University of Minnesota
Medical Technology Evaluation and
Market Research
Course: MILI/PUBH 6589
Spring Semester, 2012
Stephen T. Parente, Ph.D.$
$Carlson
School of Management, Department of Healthcare Management
Class #3
Introduction to Cost-Effectiveness
Analysis
Introduction
• Many important Medical Technology questions
turn on the ultimate ‘value’ the technology adds
–
–
–
–
Coverage Decisions
Pricing
Go/No Go
Formulary adoption
• We have developed sets of tools to measure the
value of medical technologies
• Cost-Effectiveness Analysis (CE)
• Cost Effectiveness analysis provides a systematic
approach to valuing and ranking medical
technologies
Why CE?
• Important for Managers to understand what Cost
Effectiveness Analysis
– Purchasers use these analyses
– Important coverage decisions are based on them
– Societal perspective: Given a fixed budget how should
we distribute our health care dollars?
• CE is a comparison tool to help evaluate choices
– It will not always indicate a clear choice, but it will
evaluate options quantitatively based on a defined
model
Goal for Lecture
• Not training you to perform CE but understand what is
evolved and how to interpret CE analyses.
– Prof. John Nyman offers a CE course if you want
develop skill in this area
– Prof. Karen Kuntz offers two courses on Medical
Decision making which is also related to CE analysis
• Goal for Lecture:
– Introduce you to the terminology and concepts on CE
analysis
– More detail on the ‘Costs’ and the ‘Effectiveness’
measurement will be given later in this course
Cost-Effectiveness
• A methodology to measure the health benefits attributable
to a given intervention
• The is a standardized approach(es) to measuring the net
benefits of technology
• What is the differences in health states attributable to an
intervention?
State 1
Intervention
State 2
Example:
Reduced Heart
Function
New Device
Improvement in
heart function
Cost Effectiveness Analysis
• Measures the benefits associated with an
intervention relative to its cost
• Average Cost-effectiveness ratio (CE
ratio):
(Cost of interventi on - Costs averted by interventi on)
Benefits of interventi on
Reference Intervention
• It is necessary to distinguish between independent
and mutually exclusive interventions
• For most purposes, CE analysis requires a
reference intervention.
• Reference intervention is simply what you are
comparing the treatment to
• For example, Blood Pressure treatment: ACE
inhibitors vs. Diuretics
• How to chose reference intervention?
– Usually, current medical practice or the
standard of care.
Numerator of CE ratio
• Cost of intervention is all the costs associated
with provided a treatment of preventive test.
– Example: hospitalization, time, drugs.
• The costs averted by an intervention include
avoided future health care costs.
– E.g. future hospitalizations, physician visits, drugs.
• Costs that do not go into the numerator
– Those that are in the denominator
Who’s Cost?
•
•
•
•
•
•
Patients?
Hospitals?
MDs?
Insurers?
Government?
Society?
The Denominator of the CE Ratio
• We need to formulate a measure of the
benefits of an intervention
• Ideally, what features should this measure
capture?
The Denominator of the CE Ratio
• Use a measure of increase in the quality of
life due to the intervention.
• Includes both increases in longevity and
quality of life.
• Includes both Quantity and Quality of Life.
• Quality Adjusted Life Years (QALY’s) are
usually what is measured.
QALY Basics
• Will cover QALYs in more detail later.
• For each year, QALYs are measured from 0
to 1 with 0 being death and 1 being perfect
health.
• Need to measure Health Related Quality of
Life (HRQL).
• HRQL score is a valuation of life lived in a
particular health state.
Basics of QALYs
• A simple formula:
• QALY’s
= Duration of illness x (HRQLtreated - HRQLuntreated) + (years
gained x mean HRQL)
• QALY’s are usually measured using survey instruments
• A quick example, a treatment for a condition called
Parente-itis (a truly horrible disease!)
– No treatment -- gradual health decline and die in 5 years
– Treatment -- reduces the decline and and extends life by 4 years
QALY’s
QALYs
1
QALY is the area between the two lines
0.8
0.6
No Treatment
Treatment
0.4
0.2
0
0
1
2
3
4
5
Years
Change in QALY’s = 1.9
6
7
8
9
10
QALY’s
• Look at the CE ratio using QALYs.
• The CE ratio is a measure of the cost of
gaining one QALY. The CE ratio can be
simply thought of as:
( Net Cost of Interventi
on)
QALYs
MSNBC.com
Actually, a long, healthy life costs more
Treating obesity and smoking is cheaper than keeping folks fit, study says
The Associated Press
updated 7:00 p.m. CT, Mon., Feb. 4, 2008
LONDON
- Preventing obesity and smoking can save lives, but it doesn’t save money, researchers
reported Monday.
It costs more to care for healthy people who live years longer, according to a Dutch study that counters
the common perception that preventing obesity would save governments millions of dollars.
“It was a small surprise,” said Pieter van Baal, an economist at the Netherlands’ National Institute for
Public Health and the Environment, who led the study. “But it also makes sense. If you live longer, then
you cost the health system more.”
In a paper published online Monday in the Public Library of Science Medicine journal, Dutch researchers
found that the health costs of thin and healthy people in adulthood are more expensive than those of
either fat people or smokers.
Van Baal and colleagues created a model to simulate lifetime health costs for three groups of 1,000
people: the “healthy-living” group (thin and non-smoking), obese people, and smokers. The model relied
on “cost of illness” data and disease prevalence in the Netherlands in 2003.
