# Presentation: 823573

## VA Health Economics Course Presentation # 2 Elements of a Complete Cost-Effectiveness Analysis

- March 16, 2006

## Elements of a Complete Cost-Effectiveness Analysis

**Ciaran S. Phibbs, PhD**
**VA Health Economics Resource Center**

## Informal pollHow many of you have previously done a cost-effectiveness analysis?

## What is Cost-Effectiveness Analysis?

- Tool for making decisions
- Not only must find costs must *value outcomes*
- Outcomes must be measured in a single scale

## Dominance Principles

- Only available tool if outcomes are not measured in QALYs
- An intervention is favored if it is more effective and costs less
- Extended dominance can be used when 3 or more treatments are being compared

## Application of Dominance

- Standard care preferred

- +

- -

- -

- +

- Intervention
- preferred

- ?

- ?

## Incremental Cost-Effectiveness Ratio

- _____________________
- QALYEXP -QALYCONTROL

- Calculated when one intervention is more effective and more costly

## Application of CriticalCost-Effectiveness Ratio

- Application of CriticalCost-Effectiveness Ratio

- Intervention preferred

- Standard care preferred

- +

- -

- -

- +

- CE Ratio=$50,000/QALY

## Elements of a cost-effectiveness analysis

- The reference case– compare intervention to status quo
- Societal perspective (What costs are included?)
- Economic valuation of outcomes
- Discounting: the lower economic value associated with delay
- Modeling lifetime cost and benefits
- Uncertainty
- Sensitivity analysis
- Confidence interval

## What is the “Reference Case”

- A standard set of methods and assumptions to serves as a point of comparison across studies

## Why Do We Need a Reference Case?

- There are many different assumptions, methods, and perspectives that can affect the outcomes of a cost-effectiveness analysis.
- Without standardization, it would not always be possible to compare the results across studies.
- Standardization greatly increases the policy value of C-E analysis.

## PHS Recommendations: Summary

- Adopt perspective of society
- Measure all costs
- direct cost of intervention
- all health care expenditures
- patient incurred cost
- Express outcomes as Quality-Adjusted Life Years (QALY)

## PHS Recommendations: Summary (continued)

- All health effects in the denominator of the C/E ratio
- The numerator of the C/E ratio captures all changes in resource consumption associated with the intervention
- Discount costs and outcomes at 3% annual rate

## PHS Recommendations: Summary (continued)

- Model when effects of intervention not fully realized during the study period
- Conduct sensitivity analysis
- Test statistical significance of cost-effectiveness findings
- Standards for reporting of C/E analyses.

## Societal Perspective

- Adopt perspective of society
- Payer perspective may yield very different results; benefits or costs may occur to others, including:
- Patient
- Other payers
- Other individuals (e.g., family members)
- Employers

## Denominator vs. Numerator

- All health effects in the denominator, expressed in QALYs
- The numerator of the C/E ratio captures all changes in resource consumption associated with the intervention
- There are gray areas, that could be placed in either
- Avoid double counting!!!

## White board exercise

- What elements should be
- included in the numerator?

## Components Belonging in the Numerator of the C/E Ratio

- Costs of health care services
- Costs of patient time
- Costs of caregiving (paid and unpaid)
- Other costs (e.g. travel time)
- Costs measured in constant dollars
- Use wage rates to value time costs

## Components Belonging in the Numerator of the C/E Ratio (cont)

- Non-health care costs
- E.g., education, criminal justice, environment
- Costs imposed on others
- E.g., employers, rest of society
- Do _**NOT**_ include lost productivity; would result in double counting

## Components Belonging in the Numerator of the C/E Ratio (cont)

- Health care costs that result from living longer
- Include costs for intervention-related diseases within original expected life span, and for added years of life
- Include costs of treating adverse events
- Exclude unrelated health care costs and non-health care costs within original expect life span
- Exclude non-health care costs for added years of life
- No recommendation for unrelated health care costs for added years of life

## White board exercise

- What elements should be
- included in the numerator?

## Components Belonging in the Denominator of the C/E Ratio

- Measure health effectiveness in QALYs
- QALYS should be preference based
- Weights based on community preferences
- Use a generic health-state classification, as opposed to disease-specific
- Use age- and sex-specific HRQL to value gains and loses

## Modeling May Be Necessary

- Most clinical trials don’t cover full time horizon of the potential effects
- It is allowable to use modeling and/or data from other sources to complete the analysis
- Use of expert judgment should be avoided, if possible

## Discounting

- Real discount rate of 3%
- All costs should be adjusted for inflation
- Both costs and health outcomes should be discounted
- Conduct sensitivity analysis of the discount rate.

