***Health Services Research and Development Service***

***QUERI Economic Analysis Guidelines***

***April 2, 2004***

The Quality Enhancement Research Initiative (QUERI) is developing and
testing interventions to improve the quality of VA care. Economic
analysis can provide important information needed to evaluate quality
improvement efforts. Not all QUERI projects will benefit equally from an
economic analysis. An economic analysis may be more appropriate if the
intervention is costly, has large effects on health care utilization, or
is nearly ready to be replicated on a wide-scale.

A QUERI economic analysis may be a study of the relationship between
quality and production efficiency, the determination of the cost of an
intervention, an evaluation of the impact of an intervention on total
health care costs, or a cost-effectiveness analysis. A QUERI economic
analysis should measure costs and outcomes and place this information in
context. A standard method of cost-effectiveness analysis, described
below, allows the cost-effectiveness of new health care interventions to
be compared. The standard method does not provide all of the information
needed by VA decision makers, however.

In designing an economic analysis of a QUERI intervention, the following
points should be considered:

[Transparency of analysis]{.underline}. The economic evaluation must
document data sources, methods, and assumptions. It should describe when
costs are incurred and when benefits are realized.

[Impact of the intervention on cost]{.underline}. The analysis should
estimate the cost of adopting the intervention. Micro-cost methods are
needed to determine the costs of activities that are unique to this
intervention, such as a program to promote guideline implementation or a
change in the way health care services are delivered. The analyst should
determine what types of care will be affected by the intervention, and
may determine its effect on total VA health care cost. When the
intervention changes the quantity but not the character of health
services, standard unit costs or average cost methods may be used to
estimate cost.

[Sunk costs, supply constraints, and facility-specific
considerations]{.underline}. The economic analysis will be more
applicable to managerial decisions if it considers how much funding is
needed to adopt the intervention given the current staffing and
configuration of equipment and facility at sites where adoption is being
considered. For example, an intervention that reduces hospital stays may
save little if the effect is too small to allow reassignment of ward
staff. Space and staffing constraints may make it unexpectedly expensive
to adopt a new program. Unused capacity may make a program more
economically feasible. Such considerations are often specific to a
particular facility, making it difficult to generalize from a small
sample of sites. The analyst may wish to consider whether the analysis
would change if VA were to buy or make new services required by the
intervention.

[Time horizon.]{.underline} Managers are concerned about the impact of
new programs on the current budget. When costs are incurred in the short
run but savings are realized over the longer term, it is important that
the analysis distinguish current year costs from those incurred in the
future.

[Cost perspective of provider.]{.underline} QUERI economic analyses are
likely to focus on the effect of the intervention on the VA health care
system. Impacts on the cost incurred by other health plans and by
patients should be distinguished; these costs may be secondary
considerations to VA managers.

[Effect on revenue]{.underline}. The analysis may need to identify any
effects that the intervention will have on health care system revenue,
for example, whether the intervention might result in a new service that
might attract draw high-cost, low-revenue patients.

[Relation of intervention to community standard]{.underline}. The
analysis should indicate whether the intervention would bring VA up to
the community standard of care, or whether successful implementation
would allow VA to exceed the standard.

[Effect on outcomes.]{.underline} The economic analysis should describe
the effect of the intervention on patient outcomes. It should indicate
the number and characteristics of affected patients. All outcomes should
be described, including benefits such as prevention of mortality or
catastrophic illness, or improvement in quality of life, as well as
risks and side-effects of treatment. If possible, the impact of the
intervention should be expressed as a change in Quality Adjusted Life
Years.

**Standard cost-effectiveness analysis**

A standard method of cost-effectiveness analysis (CEA) has been
described by the U.S. Public Health Service Panel on Cost-Effectiveness
in Health and Medicine. This standardization allows the
cost-effectiveness of different health care interventions to be compared
using a comment set of methods.

The standard CEA uses the perspective of society as a whole. As a
result, it considers not only the cost of an intervention and its effect
on subsequent health care utilization, but also costs incurred by other
health care systems, and by patients and their families.

Standard CEA considers the full cost of providing care, including fixed
costs, facility overhead, and depreciation."

Standard CEA considers a lifetime perspective. Long-term costs and
benefits are included. These are discounted to reflect the decline in
economic value that results from delay.

In a standard CEA, outcomes are translated into a specific measure of
benefit, the Quality Adjusted Life Year (QALY). Typically new
interventions are more effective and more expensive than usual care.
When this occurs, an incremental cost-effectiveness ratio is calculated.
This provides information about whether the benefits of the intervention
justify the costs. QALYs are treated as equal, regardless of the patient
characteristics. Interventions are judged equivalently, regardless of
their relation to the current standard of care.

More information on the standard CEA method, and methods for conducting
economic analysis in VA, are provided in the HSR&D document: "Cost
Analyses: Information for Applicants and Reviewers," available from the
HSR&D web site at:

<http://www.hsrd.research.va.gov/funding/Revised_HSRD_guidelines_for_economics.doc>