1Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
Donald S. Shepard, Ph.D.Schneider Institute for Health Policy
Heller School, MS 035Brandeis University
Waltham, MA 02454-9110 USA
Tel: 781-736-3975 • Fax: 781-736-3965Web: http://www.sihp.brandeis.edu/shepard
E-mail: [email protected]
Module ISeptember 5, 2001 – October 22, 2001
Cost-effectiveness of health programsIn health services and other sectors
HS 422f
2Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
Practical information
• Teaching assistant: [email protected]
• Administrative assistant: Linda Purrini, Next to library in Heller
781-736-3930
• Cost of packet (including diskette): $6.00
3Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
Web page
4Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
Overview of topics
1. Principles
2. Measuring effectiveness
3. Applications
4. Policy uses
5Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
Comparison: depreciation and amortization
Accountant perspective Explanation
Copier machine
(illustration)Straight line depreciationInitial capital cost 500.00$ Useful life 5Annual depreciation Initial capital cost / useful life 100.00$
Economist perspective
Annual amortizationA constant amount, paid annually, which covers both the principal and
Information neededInitial capital cost 500Useful life 5
Real rate of interestRate assuming no inflation and no risk, no adminstrative cost 3%
Annual amortization =PMT(3%,5,-500) $109.18
6Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
Calculations: future value andpresent value
FV 1000R 0.03N 5PV?
PV = FV [1/(1+R)^N] 862.61 PV 5R 0.03N 5FV?
FV = PV (1+R)^N 5.80
7Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
Calculations: expected cost
Cost if event occurs 100Probability is 1%Cost x probability, FV 1FV of expected cost 1R 0.03N 5PV=B5*(1/(1+B6)^B7) 0.862609
8Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
by Donald S. Shepard, Ph.D.
Schneider Institute for Health PolicyHeller School, MS 035Brandeis University
Waltham, MA 02454-9110 USA
Tel: 781-736-3975 • Fax: 781-736-3965Web: http://www.sihp.brandeis.edu/shepard
E-mail: [email protected]
Wednesday, Sept. 5 andMonday, Sept 10:
Principles of Cost-Effectiveness Analysis
9Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
by Donald S. Shepard, Ph.D.
Schneider Institute for Health PolicyHeller School, MS 035Brandeis University
Waltham, MA 02454-9110 USA
Tel: 781-736-3975 • Fax: 781-736-3965Web: http://www.sihp.brandeis.edu/shepard
E-mail: [email protected]
Monday, Sept. 17Measuring effectiveness and other CEA
considerations
10Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
by Donald S. Shepard, Ph.D.
Schneider Institute for Health PolicyHeller School, MS 035Brandeis University
Waltham, MA 02454-9110 USA
Tel: 781-736-3975 • Fax: 781-736-3965Web: http://www.sihp.brandeis.edu/shepard
E-mail: [email protected]
Monday, Sept. 24 Applications of Cost-Effectiveness Analysis
11Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
by Donald S. Shepard, Ph.D.
Schneider Institute for Health PolicyHeller School, MS 035Brandeis University
Waltham, MA 02454-9110 USA
Tel: 781-736-3975 • Fax: 781-736-3965Web: http://www.sihp.brandeis.edu/shepard
E-mail: [email protected]
Monday, Oct. 1: Policy Uses of Cost-Effectiveness Analysis
12Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
by Donald S. Shepard, Ph.D.
Schneider Institute for Health PolicyHeller School, MS 035Brandeis University
Waltham, MA 02454-9110 USA
Tel: 781-736-3975 • Fax: 781-736-3965Web: http://www.sihp.brandeis.edu/shepard
E-mail: [email protected]
Monday, Oct. 15: Modeling in Cost-Effectiveness Analysis
13Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
by Donald S. Shepard, Ph.D.
Schneider Institute for Health PolicyHeller School, MS 035Brandeis University
Waltham, MA 02454-9110 USA
Tel: 781-736-3975 • Fax: 781-736-3965Web: http://www.sihp.brandeis.edu/shepard
E-mail: [email protected]
Monday, Oct. 22 : Applications of cost-effectiveness analysis to
other sectors
14Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
by Donald S. Shepard, Ph.D.
