1. Cost-Effectiveness and Cost-Benefit Analysis N287E Spring 2006 Joanne Spetz 31 May 2006

2. Optimal planning involves comparing marginal benefit and marginal cost If a central health planner needs to pick the “right” level of production, how will she choose? Social marginal benefit = Social marginal cost

3. We can’t always see the “margin” We can make choices with discrete projects Benefit of project A > Benefit of project B This is the purview of cost-effectiveness and cost-benefit analysis

4. Good CEA/CBA requires good measurement How to measure benefits? What are the benefits? Extended life Better quality of life  Reduced morbidity

5. Measurement options for benefits Number of disease cases averted Number of years of life gained But what about differences in quality of life? Dollar value of saved life, reduced medical costs

6. Quality-adjusted life years QALYs are a common way to weight for quality of life Each year of life is weighted by the expected quality

7. Quality-adjusted life years How do you determine QALYs? Clinical experts Experimental data Surveys  There is usually not measurement of individual preferences

8. Example of a QALY calculation 70-year-old man 20 year life span 10 years of perfect health 10 years of 50% quality health (10 x 1 QALY/yr)+(10 x 0.5 QALY/yr) = 15QALYs

9. Some thoughts about QALYs Social health can be the sum of population QALYs Trade-offs and comparisons can be made across people

10. What about creating monetary measures of benefits? Option 1: Cost of illness Direct cost of medical care resources Indirect costs  Morbidity cost: wages lost due to inability to work and value of housekeeping  Mortality cost: present value of future earnings Future earnings are “discounted” and summed

11. Problems with cost of illness Men valued more than women (due to higher earnings) Ethnic groups valued differently Children valued less than adults What about quality of life? What is the value of non-market work?

12. What about creating monetary measures of benefits? Option 2: Willingness to pay Choices that individuals make reveal information about how they value life Information about value of life comes from  Surveys  Data on consumer behavior

13. Problems with willingness to pay (and one benefit) Surveys People can say anything Responses vary with income People misestimate risk Consumer behavior Consumers might not have accurate risk information Do you count the risk of injury? WTP more directly addresses the concept of marginal utility

14. A few more thoughts on financial value of life Willingness to pay usually values life more highly than discounted future earnings Most studies value life between $1 and $6 million In order to make policy decisions, a value of life must be made explicitly or implicitly

15. What is cost-benefit analysis? Cost-benefit analysis compares costs and benefits, with benefits measured monetarily Net benefit =  (B t -C t )/(1+r) t If net benefit > 0 then do the project Or, net benefit =(  B t /(1+r) t ) (  C t /(1+r) t ) If net benefit > 1 then do the project

16. Measurements of costs What is the viewpoint of the analysis Often “social perspective” Viewpoint of a particular agency The patient What are the comparisons? Two or more treatment programs? What categories of costs to include? How to handle capital expenditures How to discount for future costs

17. It is important to not double- count costs and benefits Example: building a stadium “Jobs created”  But, we pay wages for the jobs!  The payments for wages are a cost “Property values will go up and businesses will get more income”  The higher property values reflect the increased income

18. To make a CBA-based decision… Projects can be ranked by net benefits Informal judgements can be made after ranking Income distribution can be considered Age distribution can be considered

19. What is cost-effectiveness analysis CBA is disliked by many health professionals Cost-effectiveness analysis determines the cost of a certain Number of cases of disease prevented Number of QALYs obtained Other non-monetary measurement of benefits

20. A classic example of CEA What do we gain from the sixth stool guaiac? New England Journal of Medicine 1975 293: 226-228

21. Background on sixth stool guaiac Six sequential tests for occult blood If any test is positive, a barium enema is done

22. The decision tree is: Test 1 Etc. Test 2 Test 3 Test 4 neg pos enema

23. What are the detection rates? ~72 people of 10,000 have colon cancer P(detection) = 91.66% P(false positive) = 36.51% The first test detects 0.9166 x 72 = 65.9952 cases The second test detects 99.3% of cases.993 = (.9166+.9166(1-.9166))

