Mendel E. Singer, PhD MPH
Associate Professor
Dept. of Epidemiology and Biostatistics
mendel@case.edu
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Cost is not the same as charges
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Cost is more than just a transfer of money
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Medical Costs
 Office visit, lab test, hospitalization
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Non-Medical Costs
 Lost time, Lost wages, lost productivity,
transportation
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Perspective
 What costs you include depends on the perspective of the
analysis.
 Patient, Payer, Societal (all costs regardless of who pays)
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What is the cost of a Prescription?
 Cost to Patient?
 Cost to Insurer?
 Societal Cost
• Micro-costing: Detail every input
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Time-motion studies
Every person involved, how long
Equipment used (aging)
Overhead
• Gross Costing
▪ Reimbursement Rates as Proxy
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Medicare
Medicaid
3rd Party Insurer
Specific Institution’s Estimate
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Inflation
 Used to adjust old cost estimates to a more recent year
 All cost estimates must be from the same year
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Bureau of Labor Statistics
 Medical Consumer Price Index
▪ Medical Services
▪ Medical Equipment
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Discounting
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Would you rather have $100 now or in 20 years?
After adjusting for inflation?
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Opportunity Cost – what you could have done with the
money
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This is necessary to compare costs now to those incurred
downstream.
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Note: discounting is net of inflation – i.e. after adjusting for
inflation
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Structured methodology for decision making
 Map out the different possibilities
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Compares 2 or more treatment strategies
 Multi-step strategies that model actual practice
 Could also use purely for modeling natural history
▪ Really a simulated longitudinal Trial
▪ Treatment for Hepatitis C, get estimates of % progressing to
▪ Cirrhosis, Advanced liver disease, Transplant, Liver cancer
 E.g. what would happen if ….
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Single measure for comparison
 Can do a series of measures
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Define the study population
Identify treatment alternatives
Select outcome measure
Model course of disease
Populate model with data
 Mostly from literature
 Cost sources
▪ Medicare reimbursement rate, Cost of drugs
▪ Claims data analysis
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Analyze
Sensitivity analysis
 Uncertainty in the data estimates
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Reference Case
 60-year old male
 4 cm abdominal aortic aneurysm
 Otherwise, patient is in good health
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Surgery vs Watchful Waiting
Time horizon: 1 year
Outcome Measure: Survival
 Alive = 1
 Dead = 0
Abdominal Aortic Aneurysm
Reference Case: 60-year old male, 4 cm aneurysm, good health
Strategies: Surgery vs Watchful Waiting
Outcome Measure: Survival at 1 year (alive = 1, dead = 0)
1. At each node there is a number in a box indicating the mean (average) outcome.
2. At all terminal nodes, it first shows the outcome score associated with that
result, and then shows the probability of the path ending in that terminal node.
Name:
Interests:
Specialty:
Darth Vader, M.D.
Cost-effective health care
End of Life Care
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Based on the decision analytic model
 Now track both cost and effectiveness
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Cost vs. Effectiveness
 What’s a good deal for the money?
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Really a simulated longitudinal Trial
 Treatment for Hepatitis C
▪ Get estimates of % progressing to:
▪ Cirrhosis, Advanced liver disease
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Outcomes Research/Quality Assurance
Practice Guidelines
Health Policy
Pharmaceuticals - Justifying new drugs
Providers and Insurers
Identify research priorities
Demonstrate need for large trials
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Complexity of decisions
 Many potential complications
 Information overload
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Structures the decision process
Published studies too narrowly focused
Customizable
Simulate strategies unable to test in practice
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Poor Data
 Lack of data
 “Wrong” data
 Incomplete data
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Funding
 Poor federal funding
 Short-term focus of HMOs, insurers
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Wrong comparator
Missing strategies
Too complex
Wrong population
Timeliness
Strings attached (private funding)
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Cost-Minimization
 Cost only (assumes equal effectiveness)
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Cost-Benefit Analysis
 Values cost and health in monetary units
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Cost-Effectiveness Analysis
 Objective measure of effectiveness
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Cost-Utility Analysis
 Subjective measure of effectiveness
 Often the measure is Quality-Adjusted Life Years (QALYs)
▪ Years of life are weighted by a utility score that measures patient
preferences for a particular state of health. Huh? 
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Utility – What does the term really mean?
Valuation under uncertainty
Measure of Patient Preference
Scale 0 – 1, where:
1 = Full Health
0 = Death
Possible to have negative utility (< death)
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True Scale – same meaning across scale
1.000
0.998
0.75
0.62
0.00
Full Health
Well, Aspirin therapy
Mild Stroke with residua
Moderate COPD
Death
2 years of life with moderate COPD:
2 x 0.62 = 1.24 QALYs
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Never Use Average Cost-effectiveness Ratios
 Which do you prefer?
▪ 1 brand new Rolls Royce for $25 ($25 each)
▪ 2 brand new Rolls Royces for $100 ($50 each)
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Always use incremental C-E Ratios
 (Difference in Cost) / (Difference in Effectiveness)
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Possible outcomes
 One strategy is dominated (cost , effectiveness ), or
 Is the extra effectiveness worth the extra cost?
Cost
Effectiveness
Drug A
$ 100
10.00 QALYs
Surgery
$1,100
10.05 QALYs
Incremental Cost-Effectiveness Analysis
 Cost
 Effective.
ICER
Drug A
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Surgery
$1,000
0.05 QALYs $20,000/QALY
Is this intervention cost-effective?
Cost
Effectiveness
Drug A
$ 100
10.00 QALYs
Surgery
$1,100
10.05 QALYs
Incremental Cost-Effectiveness Analysis
 Cost
 Effective.
ICER
Drug A
-------
------------
---------
Surgery
$1,000
0.05 QALYs
$20,000/QALY
Is this intervention cost-effective?
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Common threshold: $50,000 - $100,000/QALY
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International studies often use 1 GDP/QALY, though
WHO suggests:
 <1 GDP is very cost-effective
 From 1-3 GDP is cost-effective
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Decision analytic modeling is an objective
method for combining all the complex
information of long-term management of
disease to compare different treatment
strategies on both effectiveness and cost.
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The models also produce estimates of
important long-term clinical outcomes and
utilization.
Comparative and Cost-Effectiveness Research
2 days of Comparative Effectiveness Research
within the context of health Reform, covered
from all angles: methods, health policy, impact
on payers and providers and patients,
ethical/legal/social issues.
 3 days crash course in cost-effectiveness analysis
 CME credits
 Take as an official course OR pay workshop fee
 Tentative dates: May 13-14, 15-17.
 CTSC will send info. Or e-mail:
mendel@case.edu
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Mendel Singer, PhD MPH ….. mendel@case.edu