## Sensitivity Analysis

- Conduct sensitivity analysis
- 1-way sensitivity analysis for key assumptions
- 1-way sensitivity analysis under-state overall uncertainty; should also conduct multivariate sensitivity analysis

## Bootstrap Determination of Cost-Effectiveness Confidence Region

- Sample n observations with replacement
- Find incremental cost-effectiveness ratio
- Repeat 1,000 times
- Find percentage of replicates that are not “cost-effective”
- this is the p-value
- p-value may vary by threshold

## Slide 27

## Sensitivity Analysis: How Does Significance Vary by CE Threshold?

## Standards for Reporting Results

- Details of recommendations in paper distributed in advance; checklist
- List of information that needs to be included to allow comparison across studies
- This is very important from a policy perspective

## Net Health Benefit: An Alternative to ICER

**INHB(********) ****	****= NHB****1****(********) – NHB****0****(********)**
** ****	****	****= (********1**** - ********0****) – (********1**** - ********0****)/******
**Where INHB=incremental NHB**
**	****NHB=net health benefit**
**	********=cost-effectiveness threshold**
**	********=average effectiveness of intervention**
**	********=average cost of intervention**

## References

_**Cost Effectiveness in Health and Medicine**_
- Marthe R. Gold, Joanna E. Siegel, Louise B. Russel, Milton C. Weinstein, editors
- Oxford 1996
- $55.00
_**Methods for the Economic Evaluation of Health Care Programmes (Paperback)**_by Michael F. Drummond, Mark J. Sculpher, George W. Torrance, Bernie J. O’Brian, Greg L. Stoddart
- Oxford 2005
- $51.65 on Amazon
- Oxford: _[http://](http://www.oup.com/us/)__[www.oup.com](http://www.oup.com/us/)__[/us/](http://www.oup.com/us/)_
- Amazon: _[http://](http://www.amazon.com/)__[www.amazon.com](http://www.amazon.com/)_

## Alternative to book by Gold

**Russell LB, Gold MR, Siegel JE, Daniels N, Weinstein MC.   **
**The role of cost-effectiveness analysis in health and medicine. **
**JAMA. 1996 Oct 9;276(14):1172-7. **
** **
**Weinstein MC, Siegel JE, Gold MR, Kamlet MS, Russell LB.   **
**Recommendations of the Panel on Cost-effectiveness in Health and Medicine.**
**JAMA. 1996 Oct 16;276(15):1253-8.**
** **
**Siegel JE, Weinstein MC, Russell LB, Gold MR. **
**Recommendations for reporting cost-effectiveness**** ****analyses. **
**JAMA. 1996 Oct 23-30;276(16):1339-41.**

## Other References

**Hayward RA, Kent DM, Vijan S, Hofer TP. Reporting clinical trial results to inform providers, payers, and consumers. Health Affairs 2005;24(6):1571-1581.**
**ISPOR Task Force for CEA in clinical trials, see:**
**Ramsey, Scott, et al.  Good Research Practices for Cost-Effectiveness Analysis Alongside Clinical Trials: The ISPOR RCT-CEA Task Force Report.  *****Value in Health 2005;8 (5), 521-533.*****  Also available on the ISPOR web page,** _[http://www.ispor.org/workpaper/clinical_trial.asp](http://www.ispor.org/workpaper/clinical_trial.asp)_
- Heitjan DF.  Fieller’s Method and Net Health Benefits.  Health Economics 2000;9:327-335.

## Suggested reading for next session

- _Cost Effectiveness in Health and Medicine_
- Martha R. Gold, et al
- Oxford 1996
- For next session: pages 176-203
- 	 “Estimating VA Treatment Costs: Methods and Applications” September 2003 supplement to _Medical Care Research and Review_
- 	Available for free at HERC web site under publications
- 	_[http://www.herc.research.med.va.gov/publications/supplement_mcrr_2003.asp](http://www.herc.research.med.va.gov/publications/supplement_mcrr_2003.asp)__ _
- 		For next session: page 74S-91S