Cost-Effectiveness &Resource Allocation

Wisconsin Public Health and Health Policy Institute

May 26, 2005

For consideration… How should the health policy community balance competing priorities of:

Maximizing healthMinimizing budget

Should prevention be thought of differently from other types of health care?What is the role for the public in this discussion?

Life Expectancy at Birth

Infant Mortality RatesInfant Mortality Rates (per 1,000 Live Births)

By OECD Country in 2000

Percentage of GDP Spent on Health Care in 1990 and 2000

9.98.6 9.0

7.8 7.4 6.95.9 6.0

13.0

10.69.5 9.1

8.3 8.0 8.0 7.8 7.3

11.9

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

UnitedStates

Germany France Canada Australia OECDMedian

NewZealand

Japan UnitedKingdom

1990 2000

Heart (26) 68.6 1.1 30.3Pulmonary (25) 37.5 41.9 20.6

Psychiatric (25) 21.1 59.2 19.7

Cancer (18) 41.9 27.4 30.7

Infectious ( 6) 95.2 -17.5 22.3

Percent change in spending attributable to:

Increase cost/ Rise in treated Increased treated case prevalence population

Reasons for Changes in Medical Care Spending1987-2000. Thorpe, K et al, . Health Affairs, 2004

Disease and $s (in billions)

Cost-Effectiveness Analysis

(aka…..value for money)

Costs

Costs include:

Care by health professionalsLabs and X-RaysHospital/facility chargesMedicationsOther expenses related to illness

Effectiveness in Cost-Effectiveness Analysis

An effective treatment or intervention does one or both of the following:

Increase how long people live

Improve or maintain how well people feel

Quality-adjusted life years:A measure of effectiveness

(Life expectancy) (quality of life)=QALYs

Health-related Quality of Life

0 1

Dead Perfecthealth

Calculations:Quality-Adjusted Life Years

If, HRQL= 0.7

And,A treatment gives 10 extra years of life (@ 0.7 per year)

Then…. People receiving the treatment

gain Seven Quality-Adjusted Life Years (7 QALYs)

A QALY is a QALY is a QALY

#People HRQL LE = QALYsSaves 100 x 0.8 x 50 = 4000 Lives Improves 10,000 x 0.1 x 4 = 4000 HRQL

The cost-effectiveness of one thing compared to another…

Cost treatment A – Cost treatment B Effectiveness treatment A – Effectiveness treatment B

= COST per QALY

For example…

Cost Life Expectancy HRQLQALYS

Group A $80,000 2 Years X .6 = 1.2 Group B $ 4,000 1 Year X .8 = 0.8 Cost-effectiveness:

$80,000 - $4,000 = $76,000 = $190,000/QALY 1.2 – 0.8 0.4

What’s a “Good” Buy?

“Expensive” more than 100K/QALY

“Reasonable” 50K/QALY

“Very Efficient” less than 25K/QALY

Cost-Effectiveness AnalysisSome Questions…..

Should “life-saving” be placed on the same mathematical scale as “quality improving”? Is it appropriate to consider cost per QALY when diseases are

immediately life-threatening?

How would we justify discriminating against people who have diseases that are “inefficient” to treat?

Should QALYs count the same regardless of whether they go to young or old? The not so sick, versus the very sick?

When prevention is as “cost-effective” as cure, which gets priority?

Condition/Treatment Cost per QALY

Treatment for Erectile Dysfunction $6,400/QALY

*Physician Counseling for Smoking $7,200/QALY

Total Hip Replacement $9,900/QALY

*Outreach for Flu and Pneumonia $13,000/QALY

Treatment of Major Depression $20,000/QALY

Gastric Bypass Surgery $20,000/QALY

Treatment for Osteoporosis $38,000/QALY

*Screening For Colon Cancer $40,000/QALY

Implantable Cardioverter Defibrillator $75,000/QALY

Lung-Volume Reduction Surgery $98,000/QALY

Tight Control of Diabetes $154,000/QALY

*Treating Elevated Cholesterol ( + 1 risk factor) $200,000/QALY

Resuscitation After Cardiac Arrest $270,000/QALY

Left Ventricular Assist Device $900,000/QALY

COST/QALY: Selected Medicare Services

For consideration…

Should prevention be thought of differently from other types of health care?

Condition/Treatment Cost per QALY Cost per person

Number of people to treat

TOTAL COST

Erectile Dysfunction $6,400/QALY $480 5 million 3 billion

Physician Counseling for Smoking $7,200/QALY $128 4 million 0.5 billion

Total Hip Replacement $9,900/QALY $31,000 250,000 7 billion

Outreach for Flu and Pneumonia $13,000/QALY $17.50 20 million 0.35 billion

Major Depression $20,000/QALY $2,000 2 million 4 billion

Gastric Bypass Surgery $20,000/QALY $81,000 70,000 6 billion

Treatment for Osteoporosis $38,000/QALY $950 5 million 5 billion

Screening For Colon Cancer $40,000/QALY $350 8.4 million 3 billion

Implantable Cardioverter Defibrillator

$75,000/QALY $35,000 50,000 1.75 billion

Lung-Volume Reduction Surgery $98,000/QALY $50,000 20,000 1 billion

Tight Control of Diabetes $154,000/QALY $1400 4.8 million 7 billion

Elevated Cholesterol $200,000/QALY $1350 8 million 11 billion

Resuscitation After Cardiac Arrest $270,000/QALY $45,000 130,000 6 billion

Left Ventricular Assist Device $900,000/QALY $100,000 100,000 10 billion

Estimated costs of treating selected conditions. Gold, et al, 2005 (unpublished)

SUNDAYBUSINESS February 27, 2005, Sunday

ECONOMIC VIEW: How to Save Medicare? Die Sooner

By DANIEL ALTMAN (NYT) 1103 words Late Edition - Final , Section 3 , Page 1 , Column 5

We are such stuff as dreams are made on, and our little life is rounded with a sleep…

The Tempest Shakespeare, W. et al

For consideration…

What is the role for the public in this discussion?

Health, Defense and Education15

8

0

2

4

6

8

10

12

14

16

2003

HealthDefenseEducation

%of GDP

3.6