1. Cost-effectiveness Analysis: Overview; Developing an analysis Advanced Training in Clinical Research DCEA Lecture 3 Birgit Hansl, Ph.D. UCSF Institute for Health Policy Studies February 3, 2005

2. Lecture Objectives  To understand the uses and basic types of economic evaluation, especially of CEA  To understand the basic steps in conducting a CEA

3. Lecture overview …prior lectures on clinical decision analysis assessed health outcomes. Now we will add costs. Lecture contents: I. Why is economic evaluation important? II. Overview of economic evaluation methods III. CEA - Steps in conducting a CEA IV. Example: plan for conducting a CEA

4. I. Why is economic evaluation important? The purpose of economic evaluation is to identify, measure, value, and compare the costs and consequences of alternative interventions, strategies or policies.

5. I. Why is economic evaluation important? cont. Diagram illustrates: Formulation in terms of a choice between competing alternativesFormulation in terms of a choice between competing alternatives Program of interest = Program A can be an active treatment or ‘do nothing’Program of interest = Program A can be an active treatment or ‘do nothing’ Measuring and valuing costs and consequences A and BMeasuring and valuing costs and consequences A and B Rule for assessing programs A and B: difference in costs is compared to difference in consequences (incremental/marginal analysis)Rule for assessing programs A and B: difference in costs is compared to difference in consequences (incremental/marginal analysis)

6. I. Why is economic evaluation important? cont. Economic evaluations become increasingly important tools for providers, policy makers and program managers for assisting in health services decision making. → use health care $ to do most good: efficient allocation can save lives and improve health

7. I. Why is economic evaluation important? cont. Providers  what is the price of a program? -we don’t like to spend money on interventions that don’t work -we want to know what interventions, especially new ones, will cost us -often we want a comparative analysis of alternative programs

8. I. Why is economic evaluation important? cont. Policy makers  resource allocation is a reality: within health care as among other social goods -within given budgets we need to set priorities

9. Program manager  resources - people, time, facilities, equipment, and knowledge - are scarce -choices must be made concerning their deployment -we prefer organized consideration of factors involved in decision to commit resources to one use instead of another I. Why is economic evaluation important? cont.

10. 1.Why a systematic analysis? –Identify all relevant alternatives: often they already exist –Example: introducing a new center for chronic lung disease 2.Why is the viewpoint of the analysis important? –Viewpoints: patient, hospital, MoH, community, society… –Example: TB treatment strategies 3.Why attempt to measure? –Judgment about value for money is based on measurement and comparison of output and costs –Explain: real program costs=opportunity costs

11. I. Why is economic evaluation important? cont. Opportunity costs What is sacrificed to do the intervention under consideration?What is sacrificed to do the intervention under consideration? = real cost of program is not $ amount appearing in program budget, but health outcomes achievable in other programs which have been forgone by committing resources to the first program= real cost of program is not $ amount appearing in program budget, but health outcomes achievable in other programs which have been forgone by committing resources to the first program E.g., “… putting the same money into diabetes care would have yielded 25 quality-adjusted life years”E.g., “… putting the same money into diabetes care would have yielded 25 quality-adjusted life years” EA seeks to calculate opportunity costs & compare it w/ program benefitsEA seeks to calculate opportunity costs & compare it w/ program benefits

12. II. Economic evaluations methods General approach: Compare the consequences of health care programs with their costs. There are four main forms of economic evaluation: 1.Cost (minimization) analysis, CMA 2.Cost-effectiveness analysis, CEA 3.Cost-utility analysis, CUA 4.Cost-benefit analysis, CBA Each deals with costs (=inputs), but consequences of health care programs (=outputs) are measured and valued differently

13. Type of economic evaluation Identification of consequences Measurement, valuation of consequences Measurement, valuation of costs ExampleArticleComment CMA Identical output, same effectiveness NoneUSD two programes of hernias surgery, one requires hospital admission the other not Russell et al. (1977) If effectiveness is not identical CMA equals CEA CEA Single output, but different effectiveness Natural units: life- years gained, deaths averted, cases detected USD two diagnostic strategies for deep vein thrombosis Hull et al. (1981) Any alternatives which have commen effect - no direct health effect nessecary CUA Single or multiple output adjusted by health state / utility weights Utility: Quality- adjusted life years USD before and after the introduction of a neonatal intensive care program for low-birth weight infants Boyle et al. (1993) Assesses quality of health gain, not just crude health gain measure CBA Single or multiple output that need common denominator USD, willingness-to -pay USD individual's willingness-to- pay for health benefits of new versus old anti- depressants O'Brien et al. (1995) Measurement problems limit range of benefits valued are addressed by willingness-to-ay approach

14. Recap:  CEA is a full economic evaluation where costs and consequences are examined  Assessment of a choice: 2+ courses of action are compared  Single output (=consequence) that varies in effectiveness  Multiple inputs (costs) are considered that differ  Marginal analysis: incremental gain in output (health status) achievable with incremental in increase in input (health care resources) III. Cost-effectiveness analysis

