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1. As you’ve just seen, cost-effectiveness analysis is widely viewed as a suitable way to balance competing priorities.As you’ve just seen, cost-effectiveness analysis is widely viewed as a suitable way to balance competing priorities.
2. Permit me to blow a little hot air on the matter—a commentary I call “Cost-Effectiveness for Dummies.”
In so doing, I will be ignoring some conventional formalisms such as the discounting of costs and the quality-adjustment of survival, the distinction between monetary costs and charges, or between average and incremental cost-effectiveness.
I thereby seek to clarify some of the more fundamental issues…and to provoke a lively debate.Permit me to blow a little hot air on the matter—a commentary I call “Cost-Effectiveness for Dummies.”
In so doing, I will be ignoring some conventional formalisms such as the discounting of costs and the quality-adjustment of survival, the distinction between monetary costs and charges, or between average and incremental cost-effectiveness.
I thereby seek to clarify some of the more fundamental issues…and to provoke a lively debate.
3. From a dummy’s perspective, cost-effectiveness analysis is no less than a moral calculus—one that quantifies the value of any action as the ratio of its observable bad qualities—the costs—to its observable good qualities—the benefits. The lower the ratio, the higher the value.
We are all familiar with such measures. The PE ratio, for example, values a company in terms of the price of its stock in proportion to its annual earnings…
and the lipoprotein ratio quantifies cardiovascular risk in terms of the ratio of bad LDL cholesterol to good HDL cholesterol.From a dummy’s perspective, cost-effectiveness analysis is no less than a moral calculus—one that quantifies the value of any action as the ratio of its observable bad qualities—the costs—to its observable good qualities—the benefits. The lower the ratio, the higher the value.
We are all familiar with such measures. The PE ratio, for example, values a company in terms of the price of its stock in proportion to its annual earnings…
and the lipoprotein ratio quantifies cardiovascular risk in terms of the ratio of bad LDL cholesterol to good HDL cholesterol.
4. In the typical health care application, the amount of “bad” associated with an action is usually quantified in terms of monetary costs, and the amount of “good” is quantified in terms of the number of lives or life-years saved.
The conventional threshold of cost-effectiveness is taken to be $50,000 per life-year. Dan Mark is on record calling this threshold “economically attractive.” I’ll leave it to him to explain what he means by that. Personally, however, I have my doubts. $50,000 is almost 5 times more than the current annualized minimum wage of $10,712 in the United States. The average American, then, is not likely to consider a $50,000 expenditure “economically attractive.”
In any event, the figure is wholely arbitrary. Who says that cost and effectiveness are linearly related? If we spend twice as much on a car, do we expect it to be twice as effective? Do two Chevies equal one BMW?
In fact, this critical threshold is a blatent product of circular reasoning: the procedures that became standards of practice years before we began thinking about their costs have cost-effectiveness ratios in the range of $50,000. Therefore, $50,000 is taken to be the current standard for cost-effectiveness. By the same reasoning, cholesterol levels were in the range of 250, years before we began thinking about lipid lowering. Therefore 250 should be the current standard of care.
In the typical health care application, the amount of “bad” associated with an action is usually quantified in terms of monetary costs, and the amount of “good” is quantified in terms of the number of lives or life-years saved.
The conventional threshold of cost-effectiveness is taken to be $50,000 per life-year. Dan Mark is on record calling this threshold “economically attractive.” I’ll leave it to him to explain what he means by that. Personally, however, I have my doubts. $50,000 is almost 5 times more than the current annualized minimum wage of $10,712 in the United States. The average American, then, is not likely to consider a $50,000 expenditure “economically attractive.”
In any event, the figure is wholely arbitrary. Who says that cost and effectiveness are linearly related? If we spend twice as much on a car, do we expect it to be twice as effective? Do two Chevies equal one BMW?
In fact, this critical threshold is a blatent product of circular reasoning: the procedures that became standards of practice years before we began thinking about their costs have cost-effectiveness ratios in the range of $50,000. Therefore, $50,000 is taken to be the current standard for cost-effectiveness. By the same reasoning, cholesterol levels were in the range of 250, years before we began thinking about lipid lowering. Therefore 250 should be the current standard of care.
