Economic Analysis and Management Todd Wagner, PhD

TELL ME WHY WE NEED DRUG ELUTING STENTS. AND DON’T GIVE ME THE CONDESCENDING SIMPLE VERSION FOR MANAGERS. I WANT THE FULL TECHNICAL DESCRIPTION. EARLY CIVILIZATIONS HAD NO CONCEPT OF ZERO. GO ON.

Why Would Managers Care? CEA is being used to decide about: –formulary –adoption of new technology –scope of benefits –strategies for management of care –organization of health care

Management Misperceptions Only three types of economic analyses exist –Cost identification– what does X cost –CEA –Return on Investment

Researcher Misperceptions Managers do not understand economics Managers want CEAs A CEA must reflect a societal perspective and lifetime costs and benefits

Basic Rules 1.Set the stage: ask questions & listen 2.Avoid jargon and use the word “no” liberally 3.Build in feedback (interim results) 4.Help the manager: write a good report 5.Help yourself: publish the results

What is the Study Type? Cost identification Cost minimization Cost consequences Cost-effectiveness analysis Cost-benefit analysis Cost-utility analysis Other: efficiency, demand

Return on Investment (ROI) A type cost-benefit analysis Compares input costs to all monetary outputs Time frame is often very short (1 or 2 years) ROI lacks context when talking about health care.

What is the cost? Do we know the cost? How precise are our cost estimates? How do costs vary over time? What affects the cost?

Is Treatment Effective? Is there evidence? How strong is the evidence? A meta analysis may be necessary (

Is a CEA Warranted? Standard care preferred Intervention preferred ? ? CEA is more helpful

Net Benefit Model In many cases, the QALYs are not well known Two approaches: –A net benefit model (Hoch, 2002, Health Economics); capitalize on effectiveness data –A break even analysis; how many QALYs would be required for the intervention to be more cost-effective than than control at $50,000 per QALY?

Comparison Group An intervention or treatment can never be cost effective by itself CEA is always a relative decision –Need at least one comparison group –Treatment X is more cost-effective than Y

Comparison Group (cont.) Important to identify the important comparison group(s) for managers Many clinical trials use placebo controls A CEA with an active comparison may require modeling

Perspective Focus on a payer’s costs/benefits rather than on society’s costs/benefits Congress might be interested in Medicare’s bottom line Excluding patient costs can be important for LTC, RX and some chronic illnesses (e.g., UI)

Transfer Payments Welfare and governmental income assistance programs redistribute money. Transfer payments may be important, although they are not “real” to society. Transfer payments are important for governmental agencies. Always include any administrative fees (usually very small).

Changing Assumptions Managers might want CEA tailored to their situation Consider –Patient population –Clinical risks –Patient volume and costs

Other Outcomes Externalities, such as the effect of substance use treatment on crime may be important Labor force participation and productivity may be particularly important for employers or means tested programs (e.g., Medicaid)

Measurement of Costs VA or non-VA costs? –Pharmaceuticals in the VA are much less expensive than outside the VA –VA salaries tend to be lower –VA inpatient stays tend to be longer Which VA cost data: DSS, HERC national or HERC local?

Main vs Secondary Analyses Wise to conduct an analysis that conforms to the Gold Book, even if this is not the manager’s desire A second analysis can focus on the question outlined for management. –Encourages standardization –Prevents misuse of the results in the future

Use of CEA by Management Q: Is it used? A: Never as the only piece of information, and sometimes not at all. –Hagen MD, Garber AM, Goldie SJ, et al. Does cost-effectiveness analysis make a difference? Lessons from Pap smears. Symposium. Med Decis Making. Jul-Aug 2001;21(4):

Too Quickly, Too Little Managers want the answer immediately, and may not be willing to pay Retrospective studies often take 6 months or more The cost and time frame for a prospective study depend on the level of costing and the length of the study (generally 25% of the total budget)

Managers May Not Know Managers may not know what is wanted (they may be the intermediary) Ask many questions; the Gold Book can be used to identify key issues Try to find out what other stakeholders might want to know

Questions on Management Analyses?