Schneider Institute for Health PolicyHeller School, MS 035Brandeis University
Waltham, MA 02454-9110 USA
Tel: 781-736-3975 • Fax: 781-736-3965Web: http://www.sihp.brandeis.edu/shepard
E-mail: [email protected]
Wednesday, Sept. 5 andMonday, Sept 10:
Principles of Cost-Effectiveness Analysis
15Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
Key book
Gold, Marthe R. et al. Chapter 6 “Estimating Cost in Cost-Effectiveness Analysis”, Cost-Effectiveness in Health and Medicine. Oxford University Press, New York, 1996, pp.176-209.
• (Reports the findings of the 1993 U.S. Panel on Cost-Effectiveness Analysis.)
16Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
Key article - 1
• Weinstein, M.C., Siegel J.E., Gold, M.R., Kamlet, M.S., and Russell L.B. “The Recommendations of the Panel of Cost-Effectiveness Analysis in Health and Medicine.” JAMA 1996; 276:1253-1258.
(This article presents the background, issues, considerations, and final recommendations of the 1993 U.S. Panel on Cost-Effectiveness Analysis for the reference case analysis.)
17Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
Consensus Statement
Recommendations of the Panel on Cost-Effectiveness in Health and Medicine Milton C. Weinstein, PhD; Joanna E. Siegel, ScD; Martha R. Gold, MD, MPH; Mark S. Kamlet, PhD; Louise B. Russell, PhD; for the Panel on Cost-Effectiveness in Health and Medicine
Objective. To develop consensus-based recommendations for the conduct of cost-effectiveness analysis (CEA). This article, the second in a 3-part series, de scribes the basis for recommendations constituting the reference case analysis, the set of practices developed to guide CEAs that inform societal resource allocation decisions, and the content of these recommendations.
Participants: The Panel on Cost-Effectiveness in Health and Medicine, a nonfederal panel with expertise in CEA, clinical medicine, ethic, and health outcomes measurement, was convened by the US Public Health Service (PHS).
Evidence: The panel reviewed the theoretical foundations of CEA, current practices, and alterative methods used in analyses. Recommendations were de- veloped on the basis of theory where possible, but tempered by ethical and prag- matic considerations, as well as the needs of users.
Consensus Process.-The panel developed recommendations through 2.5 years of discussions. Comments on preliminary drafts prepared by panel working groups were solicited from federal government methodologists, health agency officials, and academic methodologists.
Conclusions.-The panel's methodological recommendations address (1) components belonging in the numerator and denominator of a cost effectiveness (C/E) ratio; (2) measuring resource use in the numerator of a CIE ratio; (3) valuing health consequences in the denominator of a CIE ratio; (4) estimating effectiveness of interventions; (5) incorporating time preference and discounting; and (ti) handling uncertainty. Recommendations are subject to the "rule of reason," balancing the burden engendered by a practice with its importance to a study. If researchers follow a standard set of methods in CEA, the quality and comparability of studies, and their ultimate utility, can be much improved.
JAMA 1996;276:1253-1258
From the Departments of Health Policy and Management (Dr Weinstein) and Maternal and Child Health (Dr Siegel), Harvard School of Public Hearth. Boston. Mass; Office of Disease Prevention and Health Promotion, US Public Health Service. Washington. DC (Dr Gold): Heinz School. Carnegie Melton University, Pittsburgh, Pa (Dr Kamlet); and the Institute for Health, Health Care Policy, and Aging Research. Rutgers University, New Brunswick, NJ (Dr Russell).
A complete list of the Panel on Cwt-Effectiveness in Health and Medicine membership and staff appears at the end of this article.
Corresponding author: Martha Gold, MD, MPH, Office of Disease Prevention and Health Promotion, 200 Independence Ave SW, Room 7386, Washington, DC 20201.