5. According to common sense, a cost-effective strategy should be transportable—what’s good for Californians should be good for Texans—but the conventional threshold violates this principle.
Note, for example, that the $50,000 threshold is larger than the annualized per capita income in the most affluent state in the country and is twice that in the least affluent state (even before considering the impact of Hurricane Katrina). As a result, a strategy deemed to be cost-effective on a national basis (using a threshold of $50,000) will not be cost-effective in the majority of individual states.
We’d have to cut the threshold in half to address this burden.
According to common sense, a cost-effective strategy should be transportable—what’s good for Californians should be good for Texans—but the conventional threshold violates this principle.
Note, for example, that the $50,000 threshold is larger than the annualized per capita income in the most affluent state in the country and is twice that in the least affluent state (even before considering the impact of Hurricane Katrina). As a result, a strategy deemed to be cost-effective on a national basis (using a threshold of $50,000) will not be cost-effective in the majority of individual states.
We’d have to cut the threshold in half to address this burden.
6. The conventional $50,000 threshold has even less relevance to other countries—most of which are not as well off as we. As shown here, again using per capita income as the standard, a strategy that is cost-effective in the United States is not likely to be cost-effective beyond our borders.
We’d have to cut the threshold tenfold to include the rest of the industralized world.
The conventional $50,000 threshold has even less relevance to other countries—most of which are not as well off as we. As shown here, again using per capita income as the standard, a strategy that is cost-effective in the United States is not likely to be cost-effective beyond our borders.
We’d have to cut the threshold tenfold to include the rest of the industralized world.
7. As a result, the conventional threshold of cost-effectiveness suffers several critical limitations:
It is ARBITRARY…Why $50,000 rather than per capita income?
It is PAROCHIAL…Why not adjust the threshold relative to the local economy?
It is DECEPTIVE…Why report an abstract ratio rather than the costs and benefits which are directly observable?
And finally….
It is IRRELEVANT…Who really cares about cost-effectiveness anyway?As a result, the conventional threshold of cost-effectiveness suffers several critical limitations:
It is ARBITRARY…Why $50,000 rather than per capita income?
It is PAROCHIAL…Why not adjust the threshold relative to the local economy?
It is DECEPTIVE…Why report an abstract ratio rather than the costs and benefits which are directly observable?
And finally….
It is IRRELEVANT…Who really cares about cost-effectiveness anyway?
8. Here’s just one example to illustrate this irrelevance.
Nitroglycerin is about 1000 times more cost-effective than coronary stenting for symptomatic management of chronic stable angina (largely because of differences in cost, not because of differences in effectiveness). Nevertheless, stenting is widely viewed as the preferred treatment option. Although health care payers recognize these cost-effectiveness distinctions, they readily reimburse physicians for the more costly stenting procedure and increase their premiums accordingly. Patients and employers readily pay these higher premiums because they have come to equate the availability of high tech care with the provision of high quality care.
In fact, Medicare doesn’t consider cost-effectiveness at all in deciding reimbursement issues…and this example suggests we’d object loudly if they did!
I repeat: Who among us really cares about cost-effectiveness?
Here’s just one example to illustrate this irrelevance.
Nitroglycerin is about 1000 times more cost-effective than coronary stenting for symptomatic management of chronic stable angina (largely because of differences in cost, not because of differences in effectiveness). Nevertheless, stenting is widely viewed as the preferred treatment option. Although health care payers recognize these cost-effectiveness distinctions, they readily reimburse physicians for the more costly stenting procedure and increase their premiums accordingly. Patients and employers readily pay these higher premiums because they have come to equate the availability of high tech care with the provision of high quality care.
In fact, Medicare doesn’t consider cost-effectiveness at all in deciding reimbursement issues…and this example suggests we’d object loudly if they did!
I repeat: Who among us really cares about cost-effectiveness?
9. The Good . . . Instead of focusing on cost-effectiveness, I offer three questions that better address the justification of any proposed preventive strategy:
First, how many will it help?
What is the additional number of lives saved or events prevented in the total population under consideration?
