1. Costs and Cost Effectiveness HINF 371 - Medical Methodologies Session 15

2. Objective To review the relationship between healthcare costs and practice guidelines To review the relationship between healthcare costs and practice guidelines To understand the possible impact of guidelines with cost assessment To understand the possible impact of guidelines with cost assessment

3. Context Healthcare costs are increasing Healthcare costs are increasing This is no problem if people willing to pay more This is no problem if people willing to pay more There is a tendency to pass the costs to others There is a tendency to pass the costs to others Patients expect the latest and the best technologies no matter how expensive, how small or uncertain the benefit Patients expect the latest and the best technologies no matter how expensive, how small or uncertain the benefit We will pay no matter what because the costs will not disappear We will pay no matter what because the costs will not disappear

4. Guidelines and Costs A guideline can consider costs and recommend a practice only if it is cost effective A guideline can consider costs and recommend a practice only if it is cost effective A guideline would recommend a practice only if its benefits outweigh its harms A guideline would recommend a practice only if its benefits outweigh its harms

5. How to regulate Free market for balancing the costs with values Free market for balancing the costs with values Insurance causes over consumption Insurance causes over consumption People consume if they don’t pay People consume if they don’t pay Collectively everyone overconsumes, the result in the aggregate is not good for anyone. Collectively everyone overconsumes, the result in the aggregate is not good for anyone. Collectively the cost people end-up paying for healthcare exceed the value of what they are receiving in return Collectively the cost people end-up paying for healthcare exceed the value of what they are receiving in return But But Decisions to be made by consumers Decisions to be made by consumers The value and costs of goods must be known The value and costs of goods must be known They pay the full cost and receive the full benefit They pay the full cost and receive the full benefit

6. What to do? Guidelines may contribute linking value to costs, Guidelines may contribute linking value to costs, They can provide essential information They can provide essential information They can provide costs They can provide costs If costs are excluded from guidelines who will do it? If costs are excluded from guidelines who will do it? Society – what is society? Society – what is society? Practitioners and Patients? Practitioners and Patients? Or no one? Or no one? If they are included in guidelines; If they are included in guidelines; Safety in numbers Safety in numbers Standard practice Standard practice

7. Can guidelines contain costs Limited information on economic outcomes and health outcomes Limited information on economic outcomes and health outcomes Guidelines are only one cost element: Medical education, Human resources, Facilities planning, Efficiency of operations, financial and professional incentives Guidelines are only one cost element: Medical education, Human resources, Facilities planning, Efficiency of operations, financial and professional incentives People still ignore and continue to overconsume People still ignore and continue to overconsume

8. Patients and to be patients to be asked The change of MI next year is 0.005 The change of MI next year is 0.005 The possibility of death decreased from 9 percent to 8 percent with HINF medication The possibility of death decreased from 9 percent to 8 percent with HINF medication Insurance for HINF is $50 Insurance for HINF is $50 The cost of HINF medication is $10,000 The cost of HINF medication is $10,000

9. Patients and to be patients to be asked 1. Are you willing to pay $50? 2. Would you be willing to pay $10,000? 3. Are you going to pay $10,000? 4. No payment but your premiums will increase next year, do you want to receive the drug? 5. Are you willing to pay up front $10,000, in case you should have a MI?

10. Decision steps 1. Estimate health outcomes 2. Ask patients if the benefits outweigh the harms? 3. If no, stop. 4. If yes, estimate the cost of intervention 5. Is the value higher than the cost? 6. If yes, use, recommend and cover 7. If no, do not use recommend and cover 8. Adhere to decision

11. Cost Effectiveness Analysis Estimating and valuing the resources used for interventions against the costs incurred Estimating and valuing the resources used for interventions against the costs incurred Cost effectiveness values health effects in monetary terms and makes it comparable Cost effectiveness values health effects in monetary terms and makes it comparable The true cost of an intervention is its opportunity cost. The true cost of an intervention is its opportunity cost.

12. Decision maker’s challenge Choosing the interventions that produce the most health for the resources spent. Choosing the interventions that produce the most health for the resources spent. Comparing alternatives and decide which interventions, for whom and at what intensity are the best use of medical resources Comparing alternatives and decide which interventions, for whom and at what intensity are the best use of medical resources

13. Whose Perspective? Societal perspective is appropriate for analyses that are designed to inform decisions made in the public interest about the broad allocation of medical resources Societal perspective is appropriate for analyses that are designed to inform decisions made in the public interest about the broad allocation of medical resources All significant costs and health effects must be considered, micro costed, based on critical path, and discounted All significant costs and health effects must be considered, micro costed, based on critical path, and discounted A time horizon must be established and a cohort must be selected A time horizon must be established and a cohort must be selected Ratio must include net health benefits and net costs of two alternatives Ratio must include net health benefits and net costs of two alternatives

14. Compared to what? Propranolol – 51 life years/$1M Propranolol – 51 life years/$1M Pap smear every 3 years – 36 Pap smear every 3 years – 36 By-pass surgery – 93 By-pass surgery – 93 Lovastatin – 1 Lovastatin – 1 Influenza vaccine for 65+ - 7,750 Influenza vaccine for 65+ - 7,750 CCU for low risk patients – 2 CCU for low risk patients – 2 Total hip replacement – 165 Total hip replacement – 165 Tetanus booster every 10 years - 4 Tetanus booster every 10 years - 4

15. Compared to what P vac. No Vac Difference Costs Vaccination$120$12 Adverse effects $0.0100.01 Treatment$76.41$96.69-20.28 Total$88.42$96.69-8.27 Effects Quality adjusted Days 2,273.262,272.051.21

16. Better Cost effectiveness model 1. Structure of model should make sense to experts 2. The model should replicate the outcomes 3. Models predictions should correspond well with results of studies used in its construction 4. To use the model to predict outcomes for a new program and compare the predictions with experience under the program