−

Employer−

Insurer/MCO

−

Government−

Society

Common perspective useful for making comparisons among alternatives

22

Cost Terminology

Opportunity cost versus accounting costs

23

Direct Costs

Providing medical careTransportation to medical careAdministrativeResearch and development

24

Indirect Costs

CBA only???−

Lost productivity

−

Morbidity related costs−

Time receiving medical care

−

Anything where money is not exchanged but time must be valued

25

Future Costs

During time alive anyway−

Medical costs associated with disease treated

−

Unrelated medical care cost During extra time alive−

Medical costs associated with disease treated

−

Unrelated medical care cost −

Other costs

26

Measuring Costs

Incremental for analysis−

Total may be useful for management decisions

27

Data

Quantities−

Micro-costing studies, billing/claims, procedure codes

28

Data

Quantities−

Micro-costing studies, billing/claims, procedure codes

Prices−

Market prices

ChargesCost to charge ratios

−

Standard resource measuresDRGRBRVS

29

Effects

Health status measures−

Increased life expectancy

−

Decreased morbidity−

Reduced disability

Other measures−

Lower use of health care resources

−

Increased patient productivityNot a uniform valuation

30

Valuing Effects in Quality Adjusted Life Years

Health states/functional status−

Ranked from complete health to being dead

Preferences −

Those affected by program or entire community

Measure of both increased length of life and improved quality of lifeInclude lost productivity in quality of life

31

Quality of Life

Time

1

0.5

0.5 1

All three represent 0.5 QALYs

QALY Example One

32

QALY Example Two

Quality of Life

Time

A

B

33

QALY Numerical Example

Program

Funding Level

QALYs

Incr. Funding

Incr. QALYs

Incr. Rati o

A $50,000 8 $50,000 8 6,250

A $100,000 12 $50,000 4 12,500

B $50,000 6 $50,000 6 8,333

B $100,000 12 $50,000 6 8,333

34

QALY Numerical Example

Program

Funding Level

QALYs

Incr. Funding

Incr. QALYs

Incr. Rati o

A $50,000 8 $50,000 8 6,250

A $100,000 12 $50,000 4 12,500

B $50,000 6 $50,000 6 8,333

B $100,000 12 $50,000 6 8,333

Section C

Hot Topics for QALYs

36

Hot Issues for QALYs

Special value for saving people near death?Should we consider people’s “potential health?”Is value of an effect for an individual proportional to length of effect?Is value of an effect for a population proportional to the number of individuals?

37

Hot Issues for QALYs

Special value for saving people near death?Should we consider people’s “potential health?”Is value of an effect for an individual proportional to length of effect?Is value of an effect for a population proportional to the number of individuals?Does the distribution of QALYs matter?Should we ask individuals about how they would value hypothetical effects on their own health or the effects on groups of individuals?Adaptation and recall

38

Valuing Effects in Dollars

Human capital modelWillingness to pay−

Measure maximum dollars consumer would give up to have effects of program

−

Better basis in economic theory−

Related to wealth/income

Consistency in treating items as benefits

39

Discounting

A dollar today is worth more than a dollar tomorrowNet present value of costs of multiple year program depend on order of costs

40

Discounting

A dollar today is worth more than a dollar tomorrowNet present value of costs of multiple year program depend on order of costsCommonly use real interest rate−

What a dollar today is worth tomorrow

−

Appropriate rate is open to discussion

41

Uncertainty

Range of prices/quantitiesRange of probability of certain eventsSensitivity analysesSecondary data/expert opinion can fill in gaps

42

Reporting/Interpreting Results

CBA—net benefit and ratioCEA—reference caseExplicit assumptionsSources of any secondary dataIntermediate resultsSensitivity analyses