Health Economics & Policy 3 rd Edition James W. Henderson

1. Health Economics & Policy3rd EditionJames W. Henderson Chapter 4 Economic Evaluation in Health Care

2. The Inevitability of Trade-Offs • The value of a medical intervention • The inclusion of a drug on the formulary • Paying for an experimental procedure • Investing in new technology • Is it worth it? How do we measure value to insure we get value for spending?

3. Economic Evaluation • Reality of opportunity cost • Useful alternatives compete for resources • Making choices is sometime unpleasant • Options for colorectal cancer screening • Fecal blood test • Barium enima • Sigmoidoscopy • Colonoscopy • Is it worth the extra money?

4. What is Economic Evaluation? • A comparative analysis • Evaluating alternative courses of action • Examining both costs and consequences • Identify • Value • Measure • Compare

5. Types of Economic Evaluation • Cost of illness studies • Cost-benefit analyses • Cost-effectiveness studies

6. Cost of Illness Studies • What does it cost? • Burden of a disease • Burden of 5 chronic conditions in US (Druss et al., 2001) • Mood disorders, diabetes, heart disease, asthma, and hypertension • Direct cost of treatment - $62.3 billion] • Cost of treating coexisting conditions - $270 billion • Lost productivity - $36.2 billion • Role in analysis – increased awareness

7. Cost-Benefit Analysis • Simple extension of capital budgeting • Developed to help public sector make decisions that maximize public welfare from tax spending • Optimization in the absence of market pressure

8. Benefit-Cost Criterion • If ratio is greater than one, project is acceptable • If net benefit stream is positive, project is acceptable.

9. Challenges of Cost-Benefit Analysis • Valuing benefits • How do you place a value on a human life? • Willingness-to-pay approach • When applied to health depends on • wealth • life expectancy • current health status • possibility of substituting current consumption for future consumption • Choosing a discount rate

10. Cost-Effectiveness Analysis • Developed outside traditional welfare economics framework • Measures health benefit by health outcome, not the dollar value of life • Using the decision makers approach • Maximize the level of health for a given population subject to a budget constraint • Practical guide for choosing between programs or treatment options when budgets are limited

11. Incremental Cost-Effectiveness Ratio • If CA > CB and EA < EB, B dominates. • If CA < CB and EA > EB, A dominates. • If, however, CB > CA and EB > EA, choice is not obvious. Use CE.

12. Graphical Presentation of CE

13. Interpretation of CE Graph • Strategies that form the solid line connecting the points lying left and above are the economically rational subset of choices • Points like C and E are strictly dominated alternatives • The inverse of the slope between any two points represents the incremental CE ratio • As the slope gets flatter, the CE ratio gets higher – giving literal meaning to “flat-of-the-curve”

14. Measuring Costs • Direct – associated with use of resources • Medical • Non-medical • Indirect – related to lost productivity • Medical • Non-medical • Intangible – associated with pain and suffering, grief, anxiety, and disfigurement

15. Measuring Effectiveness – Improvements in Health • Surrogate measures stated in terms of clinical efficacy • Blood pressure, cholesterol levels, bone mass density, or tumor size • Intermediate measures stated in terms of clinical effectiveness • Events, scores on exams • Final outcomes measure economic effectiveness • Events avoided, disease-free days, life-years saved, quality-adjusted life years saved

16. Improved Life Expectancy Due to Clinical Treatment

17. Quality of Life Measures • Attempt to measure value of life in terms of quality and quantity • View QALY as life expectancy with a preference weight for perfect health attached to each year • Measured on a preference scale anchored by death (0) and perfect health (1)

18. Calculating QALYs Using Preferences for Health States

19. Standard Time Trade-Off for Calculating QALYs • Standard time tradeoff offering 2 options: • chronic health state i for t years, followed immediately by death • Perfect health for x years (where x is less than t), followed immediately by death • Vary length of x until individual is indifferent between two options • Value of one year in chronic health state is x/t

20. Standard Gamble for Calculating QALYs • Direct approach based on fundamental axioms of utility theory • A treatment is available for individuals in chronic disease state • When it works, the treatment provides a permanent cure. When it does not work, the result is immediate death • How high does the risk of dying have to be before the patient refuses treatment? • The utility value of each year in the chronic disease state is equal to the associated probability that the treatment works

21. Performing an ICER • Rank the alternative treatment options by health benefit (beginning with the one with the lowest benefit). • Eliminate treatment alternatives that are strictly dominated. • Calculate the ICER between each treatment option and the next most expensive option. • Eliminate treatment options that display extended dominance. • Determine which treatment options have an ICER that is below the cut-off ICER.