Economic evaluation of health programmes Department of Epidemiology, Biostatistics and Occupational Health Class no. 8: Cost-utility analysis – Part 1 Sept 29, 2008

Plan of class  Review Question 2 from assignment no 1  Begin cost-utility analysis

Cost centreAllocation Basis General administrationPaid hours EquipmentSq. meters Information technologyPaid hours CommunicationsPaid hours HousekeepingSq. meters Maintenance and repairsSq. meters SecuritySq. meters or paid hours Possible allocation bases

Cost centreAllocation Basis LaundryBed-days FoodBed-days SterilisationBed-days+surgeries PharmacyBed-days+surgeries Possible allocation bases

Choosing a sequence for step-down allocation  Principle: allocate services in order of use by other centers  Service center that uses other centers least is allocated first  Difficult to determine objectively (requires judgement)  See Techniques of Management Accounting, by David Young, chapter 1, 2003.

Cost centreReason for order General administrationAll centers use general administration, and the amounts to be allocated are large in relation to the amounts that should be allocated back to it HousekeepingAll centers use housekeeping, but it uses little more than administration CommunicationsAlmost all centers use communications; it does not need much beyond administration and housekeeping ITIT similarly used by virtually all centers below it SecuritySecurity does not use much equipment or maintenance and repairs; it does rely on the four above. Equipment Maintenance and repairs Possible sequence for step-down allocation

Cost centreReason for order LaundryThese four cost centres are all used only by final centres, not by the previous ones. Their relative order is largely arbitrary. Food Sterilisation Pharmacy Possible sequence for step-down allocation

Comments  All costs are allocated, so if some unit costs are lower with step-down, others must be higher  Some differences are fairly significant in percentage terms, though the relative magnitudes are comparable  Difficult to sort out how step-down produces these particular differences, and in practice not necessary.

Adding costs of physician services  Find out what physician codes – and associated fees – are typically billed with each service  Add that fee, or set of fees, to the unit cost

Cost-utility analysis  CEA with QALYs or one of its variants used to measure outcomes  In US, many authors use CEA even when outcomes measured using QALYs  Costs calculated the same way  Allows combination of quality and quantity of life dimensions in one measure  Allows comparability across different interventions

Cost-utility – why utility?  Main Entry: 1 util·i·ty  Pronunciation: \yü- ˈ ti-lə-tē\  Function: noun Inflected Form(s): plural util·i·ties  Etymology: Middle English utilite, from Anglo-French utilité, from Latin utilitat, utilitas, from utilis useful, from uti to use  Date: 14th century  1: fitness for some purpose or worth to some end  2: something useful or designed for use  3 a: public utility b (1): a service (as light, power, or water) provided by a public utility (2): equipment or a piece of equipment to provide such service or a comparable servicepublic utility  4: a program or routine designed to perform or facilitate especially routine operations (as copying files or editing text) on a computer Source: Merriam-Webster Online Dictionary

Cost-utility – why utility?  1: fitness for some purpose or worth to some end  Element of subjectivity – reflects preferences  Thus we move from an objective consequence (e.g., mm Hg, mortality) or set of consequences, to a valuation of, in fact, those consequences taken together

Ordinal vs cardinal measures of the utility of an outcome Ordinal measure  Only need to rank-order preferences  E.g., Being on dialysis worse than (<) Having a painful hip < Having 40% hearing loss = ? Cardinal measure  Need to attach number to preference  On interval scale No zero, unique under positive linear transformation  Equal interval property From 0.2 to 0.3 is same as 0.7 to 0.8