JAMA, October 16, 1996-Vd 276, No. 15 Cost-effectiveness in Health and Medicine-Weinstein et al1253
18Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
Cost-effectiveness ratio
• Numerator: net use of health resources
• Denominator: net improvement in QALYs
19Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
Standard reference case
• Standard set of assumptions for consistent analyses
• Comparator is the status quo
• Uses a discount rate of 3%
20Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
by DONALD S. SHEPARD, PhDMARK S. THOMPSON, PhD
Public Health Reports 94:535-544, 1979
Web: http://www.sihp.brandeis.edu/shepard/downloads
First Principles of Cost‑Effectiveness Analysis in Health
21Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
1. DEFINE THE PROGRAM2. COMPUTE NET COSTS3. COMPUTE NET HEALTH EFFECTS4. APPLY DECISION RULES5. PERFORM SENSITIVITY ANALYSIS
Steps inCost‑Effectiveness Analysis
22Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
1. DEFINE THE PROGRAM
• Develop alternative approaches to the problem
• Define precisely programs to be analyzed (who, what, where, when, and how)
23Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
• Compute gross program costs• Compute monetary savings• Discount costs and savings to present value• Compute net costs (gross costs less savings)
2. COMPUTE NET COSTS
24Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
Add• Additional years with full health• Additional years of disease• Improvement in health (no extension of
life)• Negative effects (inconveniences and
morbidity)
3. COMPUTE NET HEALTH EFFECTS(IN TERMS OF ADITIONAL YEARS
OF HEALTHY LIFE)
25Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
• Identify case based on signs of net costs and net effects
• Apply rule for appropriate case
4. APPLY DECISION RULES
26Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
• Vary uncertain parameters and recompute costs and health effects
• Examine effects on decision
5. PERFORM SENSITIVITY ANALYSIS
27Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
Compute cost‑effectiveness (CE) ratio
CE =
Net costs (in monetary terms, e.g., dollars)
Net health effects (in utility terms, e.g., DALYs or QALYs)
28Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
Example of a cost‑effectiveness (CE) ratio
(Routine vaccinations in Ecuador, National, 1985 )
CE =
US $675,000
(Net costs)
10,410 DALYs gained
(Net health effects based on 347 toddler deaths averted, at 30 DALYs per death averted)
CE = $65 per DALY gained
29Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
Decision rules in cost‑effectiveness analysis
Net effects
Net costs positive Net costs zero or negative
Positive Case 1: Compute cost effectiveness ratio; select most cost-effective programs for improving health (lowest ratios)
Case 2: Program economically valuable. Should generally be implemented
Zero or negative
Case 3. Program benefits offset by morbidity and inconvenience. Program should generally not be implemented
Case 4: Compute cost effectiveness ratio; select most cost-effective programs for reducing costs (highest ratios)
30Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
Conceptual uses of cost-effectiveness analysis
• Objective: Develop more cost-effective programs
• Start with an existing or proposed program• Identify potential modifications that improve
effectiveness (e.g., more powerful intervention, improved patient adherence)
• Identify potential modifications that reduce costs (e.g., offer intervention only to selected clients, deliver faster, use lower cost personnel)
31Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
Conclusions
• Cost-effectiveness analysis can be a useful tool in allocating resources
• Quantitative application requires data about program effectiveness compared to the absence of program
• Conceptual uses are very powerful tools to plan alternative design
32Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
Cost analysis
• Introduce cost exercise
33Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
“Refrigerator Costing” Exercise
A health center needs to have an operating refrigerator to maintain the potency of vaccines . The table below shows the resource requirements for four type of refrigerators based on subjective estimates and an study for 100 centers in Uganda. The capital costs include the initial inventory of spares and repair requirement. Solar refrigerators and equipment have a 10-year useful life. Other types have a 5-year useful life. Quantities for operation are annual. Use a real interest rate of 3 percent per year. Complete the table (all the yellow cells) with data and computations.
34Schneider Institute for Health PolicyHeller SchoolBrandeis UniversitySeptember 2001
“Refrigerator Costing” Exercise
Electricity Solar Kerosene GasI- PersonnelHours 50 60 100 70Unit Cost ($) 0.50 0.50 0.50 0.50Total Costs ($)II- RepairsExpert (number) 0 1 0 1Unit Cost ($) 80.00 80.00 80.00 80.00Local (number) 1 0 2 0Unit Cost ($) 20.00 20.00 20.00 20.00Total Costs ($)III-Source of EnergyUnit of measurement kwh liters kgQuantity 500 200 165Unit Cost ($) 0.20 0.50 0.90 Total Costs ($)IV- Capital CostRefrigerator cost($) 600.00 5200.00 900.00 800.00Useful life (years)Discount Rate (%)Annualized Cost($)
Grand Total
(Go to sheet 2)
A health center needs to have an operating refrigerator to maintain the potency of vaccines . The table below shows the resource requirements for four type of refrigerators based on subjective estimates and an study for 100 centers in Uganda. The capital costs include the initial inventory of spares and repair requirement. Solar refrigerators and equipment have a 10-year useful life. Other types have a 5-year useful life. Quantities for operation are annual. Use a real interest rate of 3 percent per year. Complete the table (all the yellow cells) with data and computations.
REFRIGERATOR OPTIONS: ANNUAL COSTS Professor Donald Shepard. Rev 11/00