Health Economics & PolicyHealth Economics & Policy33rdrd Edition Edition
James W. HendersonJames W. Henderson
Chapter 4Chapter 4
Economic Evaluation in Health CareEconomic Evaluation in Health Care
The Inevitability of Trade-OffsThe Inevitability of Trade-Offs
The value of a medical interventionThe value of a medical intervention The inclusion of a drug on the formularyThe inclusion of a drug on the formulary Paying for an experimental procedurePaying for an experimental procedure Investing in new technologyInvesting in new technology Is it worth it? How do we measure value to Is it worth it? How do we measure value to
insure we get value for spending? insure we get value for spending?
Economic EvaluationEconomic Evaluation
Reality of opportunity costReality of opportunity cost Useful alternatives compete for resourcesUseful alternatives compete for resources Making choices is sometime unpleasantMaking choices is sometime unpleasant Options for colorectal cancer screeningOptions for colorectal cancer screening
– Fecal blood testFecal blood test– Barium enimaBarium enima– Sigmoidoscopy Sigmoidoscopy – ColonoscopyColonoscopy
Is it worth the extra money? Is it worth the extra money?
What is Economic Evaluation?What is Economic Evaluation?
A comparative analysisA comparative analysis Evaluating alternative courses of actionEvaluating alternative courses of action Examining both costs and consequencesExamining both costs and consequences
– IdentifyIdentify– ValueValue– MeasureMeasure– CompareCompare
Types of Economic EvaluationTypes of Economic Evaluation
Cost of illness studiesCost of illness studies Cost-benefit analysesCost-benefit analyses Cost-effectiveness studiesCost-effectiveness studies
Cost of Illness StudiesCost of Illness Studies
What does it cost?What does it cost? Burden of a diseaseBurden of a disease Burden of 5 chronic conditions in US (Druss et al., Burden of 5 chronic conditions in US (Druss et al.,
2001)2001)– Mood disorders, diabetes, heart disease, asthma, and Mood disorders, diabetes, heart disease, asthma, and
hypertension hypertension – Direct cost of treatment - $62.3 billion]Direct cost of treatment - $62.3 billion]– Cost of treating coexisting conditions - $270 billionCost of treating coexisting conditions - $270 billion– Lost productivity - $36.2 billionLost productivity - $36.2 billion
Role in analysis – increased awarenessRole in analysis – increased awareness
Cost-Benefit AnalysisCost-Benefit Analysis
Simple extension of capital budgetingSimple extension of capital budgeting Developed to help public sector make Developed to help public sector make
decisions that maximize public welfare decisions that maximize public welfare from tax spendingfrom tax spending
Optimization in the absence of market Optimization in the absence of market pressurepressure
Benefit-Cost CriterionBenefit-Cost Criterion
t
in
tt
tn
t r
C
r
BCB
)1(/
)1(/
11
If ratio is greater than one, project is acceptableIf ratio is greater than one, project is acceptable
If net benefit stream is positive, project is If net benefit stream is positive, project is acceptable. acceptable.
ttt
n
t r
CBNB
)1(1
Challenges of Cost-Benefit Challenges of Cost-Benefit AnalysisAnalysis
Valuing benefitsValuing benefits– How do you place a value on a human life?How do you place a value on a human life?– Willingness-to-pay approachWillingness-to-pay approach
When applied to health depends on When applied to health depends on – wealth wealth – life expectancy life expectancy – current health statuscurrent health status– possibility of substituting current consumption for future possibility of substituting current consumption for future
consumption consumption
Choosing a discount rateChoosing a discount rate
Cost-Effectiveness AnalysisCost-Effectiveness Analysis
Developed outside traditional welfare economics Developed outside traditional welfare economics frameworkframework
Measures health benefit by health outcome, not Measures health benefit by health outcome, not the dollar value of lifethe dollar value of life
Using the decision makers approachUsing the decision makers approach– Maximize the level of health for a given population Maximize the level of health for a given population
subject to a budget constraintsubject to a budget constraint
– Practical guide for choosing between programs or Practical guide for choosing between programs or treatment options when budgets are limitedtreatment options when budgets are limited
Incremental Cost-Effectiveness Incremental Cost-Effectiveness RatioRatio
If CIf CAA > C > CBB and E and EAA < E < EBB, B dominates., B dominates.
If CIf CAA < C < CBB and E and EAA > E > EBB, A dominates., A dominates.
If, however, CIf, however, CBB > C > CAA and E and EBB > E > EAA, ,
choice is not obvious. Use CE. choice is not obvious. Use CE.
