cost-benefit and cost-effectiveness analysis:

42
Copyright 2007, The Johns Hopkins University and Kevin Frick. All rights reserved. Use of these materials permitted only in accordance with license rights granted. Materials provided “AS IS”; no representations or warranties provided. User assumes all responsibility for use, and all liability related thereto, and must independently review all materials for accuracy and efficacy. May contain materials owned by others. User is responsible for obtaining permissions for use from third parties as needed. This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License . Your use of this material constitutes acceptance of that license and the conditions of use of materials on this site.

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Page 1: Cost-Benefit and Cost-Effectiveness Analysis:

Copyright 2007, The Johns Hopkins University and Kevin Frick. All rights reserved. Use of these materials permitted only in accordance with license rights granted. Materials provided “AS IS”; no representations or warranties provided. User assumes all responsibility for use, and all liability related thereto, and must independently review all materials for accuracy and efficacy. May contain materials owned by others. User is responsible for obtaining permissions for use from third parties as needed.

This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License. Your use of this material constitutes acceptance of that license and the conditions of use of materials on this site.

Page 2: Cost-Benefit and Cost-Effectiveness Analysis:

Cost-Benefit and Cost-Effectiveness Analysis

Kevin Frick, PhDJohns Hopkins University

Page 3: Cost-Benefit and Cost-Effectiveness Analysis:

Section A

Where Does CBA/CEA Fit into Health Services Research?

Page 4: Cost-Benefit and Cost-Effectiveness Analysis:

4

Where Does CBA/CEA Fit into Health Services Research?

Usually efficacy has already been doneGenerally look at effectiveness−

Pharmaceutical

Treatment−

Intervention program

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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

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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

Page 7: Cost-Benefit and Cost-Effectiveness Analysis:

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

Page 8: Cost-Benefit and Cost-Effectiveness Analysis:

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

Page 9: Cost-Benefit and Cost-Effectiveness Analysis:

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

Page 10: Cost-Benefit and Cost-Effectiveness Analysis:

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

Page 11: Cost-Benefit and Cost-Effectiveness Analysis:

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

Page 12: Cost-Benefit and Cost-Effectiveness Analysis:

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

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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

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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

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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

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Cost-Effectiveness Analysis

Costs—dollarsConsequences—non-monetary units−

Mortality/morbidity

Only compare programs with similar outcomes

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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

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Set of Types of Analyses

Cost-benefitCost-utilityCost-effectivenessCost-consequence

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Set of Types of Analyses

Cost-benefitCost-utilityCost-effectivenessCost-consequenceCost of illness

Page 20: Cost-Benefit and Cost-Effectiveness Analysis:

Section B

Decision Maker Perspective

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Decision Maker Perspective

Different perspectives−

Individual

Employer−

Insurer/MCO

Government−

Society

Common perspective useful for making comparisons among alternatives

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Cost Terminology

Opportunity cost versus accounting costs

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Direct Costs

Providing medical careTransportation to medical careAdministrativeResearch and development

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Indirect Costs

CBA only???−

Lost productivity

Morbidity related costs−

Time receiving medical care

Anything where money is not exchanged but time must be valued

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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

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Measuring Costs

Incremental for analysis−

Total may be useful for management decisions

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Data

Quantities−

Micro-costing studies, billing/claims, procedure codes

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Data

Quantities−

Micro-costing studies, billing/claims, procedure codes

Prices−

Market prices

ChargesCost to charge ratios

Standard resource measuresDRGRBRVS

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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

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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

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Quality of Life

Time

1

0.5

0.5 1

All three represent 0.5 QALYs

QALY Example One

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QALY Example Two

Quality of Life

Time

A

B

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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

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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

Page 35: Cost-Benefit and Cost-Effectiveness Analysis:

Section C

Hot Topics for QALYs

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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?

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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

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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

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Discounting

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

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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

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Uncertainty

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

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Reporting/Interpreting Results

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