The larger the number, the better the strategy.Instead of focusing on cost-effectiveness, I offer three questions that better address the justification of any proposed preventive strategy:
First, how many will it help?
What is the additional number of lives saved or events prevented in the total population under consideration?
The larger the number, the better the strategy.
10. The Good, the Bad . . . Second, how much will it cost?
The lower the cost, the better the strategy.
Again, the additional cost should be referenced to the total population under consideration. In purchasing a new car, we want to know the true cost of our purchase, not the cost per month or the cost per mile that the salesman promotes in a veiled attempt to hide the true cost from us.
Anyone wishing to compute a conventional cost-effectiveness ratio can do so with these two numbers…but it’s really irrelevant. The raw numbers themselves tell a more complete story—just as LDL and HDL tell us more than their ratio.Second, how much will it cost?
The lower the cost, the better the strategy.
Again, the additional cost should be referenced to the total population under consideration. In purchasing a new car, we want to know the true cost of our purchase, not the cost per month or the cost per mile that the salesman promotes in a veiled attempt to hide the true cost from us.
Anyone wishing to compute a conventional cost-effectiveness ratio can do so with these two numbers…but it’s really irrelevant. The raw numbers themselves tell a more complete story—just as LDL and HDL tell us more than their ratio.
11. The Good, the Bad, and the Ugly And third—perhaps most important of all—how do we plan to pay for it…given existing budgetary constrants imposed on us by Iraq, Katrina, and the new Medicare prescription drug benefit.
Cost-effectiveness answers none of these questions.
And third—perhaps most important of all—how do we plan to pay for it…given existing budgetary constrants imposed on us by Iraq, Katrina, and the new Medicare prescription drug benefit.
Cost-effectiveness answers none of these questions.
12. The Good, the Bad, and the Ugly Here’s a simple application of this approach to cardiovascular prevention. In this example, we compare an unconditional preventive strategy—treat everyone (with a statin for example)—against a conditional preventive strategy based on a risk stratification test—test everyone (with EBCT for example) and treat only the fraction at highest risk with the statin.
We expect 500,000 atherosclerotic events per year in the target population of 50 million, and if we treat every one of them, we can expect to reduce these events by about 30%. We will thereby prevent 150,000 events at a total cost of $5 billion ($100 per patient per year for generic simvastatin).
The alternative strategy would have us test all 50 million individuals (at $100 per patient) to identify, say, 20% of the population (10 million) who will suffer 80% of the events (400,000). As a result, we will prevent 30,000 fewer events at an additional cost of 1$ billion ($5 billion for testing and $1 billion for treatment). Note that testing costs as much as treatment…but saves no lives.
This is a no-brainer. Because unconditional treatment results in the greater good at lower cost, it thereby trumps the conditional test-treatment strategy. So what are the cost-effectiveness ratios? To paraphrase John Huston: “We don’t need no steenkin’ ratios”.
The only question that remains, then, is how to pay the $5 billion cost of our preventive strategy?
One way to do this is by realiging the reimbursement incentives so as to encourage a shift from the provision of relatively inappropriate testing to relatively more appropriate treatment—so-called pay-per-performance.
Like it or not, “…the times, they are a’changing.”
Here’s a simple application of this approach to cardiovascular prevention. In this example, we compare an unconditional preventive strategy—treat everyone (with a statin for example)—against a conditional preventive strategy based on a risk stratification test—test everyone (with EBCT for example) and treat only the fraction at highest risk with the statin.
We expect 500,000 atherosclerotic events per year in the target population of 50 million, and if we treat every one of them, we can expect to reduce these events by about 30%. We will thereby prevent 150,000 events at a total cost of $5 billion ($100 per patient per year for generic simvastatin).
The alternative strategy would have us test all 50 million individuals (at $100 per patient) to identify, say, 20% of the population (10 million) who will suffer 80% of the events (400,000). As a result, we will prevent 30,000 fewer events at an additional cost of 1$ billion ($5 billion for testing and $1 billion for treatment). Note that testing costs as much as treatment…but saves no lives.