AB
AB
EE
CCICER
Graphical Presentation of CEGraphical Presentation of CE
Cost
Effectiveness
A
B
G F
D
C
E
Interpretation of CE GraphInterpretation of CE Graph
Strategies that form the solid line connecting the Strategies that form the solid line connecting the points lying left and above are the economically points lying left and above are the economically rational subset of choicesrational subset of choices
Points like C and E are strictly dominated Points like C and E are strictly dominated alternativesalternatives
The inverse of the slope between any two points The inverse of the slope between any two points represents the incremental CE ratiorepresents the incremental CE ratio
As the slope gets flatter, the CE ratio gets higher – As the slope gets flatter, the CE ratio gets higher – giving literal meaning to “flat-of-the-curve”giving literal meaning to “flat-of-the-curve”
Measuring CostsMeasuring Costs
Direct – associated with use of resourcesDirect – associated with use of resources– MedicalMedical– Non-medicalNon-medical
Indirect – related to lost productivityIndirect – related to lost productivity– MedicalMedical– Non-medicalNon-medical
Intangible – associated with pain and Intangible – associated with pain and suffering, grief, anxiety, and disfigurementsuffering, grief, anxiety, and disfigurement
Measuring Effectiveness – Measuring Effectiveness – Improvements in HealthImprovements in Health
Surrogate measures stated in terms of clinical Surrogate measures stated in terms of clinical efficacyefficacy– Blood pressure, cholesterol levels, bone mass density, Blood pressure, cholesterol levels, bone mass density,
or tumor sizeor tumor size Intermediate measures stated in terms of clinical Intermediate measures stated in terms of clinical
effectivenesseffectiveness– Events, scores on examsEvents, scores on exams
Final outcomes measure economic effectivenessFinal outcomes measure economic effectiveness– Events avoided, disease-free days, life-years saved, Events avoided, disease-free days, life-years saved,
quality-adjusted life years savedquality-adjusted life years saved
Improved Life Expectancy Due Improved Life Expectancy Due to Clinical Treatmentto Clinical Treatment
C
B
A Survival Function for Treatment Group
Survival Function for Non-treatment Group
Survival
100%
18 months
6.5 yrs
77%
90%
D
Quality of Life MeasuresQuality of Life Measures
Attempt to measure value of life in Attempt to measure value of life in terms of quality and quantityterms of quality and quantity
View QALY as life expectancy with View QALY as life expectancy with a preference weight for perfect a preference weight for perfect health attached to each yearhealth attached to each year
Measured on a preference scale Measured on a preference scale anchored by death (0) and perfect anchored by death (0) and perfect health (1)health (1)
Calculating QALYs Using Calculating QALYs Using Preferences for Health StatesPreferences for Health States
U(hi)
U(h1)
Time in years 6 15
Utility
0
Standard Time Trade-Off for Standard Time Trade-Off for Calculating QALYsCalculating QALYs
Standard time tradeoff offering 2 options:Standard time tradeoff offering 2 options:– chronic health state i for t years, followed immediately chronic health state i for t years, followed immediately
by deathby death
– Perfect health for x years (where x is less than t), Perfect health for x years (where x is less than t), followed immediately by deathfollowed immediately by death
Vary length of x until individual is indifferent Vary length of x until individual is indifferent between two optionsbetween two options
Value of one year in chronic health state is x/tValue of one year in chronic health state is x/t
Standard Gamble for Standard Gamble for Calculating QALYsCalculating QALYs
Direct approach based on fundamental axioms of Direct approach based on fundamental axioms of utility theoryutility theory– A treatment is available for individuals in chronic A treatment is available for individuals in chronic
disease statedisease state– When it works, the treatment provides a permanent cure. When it works, the treatment provides a permanent cure.
When it does not work, the result is immediate deathWhen it does not work, the result is immediate death– How high does the risk of dying have to be before the How high does the risk of dying have to be before the
patient refuses treatment?patient refuses treatment?– The utility value of each year in the chronic disease state The utility value of each year in the chronic disease state
is equal to the associated probability that the treatment is equal to the associated probability that the treatment worksworks
Performing an ICERPerforming an ICER
Rank the alternative treatment options by health benefit Rank the alternative treatment options by health benefit (beginning with the one with the lowest benefit).(beginning with the one with the lowest benefit).
Eliminate treatment alternatives that are strictly Eliminate treatment alternatives that are strictly dominated.dominated.
Calculate the ICER between each treatment option and Calculate the ICER between each treatment option and the next most expensive option.the next most expensive option.
Eliminate treatment options that display extended Eliminate treatment options that display extended dominance.dominance.
Determine which treatment options have an ICER that Determine which treatment options have an ICER that is below the cut-off ICER.is below the cut-off ICER.
