pharmoeco 4.3 Cost-Effectiveness Analysis and Practical Case Studies

Introduction to Cost-Effectiveness Analysis (CEA)

  • Purpose of Review Packet: Over 50 review questions will be provided, including practice math problems.

Cost-Minimization Analysis

  • Definition: Compares costs of different interventions under the assumption that outcomes are equal.

    • Key Data: Only costs are compared.

    • Main Assumption: Equal outcomes for compared interventions.

  • Monetary Valuation Methods:

    • Willingness to Pay: How much individuals are ready to pay for benefits.

    • Human Capital: Measures financial loss due to productivity loss.

Willingness to Pay Activities

  • Types of Questions:

    • Open-ended: Ask participants to state willingness to pay.

    • Closed-ended: Yes/no questions on specific dollar amounts.

    • Bidding Games: Participants bid amounts in an auction-style format.

    • Payment Card: Choices between multiple monetary values.

Steps for Cost-Benefit Analysis (CBA)

  1. Primary Intervention: Identify the intervention being studied.

  2. Comparator Intervention: Identify the intervention against which the primary one is being compared.

  3. Perspective of the Study: Determine whether it is societal, payer, etc.

  4. Identify Costs/Benefits: List all costs and benefits.

  5. Monetary Valuation: Convert indirect benefits into monetary terms.

  6. Calculations: Use formulas to calculate net benefits, costs, and ratios.

Methodologies for CBA

  • Net Benefit: Total benefits minus total costs.

  • Net Cost: Total costs minus total benefits (inverse of net benefit).

  • Benefit to Cost Ratio: Total benefits divided by total costs (ideally >1).

  • Internal Rate of Return: The rate at which costs equal benefits; compares project profitability.

Example Calculation - Proposals

Proposal A:

  • Cost: $1,000

  • Benefit: $2,000

  • Net Benefit: $1,000

Proposal B:

  • Cost: $5,000

  • Benefit: $7,500

  • Net Benefit: $2,500

  • Conclusion: Proposal B is generally more favorable based on net benefit, but benefit-to-cost ratios must also be considered in depth.

Internal Rate of Return (IRR)

  • Definition: Looks only at costs and benefits without considering external factors (inflation, market changes).

  • Hurdle Rate: Minimum acceptable return threshold; benefits must exceed this.

Example: Vaccination Cost-Benefit Analysis

Context:

  • Vaccine: For rosiolitis, which affects pharmacy students.

  • Vaccination Cost: $65 per student; total cost for 8,000 students is estimated to be $520,000.

  • Benefits: Avoided cases of the disease, potential life-saving, and avoided healthcare costs.

Expected Cases without Vaccination:

  • Estimated at 160 students without vaccine versus only 16 with vaccination due to 90% effectiveness.

Calculation Summary:

  • Direct Medical Savings from avoiding cases:

    • $95,040 in treatment costs avoided over the year.

  • Value of Life Saved: $3.2 million based on potential lost productivity if a pharmacist dies.

Key Results: CBA of Vaccine

  • From Payer’s Perspective:

    • Benefit-to-Cost Ratio: 0.18 (not favorable).

  • From Societal Perspective:

    • Benefit-to-Cost Ratio: 6.3 (favorable).

    • Net benefit: $2.775 million (favorable).

Conclusion

  • Highlights the importance of analyzing different perspectives in cost-effectiveness studies.

  • Emphasizes the dollar value of life saved from vaccination and how public health interventions can be costly but beneficial when examined through a comprehensive lens.

Sensitivity Analysis

  • Importance of testing different input costs to verify the robustness of a model. Variability in input values may change the intervention's cost-effectiveness.

1. What is the purpose and what are the components of cost-minimization analysis?
The purpose of cost-minimization analysis is to compare the costs of different interventions while assuming that their outcomes are equal. The components include:

  • Comparing only the costs while assuming equal outcomes.

  • Key monetary valuation methods such as willingness to pay and human capital.

2. How can one perform a basic cost-minimization analysis and make a conclusion based on the results?
To perform a basic cost-minimization analysis, identify the interventions, gather cost data, ensure outcomes are equal, and then draw comparisons. A conclusion can be made by identifying which intervention has the lowest cost while maintaining equal effectiveness.

3. What is the purpose and process of using sensitivity analysis? How does one determine whether results are insensitive or sensitive?
The purpose of sensitivity analysis is to test how different input costs affect the model's robustness. The process involves changing one variable at a time and studying its effect on the outcomes. If small changes in input lead to significant changes in outcomes, the results are considered sensitive; otherwise, they are insensitive.

4. What is the purpose and what are the components of a cost-benefit analysis?
The purpose of a cost-benefit analysis is to evaluate the total expected costs versus benefits of an intervention. Key components include:

  • Primary intervention and comparator intervention.

  • Identification of costs and benefits.

  • Monetary valuation of those costs and benefits.

  • Calculation of net benefits and the benefit-to-cost ratio.

5. What are the advantages and disadvantages of a cost-benefit analysis?
Advantages include providing a broad overview of costs vs. benefits, assisting in decision-making, and allowing for monetary comparisons of diverse interventions. Disadvantages could be difficulties in accurately measuring intangible benefits, assumptions that may limit effectiveness, and potential bias in valuations.

6. What are the 6 steps of a cost-benefit analysis?
The steps are:

  1. Identify the primary intervention.

  2. Identify the comparator intervention.

  3. Determine the perspective of the study (e.g., societal, payer).

  4. Identify all costs and benefits.

  5. Convert indirect benefits into monetary terms.

  6. Perform calculations to determine net benefits, costs, and ratios.

7. What is the process, pros, and cons of using willingness-to-pay and human capital methods to identify monetary values of benefits?
The process involves using willingness-to-pay surveys or human capital methods to estimate financial losses due to ill health or mortality. Pros of willingness-to-pay include capturing individual valuation of health benefits, while cons include potential bias and variability in responses. Human capital methods can provide a concrete monetary value but may overlook non-market value of life and well-being.