15. III. Cost-effectiveness analysis - Steps 1.Define the audience for the evaluation 2.Define the problem in question to be analyzed 3.Indicate the strategies being evaluated 4.Specify the perspective of the analysis 5.Define the relevant time frame and analytic horizon 6.Determine whether the analysis is marginal or incremental 7.Determine the analytic methods 8.Identify relevant outcomes 9.Identify relevant costs 10.Specify the discount rate 11.Identify sources of uncertainty and conduct a sensitivity analysis 12.Determine the summary measure to be reported 13.Analyze distributional and ethical issues

16. III. Cost-effectiveness analysis – cont. Identify relevant outcomes → (2.)Define the problem in question to be analyzed → (2.) Define the problem in question to be analyzed → (3.) Indicate the strategies being evaluated The following conditions must hold: 1.Clarify the one unambiguous objective of the program(s) and that there is a clear dimension along which effectiveness can be assessed 2.If there are many objectives and alternative interventions thought to achieve these to the same extent, i.e. have equivalent effectiveness, perform a cost-minimization analysis cont.

17. III. Cost-effectiveness analysis – cont. cont. Identify relevant outcomes cont. Identify relevant outcomes → (7.)Determine the analytic methods → (7.) Determine the analytic methods → (5.)Define the relevant time frame and analytic horizon → (5.) Define the relevant time frame and analytic horizon 3. Keep open to the possibility of employing a more sophisticated analysis (i.e. CUA, CBA) Lookout for other attributes of the alternatives and report these extra dimensions, e.g. number of complicationsLookout for other attributes of the alternatives and report these extra dimensions, e.g. number of complications 4. Is the effectiveness measure a final or intermediate health output? Final: life-years gained, cases of death averted, quality- adjusted life years (QALYs - life years*utility scores)Final: life-years gained, cases of death averted, quality- adjusted life years (QALYs - life years*utility scores) Intermediate: cases detected, patients with completed treatmentIntermediate: cases detected, patients with completed treatment

18. III. Cost-effectiveness analysis – cont. Logan et al. (1981) Hypertension treatmentmmHg blood in Hypertension 3:2:211-18pressure reduction Hull et al. (1981) Diagnosis of deep-veincases of DTV in N. Engl. J. Med. 304:1561-67thrombosisdetected Sculpher and Buxton (1993)Asthmaepisode-free In PharmacoEconomics 4:5:345-52 days Mark et al. (1995)Thrombolysisyears of life In gained In N. Engl. J. Med. 332:21:1418-24 gained Examples of cost-effectiveness measures used in CEA

19. Identify relevant inputs → (1.) Define the audience for the evaluation → (4.) Specify the perspective of the analysis 1.Consider range of costs  Assess if you could consider a narrower range of costs, e.g. only operating costs in health sector and not also patient’s costs  Common costs to two programs/treatments under study can be excluded (timesaver!) 2. Consider magnitude of costs  Exclude minor costs that are unlikely to make a difference in the study results (timesaver!) cont. III. Cost-effectiveness analysis – cont.

20. cont. Identify relevant inputs → (1.) Define the audience for the evaluation → (4.) Specify the perspective of the analysis → (5.)Define the relevant time frame and analytic horizon → (5.) Define the relevant time frame and analytic horizon 3. Elements of costing: C = p*q (p=price, q=quantities)  Potential sources for the quantities range from standard to unusual, e.g. hospital records vs. patient’s diaries  If prices are not reported (e.g. for donated goods, volunteer time, and leisure time) always use market prices!  Overhead costs - how to allocate shared resources?  Capital costs (equipment, buildings, land) – past investments in an asset used over time - depreciation cont. III. Cost-effectiveness analysis – cont.

21. cont. Identify relevant inputs → (5.)Define the relevant time frame and analytic horizon → (5.) Define the relevant time frame and analytic horizon 4.Consider time frame over which costs should be tracked  Don’t forget inflation adjustments! 5. Marginal vs. Average costs – why is this significant?  Various cost definitions…

22. III. Cost-effectiveness analysis – cont. cont. Identify relevant inputs  Example: savings associated with reduction in inpatient stay Hospital costs can be considered to consist of two elements: (1) hotel costs, constant over the length of stay and (2) treatment costs, which peak just after admission and then tail off

23. III. Cost-effectiveness analysis – cont. Specify the discount rate Allowance needs to be made for the differential timing of costs and consequences. (Positive) Time Preference in economics: it is an advantage to receive a benefit earlier or to incur a cost later Important when comparing programs with different time profiles, e.g. prevention vs. treatment programsImportant when comparing programs with different time profiles, e.g. prevention vs. treatment programs –Are prevention programs and other long-term investments penalized by discounting? Use discount rate (standard=5% or 3%) to adjust future costs and benefits to present valuesUse discount rate (standard=5% or 3%) to adjust future costs and benefits to present values

24. III. Cost-effectiveness analysis – cont. The CE Ratio: increment in costs between two courses of action divided by the increment in health outcomes E.g., cost of universal HIV prevention + targeted HIV prevention minus cost of universal HIV prevention (alone), divided by the difference in HIV infections prevented. Cell III: less expensive, more effective = better! CE index irrelevant.  Cell III: less expensive, more effective = better! CE index irrelevant.  Cell IIhigher cost, less effective. CE index not needed.  Cells I, IV: trade-off between cost and effectiveness. Need CE. Incremental cost of program A compared with program B LessMore Incremental effectiveness of program A comparedLessIII with program B MoreIIIIV

25. III. Cost-effectiveness analysis – cont. Average and incremental CE Ratio: Costs (USD) Effects Ratio (C/E) (A) Universal HIV prevention (alone)300,0002011493 (B) A + Targeted HIV prevention800,0003013980 Increment (of program B over A)500,0001005000 Desirability depends on cost / gain in health status, and threshold for paying for improved health.

