Class 21: Cost-Benefit and Cost Effectiveness Analysis

Cost Benefit Analysis (CBA) and Cost-Effective Analysis

• Economic evaluation methods that assist decision-making by weighing pros and cons of alternative interventions in a standardized way

• Can be used to compare alternatives (for the same condition or 2 unrelated treatments) or identify programs that do or don’t make good use of scarce resources

• Do not address ethical dilemmas

• Only as good as the data used/available

• Do not recommend whether an intervention should be implemented or is actually needed

CBA

• Costs and benefits are measured in dollars

  • Example:  does surgery add enough years to life expectancy to justify its cost?

CEA measurements

• cost is measured in dollars

• outcomes are measured in health units

  • example: which treatment alternative provides the most additional years of life expectancy per dollar spent?

Cost Utility analysis measurements

A type of cost-effectiveness analysis in which outcomes are measured in quality-adjusted life years (QALYs)

CBA advantages

• able to compare monetary returns on investments in health with returns from investments in other areas of the economy

• able to determine whether a particular treatment offers an overall monetary net gain to society

CBA disadvantages

• human capital approach: puts monetary value on human life

• willingness to pay approach: amount people are willing to pay is often related to their level of income

how is effectiveness measured in CEA

• cases treated appropriately

• lives saved

• life years gained

• pain or symptom free days

Quality-adjusted life year (QALY)

Quantity of life + adjusted for Quality of life

• population level measure

• ranges from 0 (death) to 1 (a year in perfect health)

what is CBA

• a type of economic evaluation that compares both costs and benefits from an intervention where both are expressed in monetary units (e.g., U.S. dollars).

• CBA can consider impacts on both health and non-health outcomes.

• CBA is a core component of a regulatory impact analysis.

What is CEA

• a way to examine both costs and health outcomes of one or more interventions

• Outcomes are expressed in health units, for example, cases of diabetes prevented or years of life saved.

• CEA allows you to compare different interventions that have the same health outcomes.

An intervention is considered more cost-effective if it has

a lower cost per QALY compared to an alternative

more costly and less effective health interventions

worse in both respects

less costly and less effective health interventions

trade-off less clear

more costly and more effective health interventions

trade-off less clear

more effective and less costly health interventions

better in both respects

1st step in CEA

Identify the intervention to evaluate

• need 2 approaches to compare

• identify target population

• identify perspective

2nd step of CEA

Identify, quantify, & standardize costs

• clinical and nonclinical (lost wages, transportation costs, childcare)

• time

3rd step of CEA

Determine QALYs

• Adjust clinical health outcomes to reflect how much patients value being in 1 health state vs. another

4th and final step of CEA

Calculate incremental cost-effectiveness ratio

how are health utility scores determined

questionaries ask people how much they would prefer to be in 1 health state vs another

Time trade-off

How many years of living with a certain disability would you trade for a shorter number of years in perfect health?

Standard gamble

Imagine having a disability. Would you undergo a procedure that has a 50% chance of returning you to perfect health and a 20% chance of instant death?

EQ-5D quality of life domains

• Self-Care

• Usual activities

• Pain

• Anxiety

• Mobility

Impact of the EQ-5D surveys

• People without disabilities systematically underestimate the quality of life of people with disabilities

  • reduces the value pf treatments that do not bring someone back to perfect health

• People with disabilities tend to rate their quality of life higher than the general public’s perception

  • increases value of treatments that extend life while reducing value of treatments that improve quality of life

QUALY critiques

• does not fully measure health-related quality of life

• may undervalue medical care

• does not distinguish between subgroups of patients with same condition

QALY critiques (ethical considerations)

• presumes disability reduces quality of life

• devalues lives of people with disabilities

• fails to account for differences between what patients with same condition value

QALY alternatives

• CBA

• equal value of life years gained

• multi criteria decision analysis (weighs factors)

• patient perspective