Decision Trees

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Coming Up. How to construct a decision tree?Components of a treeInterviewing decision makersHow to analyze a decision tree?Mathematical expectations. Folding back . Example. A preferred provider organization (PPO) has approached the benefit manager of a company of 992 employees.The PPO offer

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Decision Trees

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1. Decision Trees Farrokh Alemi, Ph.D.

2. Coming Up How to construct a decision tree? Components of a tree Interviewing decision makers How to analyze a decision tree? Mathematical expectations. Folding back

3. Example A preferred provider organization (PPO) has approached the benefit manager of a company of 992 employees. The PPO offered to discount hospitalization services by 6% and outpatient services by 15% if the company would remove co-payments for employees utilizing the PPO

4. Components of a Tree Decision Square node, two arcs and options Sequence of events Circle node, arcs and events Probabilities Consequences Utilities or costs

8. The Analysis Process Matters It informs that a decision is looming Reassures that the analysis is fair It removes decision makers from day-to-day concerns It provides new insights while facilitating discussion

9. Process Interview decision makers and construct a preliminary tree Present tree and show how various concerns are captured Solicit a list of new concerns Revise tree

10. New Concerns Separate general outpatient care from mental health care Focus on employees who file claims The PPO clinic might have less efficient practices Lower co-pay may lead to over utilization Group practices are more efficient than solo practices Clinicians may generate their own demand Show discounts

12. Estimating Probabilities from Data, Experts & Literature

13. Estimating Costs Review of cases at the employer site Average cost of the sample Review of cases at the PPO Adjusted for case mix difference (PPO patients 30% sicker)

15. Analysis of Trees Folding back Replace a node with its expectation Continue until the decision node

17. Net Impact Expect cost under continue: Expected cost after joining PPO: $871.08 Savings per family per year: $597.86 Sensitivity analysis Not sensitive to 5% changes in hospitalization rate Not sensitive to 5% changes in clinic visit rate Sensitive to changes in calculation of cost of hospitalization and case mix differences

18. Myth of Analysis All options are depicted Wait for a better offer All consequences are enumerated Other health care organizations were on the board of the employer Assess utilities and fold back using expected utilities Data are valid Sensitivity analysis: see if small differences in estimates will change conclusions

19. Make Your Own Think through what is the unit of analysis (who decides) Start with the decision Think through possible events and consequences Think through issues that should be captured Make a draft Revise to incorporate new issues

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