1. Chapter 14 Economic Analysis of Clinical and Managerial Interventions Copyright 2015 Health Administration Press

2. After mastering this material, students will be able to  explain why economic evaluation is needed;  distinguish between – cost-minimization analysis (CMA), – cost-effectiveness analysis (CEA), – cost–utility analysis (CUA), and – cost–benefit analysis (CBA);  and discuss making good comparisons. Copyright 2015 Health Administration Press2

3. Why do economic evaluation of healthcare interventions?  To avoid wasting resources  To argue effectively for an intervention 3Copyright 2015 Health Administration Press

4. Economic evaluation is uncommon in most sectors.  Customers privately assess – product benefits, and – product costs.  There’s no need for formal evaluation. 4Copyright 2015 Health Administration Press

5. Why is economic evaluation important in healthcare?  Insurance  External effects 5Copyright 2015 Health Administration Press

6. Health insurance changes things.  It distorts private decisions because – patients pay a fraction of the cost, – physicians typically bear no cost, and – purchases do not indicate value.  Insurers need to know – what to cover at all, and – what to cover preferentially. 6Copyright 2015 Health Administration Press

7. And health decisions may have external effects.  Private decisions may ignore – benefits, and – costs.  Examples – Immunizations – Environmental regulations 7Copyright 2015 Health Administration Press

8. This is like marketing analysis.  We have to make a product decision. – Government – Health system – Insurer  Often we don’t know for sure – what consumers want, or – how much they value a product. 8Copyright 2015 Health Administration Press

9. Economic evaluation of products  is rare for consumers,  is common for firms, and  is common, but complex, in healthcare because of – effectiveness uncertainty, – valuation uncertainty, – and cost uncertainty. 9Copyright 2015 Health Administration Press

10. Cost effectiveness is  a well-defined analytic strategy,  and a general notion that healthcare needs to become more efficient. 10Copyright 2015 Health Administration Press

11. What does it mean for  an organization to be more efficient?  an intervention to be more efficient? 11Copyright 2015 Health Administration Press

12. Efficiency examines the hardest comparison.  Efficacy: ideal effects  Effectiveness: typical effects  Efficiency: typical effects compared to effective alternatives 12Copyright 2015 Health Administration Press

13. IS THIS A GOOD INVESTMENT? 13Copyright 2015 Health Administration Press

14. Is this a good investment?  Visits to the homes of asthmatic children by an environmental assessor to identify – household triggers, or – behavioral risk factors.  Visits result in – remediation of some risks, as well as – caregiver risk education. 14Copyright 2015 Health Administration Press

15. What do you want to know to evaluate this investment? 15Copyright 2015 Health Administration Press  Does it improve outcomes?  Does it increase or decrease costs?

16. Results 16Copyright 2015 Health Administration Press

17. Cost Results 17Copyright 2015 Health Administration Press

18. The intervention dominates the alternative.  Better health outcomes  Lower costs 18Copyright 2015 Health Administration Press

19. Often it’s not so easy. 19 OutcomeBetterOutcomeWorse CostsHigherAssessAvoid CostsLowerAdoptAssess Copyright 2015 Health Administration Press

20. EFFICIENCY Copyright 2015 Health Administration Press20

21. Efficiency: Does the intervention  reduce cost – without changing outcomes? – enough to warrant poorer outcomes?  improve outcomes – without increasing cost? – enough to warrant higher spending? Copyright 2015 Health Administration Press21

22. The key question is, “Compared to what?”  New treatment?  No treatment?  Routine care? Comparisons are key. Copyright 2015 Health Administration Press22

23. It’s crucial to identify best alternatives to intervention.  Mistakes often miss the best alternatives.  Good interventions may preclude better ones.  Sensible comparisons are essential. Copyright 2015 Health Administration Press23

24. Which is better?  Status Quo – 74 percent effective – 83 percent satisfied – Cost is $22,000  Option A – 74 percent effective – 83 percent satisfied – Cost is $18,000 Copyright 2015 Health Administration Press24

25. Do you still choose A?  Status Quo – 74 percent effective – 83 percent satisfied – Cost is $22,000  Option A – 74 percent effective – 83 percent satisfied – Cost is $18,000 Copyright 2015 Health Administration Press25  Option B – 79 percent effective – 87 percent satisfied – Cost is $14,000

26. TYPES OF ANALYSIS Copyright 2015 Health Administration Press26

27. There are four main ways to assess efficiency.  CMA: Cost-minimization analyses  CEA: Cost-effectiveness analyses  CUA: Cost–utility analyses  CBA: Cost–benefit analyses Copyright 2015 Health Administration Press27