26. IV. Example: plan for conducting a CEA (1) Define analysis. DA: Clinical or policy situation, alternative strategies. CEA: Financial perspective, CE outcome measures. (2) Specify technical approach. DA: decision tree, with chance nodes and utilities. CEA: Cost outcomes, formulas for outcome measures (3) Determine input values. DA: health values (chance node probabilities, utilities) CEA: costs (for programs and medical care). (4) Conduct analyses. (5) Prepare manuscripts

27. IV. Example: plan for conducting a CEA cont. (1) Define the analysis  Aneurysm: clinical situation = woman, aged 50, with unruptured cerebral aneurysm found incidentally. Options = no treatment or surgery (clipping).  Perspective = societal. i.e. all costs counted, regardless of who pays.  Outcome measure is cost per QALY gained  Outcome measure is cost per QALY gained. This CEA compares surgical clipping to no treatment for the management of an asymptomatic small cerebral aneurysm, for a 50 year old woman, estimating the societal cost per QALY gained.

28. IV. Example: plan for conducting a CEA cont. (2) Specify the technical approach

29. IV. Example: plan for conducting a CEA cont. The cost per QALY gained is defined as: Cost with surgery - cost with no surgery QALYs with surgery - QALYs with no surgery Cost Δ Cost QALYs Δ QALYs Formulation must be incremental: from no intervention to intervention, or from lower cost to higher cost intervention. i.e.,

30. IV. Example: plan for conducting a CEA cont. (3) Determine input values Health inputs specified previouslyHere are key cost inputs Health inputs specified previously. Here are key cost inputs: Cost inputValue (range)Source Clipping$25,150 (18,000-35,000)Cohort study – cost accounting system Moderate/severe disability$20,000/yr (13,000-30,000)Published estimate SAH hospitalization$47,000 ($33,000-$67,000)Cohort study – cost accounting system Discount rate3% (0-5)CEA guidelines Must be discounted… e.g., $47,000 for SAH hospitalization, average 17 years into the future, NPV = $35,912 Must be discounted… e.g., $47,000 for SAH hospitalization, average 17 years into the future, NPV = $35,912.

31. IV. Example: plan for conducting a CEA cont. (3) Determine input values

32. IV. Example: plan for conducting a CEA cont. (4) Conduct analyses – How? Calculate by hand: instructive once, inefficient and error-prone with multiple calculationsCalculate by hand: instructive once, inefficient and error-prone with multiple calculations Calculate with spreadsheets: flexible –any structure, input, calculation, outcome, or format, e.g., infectious disease epidemic modeling, or interacting Markov models For Monte Carlo and other sensitivity analyses, Crystal Ball. Must program standard CEA tasks.Calculate with spreadsheets: flexible –any structure, input, calculation, outcome, or format, e.g., infectious disease epidemic modeling, or interacting Markov models For Monte Carlo and other sensitivity analyses, Crystal Ball. Must program standard CEA tasks. Decision analysis packages: SMLTREE, DATA, TreeAge (http://www.treeage.com/products/download.html), etc. - designed to do CEA tasks, e.g. trees, inputs, outputs, simple Markov, SA. Less flexible: CEA conforms to program structure, e.g. only 2-4 outcomes, epidemic or complex Markov not possible.Decision analysis packages: SMLTREE, DATA, TreeAge (http://www.treeage.com/products/download.html), etc. - designed to do CEA tasks, e.g. trees, inputs, outputs, simple Markov, SA. Less flexible: CEA conforms to program structure, e.g. only 2-4 outcomes, epidemic or complex Markov not possible.

33. IV. Example: plan for conducting a CEA cont. (5) Prepare manuscripts Presentation… “Base case” for aneurysm analysis

34. IV. Example: plan for conducting a CEA cont. (5) Prepare manuscripts Presentation… QALYs Costs ScenarioTotalAddedTotalAdded $ / QALY No symptoms, <10 mm, no past SAH  No treatment21.37--$534 -- --  Clipping19.74-1.63$39,666$39,132 Dominated

35. IV. Example: plan for conducting a CEA cont. (5) Prepare manuscripts Below are some of the formulas in the cells

36. Summary I. Why do CEA? –make resource allocation decisions all the time, might as well be explicit about costs and to whom II. Overview of CEA – health outcomes and cost inputs integral part of economic evaluations like CEA III. CEA Steps – define; technical set-up; inputs and outputs; analyses; presentation. Next lectures: data inputs; sensitivity analyses; Markov simulations