The researchers found that from age 20 to 56, obese people racked up the most expensive health costs.
But because both the smokers and the obese people died sooner than the healthy group, it cost less to
treat them in the long run.
On average, healthy people lived 84 years. Smokers lived about 77 years, and obese people lived about
80 years. Smokers and obese people tended to have more heart disease than the healthy people.
Cancer incidence, except for lung cancer, was the same in all three groups. Obese people had the most
diabetes, and healthy people had the most strokes. Ultimately, the thin and healthy group cost the most,
about $417,000, from age 20 on.
The cost of care for obese people was $371,000, and for smokers, about $326,000.
Obesity experts said that fighting the epidemic is about more than just saving money.
In-Class Exercise
• Go to the League Table at:
• http://ehealthecon.hsinetwork.com/PhaseIIIACo
mpleteLeagueTable.pdf
• Spend 10 minutes and find the answers to
the following questions:
In-Class Exercise
Team 1: Highest and Lowest CE estimates for vaccines
Team 2: Highest and Lowest CE estimates for cancer
screening
Team 3: Find a common introversion that should NOT
be covered -- consider both CE and commonality
Team 4:What is the most CE way to initiate smoking
cessation?
Team 5:Should Medicare cover Gastric Bypass
surgery?
Other Measures of Benefits of
Intervention
• General class of meaures is called: Health
Adjusted Life Years (HALYs)
• Disability Adjusted Life Years (DALYs)
= Years of lost life + years lost to disability
– DALYs differ from QALYs
• Healthy Years Equivalents (HYE)
– Number of years in optimal health that would produce
the same level of utility for an individual as produced
by a lifetime health profile of the intervention
• Only QALYs should be used in reference case
analysis (Gold, et al. 1996)
The Cost Effective Plane
+
Difference in cost
IV
Less effective
and more expensive
-
I
More effective and
more expensive
+
Less effective
and less expensive
III
More effective
and less expensive
II
Differences in effectiveness
Note: Origin is reference intervention
The Cost Effective Plane
+
Difference in cost
IV
Dominated
-
I
More effective and
more expensive
+
Less effective
and less expensive
III
Cost Saving
II
Differences in effectiveness
Comparing More than One
Intervention
• Incremental cost-effectiveness is the differences
in costs between two interventions divided by the
differences in QALYs
Total Cost Intervention 1 - Total Cost Intervention 2
QALY' s, Intervention 1 - QALY' s, Intervention 2
An Example -- CE in terms of
life years
Strate gy
C ost
Do Nothing
Simple
Complex
0
$5,000
$50,000
Marginal
C ost
0
$5,000
$45,000
Effectiveness
Marginal
Effectiveness
C E Ratio
0
5 years
5.5 years
-5 years
.5 years
-$1000/yr
$90,000/yr
Different Types of
Analysis
• Cost Effectiveness: The costs of the
intervention relative to some outcome.
• Cost-Utility Analysis: Cost Effectiveness
using a Health Related Quality of Life
measure.
• Cost-Benefit Analysis: A dollar value is
placed on the benefits as well as the cost of
the intervention.
Different Types of
Analysis
• Cost- Minimization Analysis: used when the
outcomes of the treatments are similar
• Burden of Disease Analysis: Measures the impact
of a disease on mortality, morbidity or QALYs
lost across a population
– E.g. Malaria results in xx lost life years.
• More recently, BDA includes quality of life
measures (DALYs)
– This can affect the ranking of disease -- signficantly
increases the depression in the ranking of disease
What Makes an Intervention Cost
Effective?
• What is the value of a life?
– How might you try to figure it out?
• Roughly, anything below $100,000 to
$50,000 per QALY is a “good buy”
NICE
• National Institute for Health and Clinical
Excellence -- NICE!
• A UK organization that provides guidance on the
use of new and existing medical technologies
• Specifically chartered for England and Wales -the NHS must cover treatments recommended by
NICE
• Is influential outside of those areas-- so it is
important to know it
• http://www.nice.org.uk/
The Cost Effective Plane
+
Difference in cost
IV
Less effective
and more expensive
-
I
More effective and
more expensive
+
Less effective
and less expensive
III
More effective
and less expensive
II
Differences in effectiveness
Note: Origin is reference intervention
The Cost Effective Plane
+
Difference in cost
IV
Dominated
-
I
More effective and
more expensive
+
Less effective
and less expensive
III
Cost Saving
II
Differences in effectiveness
Not all Evidence is Created Equal
• Studies use different strategies to estimate the effectiveness
and that should be taken into account in the analysis
• Grading the Evidence (Cook, et al. 1992)
Level of Evi dence
Level I
Level II
Level III
Level IV
Level V
Large Randomized Trial with Clear-cut Results
Small Randomized Trial with Imprecise Results
Non-Randomized, with controls
Non-Randomized, with controls
Times Series, No Controls
Grade of
Re comme ndation
A
B
B
C
C
Summary the Design of Cost
Effectiveness Analysis
Health state 1
Cost 1
Intervention
Incidence of disease
Life Expectancy
Quality of Life
Health state 2
Cost 2
Change in incidence
Incidence of disease
Increase in lifespan
Life Expectancy
Improvement in quality Quality of Life
Information from medical literature
Information from electronic databases
Information directly from trials