28. These strategies measure value differently.  CMA focuses on cases with equal benefits.  CEA focuses on cost per unit of gain.  CUA focuses on cost per quality-adjusted life year (QALY).  CBA compares cost with willingness to pay. Copyright 2015 Health Administration Press28

29. CMA Example  Usual care for pneumonia includes – eight days of antibiotics – for the 22 percent admitted.  Comparison with three days of treatment? 29 Copyright 2015 Health Administration Press

30. CMA Example  Children who were hospitalized with community-acquired pneumonia were randomized to receive either – IV penicillin, or – oral amoxicillin. Copyright 2015 Health Administration Press30

31.  Length of stay – IV penicillin: 3.12 days – Oral amoxicillin: 1.93 days  Mean societal costs – IV penicillin: ₤1,569 – Oral amoxicillin: ₤1,149 Copyright 2015 Health Administration Press31 CMA Example

32. Included in Societal Costs  Outpatient care  Labs and tests  Inpatient care and medications  Family costs – Travel – Time off work Copyright 2015 Health Administration Press32

33. CMA Example  Patients getting oral amoxicillin – cost less to treat, – were discharged sooner, – had higher outpatient costs, – put less strain on their families, and – may experience less resistance. Copyright 2015 Health Administration Press33

34. CEA Example  Usual care for depression – $9,406 per case – 200 depression-free days per year  Add telephone outreach – $10,268 per case – 229 depression-free days per year  Cost added per depression-free day = $29 = ($10,268 – $9,406) / (229 – 200) Copyright 2015 Health Administration Press34

35. Is $29 per depression-free day  too much?  too little? Copyright 2015 Health Administration Press35

36. CBA Example  Swiss patients’ willingness to pay for – spinal fusion Median willingness to pay (WTP) = 9,615 Fr Median cost = 13,560 Fr – discectomy Median WTP= 6,410 Fr Median cost = 5,255 Fr Copyright 2015 Health Administration Press36

37. Net Benefit = WTP – Cost  Spinal fusion: −2,771 Fr ± 1,275  Discectomy: 1,943 Fr ± 552  A simple, clear verdict: – No on fusion – Yes on discectomy  That may be another knock on CBA. Copyright 2015 Health Administration Press37

38. CBA is not routinely used in healthcare.  Controversies about – a silly history of human capital model, – responses from high-income users, and – validity and reliability of responses.  WTP rises with income and wealth. Copyright 2015 Health Administration Press38

39. CUA: Medical Referral to Exercise  Incremental cost = £327  Incremental QALY = 0.027  Incremental cost-effectiveness ratio = ∆₤/∆QALY = ₤12,111 Copyright 2015 Health Administration Press39

40. Where do QALYs come from?  Life expectancy multiplied by quality-of-life estimates – from patient surveys, and – from big surveys (e.g., EUROQual). Copyright 2015 Health Administration Press40

41. Concerns about CUA  It often does not give a clear answer.  QALY estimates have suspect – reliability, and – validity.  There are methodological concerns.  It has an exclusive focus on patients. Copyright 2015 Health Administration Press41

42. CONCLUSIONS Copyright 2015 Health Administration Press42

43. There are four main ways to assess efficiency.  CMA: cost-minimization analyses  CEA: cost-effectiveness analyses  CUA: cost–utility analyses  CBA: cost–benefit analyses Copyright 2015 Health Administration Press43

44. Uses  CMA is apt to be valuable for practitioners. – Are outcomes as good as current practice? – Are costs lower than current practice?  CEA, CUA, and CBA are for – academics, and – large insurers. Copyright 2015 Health Administration Press44

45. It’s crucial to recognize uncertainty.  Key estimates are often imprecise.  We need to know – which sources of uncertainty matter, – and which do not.  Sensitivity analysis varies estimates to see which are crucial. Copyright 2015 Health Administration Press45

46. CMA and CEA  are valuable tools,  are limited tools, and  are better than guesswork.  Goal: Avoid significant, obvious errors. Copyright 2015 Health Administration Press46

47. Value is hard to measure.  CMA sidesteps measuring value,  CEA mostly sidesteps measuring value,  CUA tries to measure value, and  CBA tries to measure value. 47Copyright 2015 Health Administration Press

48. The key question is effectiveness.  Does an intervention really work – compared to reasonable alternatives? – in real life?  Most interventions – that are not cost effective – are not effective. 48Copyright 2015 Health Administration Press

49. The various economic analyses  are used widely outside the United States,  are fraught with methodological problems,  and have been resisted in the United States.  But that may be changing. 49Copyright 2015 Health Administration Press