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.
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