This is a no-brainer. Because unconditional treatment results in the greater good at lower cost, it thereby trumps the conditional test-treatment strategy. So what are the cost-effectiveness ratios? To paraphrase John Huston: “We don’t need no steenkin’ ratios”.
The only question that remains, then, is how to pay the $5 billion cost of our preventive strategy?
One way to do this is by realiging the reimbursement incentives so as to encourage a shift from the provision of relatively inappropriate testing to relatively more appropriate treatment—so-called pay-per-performance.
Like it or not, “…the times, they are a’changing.”
13. The Good, the Bad, and the Ugly Lest I be accused of stacking the deck, there is an alternative available to us.
If we employ a less expensive but similarly effective screening test—a $20 CRP in place of a $100 EBCT—we can reduce the cost of testing without affecting the benefit. We will thereby save 80% of the lives at 40% of the cost. I’ll leave it to proponents of this trade-off to argue the equivalent effectiveness of the two tests or to tell the 30,000 who might otherwise have been saved that it wasn’t worth the added expense—that it was…dare I say…more cost-effective to let them go!
Is this how you would see it? Ask yourself…would you choose the most cost-effective treatment for you and your family—or the most effective treatment? In the final analysis, these are matters of politics and philosophy…not science.
Lest I be accused of stacking the deck, there is an alternative available to us.
If we employ a less expensive but similarly effective screening test—a $20 CRP in place of a $100 EBCT—we can reduce the cost of testing without affecting the benefit. We will thereby save 80% of the lives at 40% of the cost. I’ll leave it to proponents of this trade-off to argue the equivalent effectiveness of the two tests or to tell the 30,000 who might otherwise have been saved that it wasn’t worth the added expense—that it was…dare I say…more cost-effective to let them go!
Is this how you would see it? Ask yourself…would you choose the most cost-effective treatment for you and your family—or the most effective treatment? In the final analysis, these are matters of politics and philosophy…not science.
14. On further reflection, then, I must withdraw my idea to write a manual on Cost-Effectiveness for Dummies and conclude instead (with apologies to Ambrose Bierce) that cost-effectiveness IS for dummies:
A pseudo-scientific moral calculus permitting the fabrication of clinically irrelevant post-hoc justifications for otherwise indefensible preconceived notions.
There are better ways.
On further reflection, then, I must withdraw my idea to write a manual on Cost-Effectiveness for Dummies and conclude instead (with apologies to Ambrose Bierce) that cost-effectiveness IS for dummies:
A pseudo-scientific moral calculus permitting the fabrication of clinically irrelevant post-hoc justifications for otherwise indefensible preconceived notions.
There are better ways.
15. The choice is yours…Ghandi or Ghoofi?The choice is yours…Ghandi or Ghoofi?
16. The choice is yours…Ghandi or Ghoofi?The choice is yours…Ghandi or Ghoofi?
17. The Good, the Bad, and the Ugly Here’s a simple example comparing a preventive medical strategy with an interventional strategy based on risk stratification. Prevention targets the relatively unselected population of 50 million individuals over the age of 50. They have, on average, a 1% annual risk of suffering an atherosclerotic event (death, myocardial infarction or stroke)—500,000 events per year. If we treat everybody—nothing is wasted on testing—we can expect to reduce these events by about 30%. We thereby prevent 150,000 events at a total cost of $5 billion. That’s $33,333 per prevented event for those of you still trafficking in cost-effectiveness.
Intervention on the other hand targets a much smaller population of 500,000—only 1% of the 50 million. The event rate in this selected population is substantially higher—approximately 10%. This translates into an expectation of only 50,000 events per year given the smaller size of the population…and because intervention is so much more costly than prevention, its total cost is twice as much—$10 billion. Worst yet, in stable populations such as this—intervention will not prevent any of the 50,000 expected events.
This is a no-brainer. Because prevention results in the greater good at lower cost, it thereby trumps intervention. So what of cost-effectiveness? To paraphrase John Huston: “We don’t need no stinkin’ ratios”.
The only question that remains, then, is how to pay prevention’s $5 billion cost?