24. What about costs? $4 for the initial test $1 for each additional test $100 for the barium enema

25. A detection grid for 10,000 people, Test 1 Cancer? YESNO POS66 (91.66%) 309 (36.51%) 375 people NEG6 (1-.9166) 96199625 people 72 people9928 people Go to Test 2 Test result

26. Costs from first test $4 x 10,000 = $40,000 for initial test $100 x 375 = $37,500 for barium enemas Total = $77,500

27. A detection grid for Test 2 – 9625 people Cancer? YESNO POS5.5299304.50 people NEG0.593209320.5 people 6 people9619 people Go to Test 3 Test result

28. Cost from Test 2 $1 x 9625 for repeat test $100 x 304.5 for barium enemas Total = $40,075

29. A detection grid for Test 3 – 9320.5 people Cancer? YESNO POS.458290290.458 people NEG.04290309030.042 people 0.5 people9320 people Go to Test 4 Test result

30. Cost from Test 3 $1 x 9320.5 for repeat test $100 x 290.458 for barium enemas Total = $38,366.30

31. How many cases are detected? True positiveFalse positive # tests%# cases% 191.666765.946936.5079309.1652 299.305671.442459.6876505.4606 399.942171.900374.4048630.0926 499.995271.938583.7491709.2240 599.999671.941789.6819759.4661 699.999971.942093.4489791.3660

32. Cost analysis # tests# cases detected Incre- ment Total cost Incre- ment Marg cost/ marg gain Average cost 165.9469 $77,511 $1,175 271.44245.4956$107,690$30,179$5,492$1,507 371.90030.4580$130,199$22,509$49,150$1,810 471.93850.0382$148,116$17,917$469,534$2,059 571.94170.0032$143,141$15,024$4,724,695$2,268 671.94200.0003$176,331$13,190 $47,107,214 $2,451

33. Comparison What if the barium enema was done for all patients? Total cost for 10,000 people would be $1,000,000 Average cost per case detected = $13,900 Marginal cost = $13,900

34. Sensitivity analysis It is important to consider the assumptions made in the analysis Should some assumptions be changed? New technologies or information could affect conclusions

35. Sensitivity analysis in guaiac paper Assume: Protocol detects only 60% of cases per screening OR Population prevalence is lower, 11/10,000

36. Sensitivity analysis of costs # testsMarg cost baseline Marginal cost – 60% sensitive Marginal cost – low prevalence 1$1,175$1,743$7,152 2$5,492$1,816$35,505 3$49,150$3,353$321,991 4$469,534$6,584$3,078,108 5$4,724,695$13,696$30,912,409 6 $47,107,214 $29,941$325,476,150

37. What is an acceptable cost- effectiveness ratio? There is no clear answer! Even if the ratio seems reasonable, we still might not be able to afford the cost We might not be able to invest today for future gains Most studies compare their cost- effectiveness ratios to those of well- accepted treatments/screenings

38. Can you apply this to nurse staffing? Needleman & Buerhaus, Health Affairs 2006 Rothberg, Abraham, et al., Medical Care 2005

39. Needleman & Buerhaus Estimated costs of: More total nursing staff Substituting RNs for other staff Benefits were cost savings in: Shorter length of stay Fewer adverse events Fewer deaths

40. Needleman & Buerhaus Results Substituting RNs for other staff produces net cost reduction Increasing total nursing hours improves outcomes but also increases costs about 1.5% more

41. Rothberg et al. Staffing comparison: 8:1 ratio vs. 4:1 ratio Benefits: Cost savings from reduced LOS Lower patient mortality Method: Statistical analysis with random variation in effects of staffing. Outcome = costs per life year saved

42. Rothberg et al. Results: 1:8 was least expensive, highest mortality Mortality improved and costs rose and nursing ratio became richer Incremental cost-effectiveness was $136,000 (95% CI $53,000-402,000) per life saved. Sensitivity analysis: Sensitive to the effects of ratios on mortality Throughout the ranges tested, ICER <= $449,000 per life saved.