Cost-Effectiveness Problem l You have a $1.5 billion budget to spend on any combination of these programs:

Issue: Limited Resources l Assumption: There’s not enough money to fund every effective treatment (screening program, etc.) l Goal: Get the most health for our money. How can we allocate our fixed budget to provide the most health care?

Answer: Cost-Effectiveness l Determine how much health per dollar each intervention provides - its “cost- effectiveness” and how many of these interventions are needed l Fund interventions in decreasing order of cost-effectiveness until the budget is spent.

Cost-effectiveness l Fund I,B,G,E,C,D, and H for 291 patients: 15,374.8 HBUs (3.06 per 5031 people)

Effectiveness only l Result: Fund A-D and E for 1498 patients: 13,994.2 HBUs (3.21 per 4338 people)

Perspective l Patient perspective l Cost to patient (may be 0 due to insurance) l Health to patient l Payer’s perspective l Cost to payer (employer, HMO, insurance) l Health to patient pool l Social perspective l Cost to society, including lost productivity l Health to society

Measuring Costs l Costs are usually measured in dollars, adjusted for inflation over time. l Costs differ from charges, which include profits, market effects, etc. l Costs should include future related medical costs and savings. Future costs are discounted

Future Costs l Some argue that costs should include all future costs and savings (wages, etc.) If you do this: l Life-extending interventions become less cost- effective than life-enhancing interventions, because you’re usually extending low-quality life. l Life-saving interventions become less cost- effective in the elderly, who are net consumers, than in the young, who are net producers.

Benefit, Effectiveness, Utility l Cost-benefit analysis: Benefit in dollar units (e.g. willingness to pay for result) l Cost-effectiveness analysis: Benefit in health units (e.g. AIDS cases prevented, lives saved) l Cost-utility analysis: Benefit in utility (quality-of-life) units (e.g. QALYs)

Measuring Effectiveness l The recommended measure for cost- effectiveness is the quality-adjusted life year, a common unit for comparison. l QALYs =  (time in state * utility of state) l 1 year of life in perfect health is as good as 2 years of life in 0.5 utility health. l Under $50,000 or $100,000/QALY is widely regarded as “cost-effective”

Graphing the CE Ratio

CEA problem 2 From Stinnett & Paltiel’s CEA short course You must choose which of 5 mutually exclusive programs to fund. You currently fund option A. Considering your other decisions, you’re willing to spend up to an additional $200,000 per QALY.

Marginal CEA (aka Incremental CEA) l What if we have to weigh programs against each other, or determine if a new treatment is better to give than the current standard? l Marginal CEA focuses on how much more health could we get by spending an additional amount

CEA Problem 2 Step 1: Order the programs by cost. If some option costs more and delivers less than another, eliminate it from consideration.

CEA Problem 2 Step 2: Calculate a marginal CE ratio for each program, relative to the one above it.

CEA Problem 2 Step 3: Eliminate any program that has a higher marginal CE ratio than the program below it. If you’d spend $571k more to get 17.1 more QALYs, instead spend $175k more to get 17.9.

CEA Problem 2 Step 4: Recalculate marginal CE ratios and choose the program that has the largest marginal CE ratio that’s less than the threshold CE ratio ($200,000). In this case, neither C nor E meets our threshold. We should continue to fund A.

CEA Guidelines The Panel on Cost-Effectiveness in Health and Medicine (1993) 1. Reference case analysis l Societal perspective (resource allocation) l Compare interventions with status quo l Use QALYs; based utilities on community preferences, not patient preferences l Use direct and indirect costs, but need not include unrelated future health and non- health costs. Discount costs at 3%. 2. Perform sensitivity analysis

Conclusions l Cost-effectiveness analysis asks how to spend a fixed budget for the most health l The cost-effectiveness of an intervention is usually reported as its cost-per-QALY ratio. l Interventions with lower $/QALY are more cost-effective and should be preferred to interventions with higher $/QALY