In my view, the best way to do this is by realiging the reimbursement incentives so as to encourage a shift in the performance of inappropriate interventional procedures to more appropriate preventive management. So-called pay-per-performance proposals that are gaining national attention can be an effective way to accomplish this.
Here’s a simple example comparing a preventive medical strategy with an interventional strategy based on risk stratification. Prevention targets the relatively unselected population of 50 million individuals over the age of 50. They have, on average, a 1% annual risk of suffering an atherosclerotic event (death, myocardial infarction or stroke)—500,000 events per year. If we treat everybody—nothing is wasted on testing—we can expect to reduce these events by about 30%. We thereby prevent 150,000 events at a total cost of $5 billion. That’s $33,333 per prevented event for those of you still trafficking in cost-effectiveness.
Intervention on the other hand targets a much smaller population of 500,000—only 1% of the 50 million. The event rate in this selected population is substantially higher—approximately 10%. This translates into an expectation of only 50,000 events per year given the smaller size of the population…and because intervention is so much more costly than prevention, its total cost is twice as much—$10 billion. Worst yet, in stable populations such as this—intervention will not prevent any of the 50,000 expected events.
This is a no-brainer. Because prevention results in the greater good at lower cost, it thereby trumps intervention. So what of cost-effectiveness? To paraphrase John Huston: “We don’t need no stinkin’ ratios”.
The only question that remains, then, is how to pay prevention’s $5 billion cost?
In my view, the best way to do this is by realiging the reimbursement incentives so as to encourage a shift in the performance of inappropriate interventional procedures to more appropriate preventive management. So-called pay-per-performance proposals that are gaining national attention can be an effective way to accomplish this.
18. The Good, the Bad, and the Ugly Assume 1,000,000 ACS per year with an average recurrent event rate (death, nonfatal infarction, stroke) of 10% per year.
Assume that aggressive statin therapy (generic simvastatin) will cost about $0.30 per day or $120 per year and that it will reduce the event rate (death, nonfatal infarction, stroke) by an average of 12% (supported by my bayesian analysis of PROVE-IT and A to Z).
Assume further that intervention costs $20,000 per year and reduces event rate by 3%.
As a result, 4 times as many events are prevented by statin therapy at less than 1% of the cost!
In fact, if the number of interventions is reduced by only 1.8% the savings would be enough to pay for the entire statin treatment strategy.Assume 1,000,000 ACS per year with an average recurrent event rate (death, nonfatal infarction, stroke) of 10% per year.
Assume that aggressive statin therapy (generic simvastatin) will cost about $0.30 per day or $120 per year and that it will reduce the event rate (death, nonfatal infarction, stroke) by an average of 12% (supported by my bayesian analysis of PROVE-IT and A to Z).
Assume further that intervention costs $20,000 per year and reduces event rate by 3%.
As a result, 4 times as many events are prevented by statin therapy at less than 1% of the cost!
In fact, if the number of interventions is reduced by only 1.8% the savings would be enough to pay for the entire statin treatment strategy.
19. Given two strategies, A and B, there are 9 possibilities with respect to their comparative cost and effectiveness. In 7 of the 9, the dominance of one strategy over the other is obvious. Formal cost-effectiveness is a potential issue in only 2 of these 9 (as shown in the table): when A is better than B but has higher cost, and when B is better than A but has higher cost. In these cases, the more cost-effective option might in fact be the strategy with less effectiveness. In this tradeoff, we would likely prefer the more effective not the more cost-effective alternative for ourselves. Therefore, cost effectiveness analysis is irrelevant to all these comparisons—a matter only of political correctness.Given two strategies, A and B, there are 9 possibilities with respect to their comparative cost and effectiveness. In 7 of the 9, the dominance of one strategy over the other is obvious. Formal cost-effectiveness is a potential issue in only 2 of these 9 (as shown in the table): when A is better than B but has higher cost, and when B is better than A but has higher cost. In these cases, the more cost-effective option might in fact be the strategy with less effectiveness. In this tradeoff, we would likely prefer the more effective not the more cost-effective alternative for ourselves. Therefore, cost effectiveness analysis is irrelevant to all these comparisons—a matter only of political correctness.
