Recommendations for 

C d i C Eff i Con

duct

ing 

Cost Effect

iven

Elements of the Reference CElements of the Reference C

Ciaran S. Phibbs, Ph.D.

S t b 14 2011 Sep

tem

ber 14, 2011
PHS Recommendations PHS Recommendations

• MR Gold, JE Siegel, LB Russell, MC 

Weinstein 

( ) 1996

) Cost-Effectiveness 

and Medicine Oxford University PressEspecially Appendix A (pp 304:311) Especially Appendix

A (pp 304:311)

Health Economics Resource Center
PHS Recommendations JAMA Su

PHS Recommendations, JAMA Su

• R ll LB t l Th R l f C t Russell LB, e

t a

l. The 

R

o

le o

f

Cos

t

-

effectiveness Analysis in Health and M

JAMA 1996:276:1172 JAMA. 1996:276:1172

-1177.

• Weinstein MC, et Al. Recommendatio

thP l C e 

Pane

l on 

Cost-Eff i i H 

Effect

iveness 

in 

He

Medicine. JAMA. 1996;276:1253-125

• Siegel JE, et al. Recommendations fo

Reporting Cost-effectiveness Analysis

JAMA. 1996;276:1339-1341.

Health Economics Resource Center
Poll

• Have you ever conducted a cost Have you ever conducted a cost-effect

effect

analysis?

• Answers• No

• One study One study

• More than one study

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Why Do We Need

Cost-Effectiveness Analysi

• Health care interventions affect many 

outcomes, in different ways outcomes, in different ways

• Need a common metric to allow comp

across diverse diseases, conditions, anp p ( g, p opulations (e.g., compare the value ointerventions for PTSD and coronary adisease)

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What is Cost What is Cost-Effectiveness Ana

Effectiveness Ana

• Tool for making decisions a common 

Tool for making decisions, a common 

to compare diverse interventions

• Need to find both the costs of the inter

and assign values to outcomes and assign values to outcomes

• Outcomes must be measured on a sing

the standard is Quality Adjusted Life Y(Q ) ALYs

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Dominance Principles Dominance Principles

• Only available tool if outcomes are no

measured in 

QALYs 

• An intervention is favored if it is more 

eff i d l ffect

ive an

d costs 

less

• Extended dominance can be used whe

Extended dominance can be used whe

more treatments are being compared

Health Economics Resource Center
Application of Dominan

+

Change

Standard care preferred

?

in

Cost

I t ti

?

-

I

n

tervention 

? preferred

- Change in Effectiveness

+

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Examp g le of Strong Dominan

(better outcomes and lower co

• Neonatal surfactant replacement thera

reduction on RDS mortality

• Reduced mortality increases costs• But, surfactant reduced treatment inten

LOS of those who would have surviveLOS of those who would have survive

anyway

• Net result, lower mortality and lower c

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Incremental Cost-Effectiveness R

• Calculated when one intervention is more 

effective and more costly effective and more costly

CostEXP

- CostCONTROL

_____________________

QALYEXPQ EXP

-

QALYCONTROL CONTROL

Health Economics Resource Center 
Application of Critical

Cost

-Effectiveness Ratio Effectiveness Ratio

Change

Standard care 

+ preferred

in

Cost

Interventipreferred

-

Change in Effectiveness

-

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What is the “Reference Cas

• A standard set of methods and assump

serves as a poi t f i 

i

n

t o

f compar

ison across 

Health Economics Resource Center
Why Do We Need a Reference 

• Th

e e a e a y d e e t assu pt o s, 

r

e

a

r

e m

a

n

y

diffe

r

e

n

t assu

mpt

i

o

ns, m

and perspectives that can affect the outcocost

-effectiveness analysis effectiveness analysis. 

• Without standardization, it would not alw

possible to compare the results across stu

• Standardization greatly increases the pol

Standardization greatly increases the pol

of C-E analysis.

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PHS Recommendations: Sum

PHS Recommendations: Sum

• Adopt perspective of society• Measure all costs Measure all costs

– direct cost of intervention–

all h l h di ll

hea

l

t

h care expenditures

– patient incurred cost 

• Express outcomes as Quality-Adjusted 

Years (QALY) Years (QALY)

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PHS Recommendations: 

Summary (continued)

• All health effects in the denominator o

C/E ratio

• The numerator of the C/E ratio capture

changes in resource consumption assochanges in resource consumption asso

with the intervention

• Discount costs and outcomes at 3% an

Health Economics Resource Center
PHS Recommendations: 

Summary (continued)

• Model when effects of intervention no

realized durin

g yp the stud

y

period

• Conduct sensitivity analysis• T i i l i ifi f Test stat

ist

ica

l s

ignificance o

f costeffectiveness findings 

• Standards for reporting of C/E analyse

Health Economics Resource Center
Societal Perspective Societal Perspective

•

Ad ifi opt perspect

ive o

f soc

iety

• Pa

y p p yy y er 

pers

pective ma

y

yield ver

y diffe

results; benefits or costs may occur to includin

g:

– Patient– Other payers Other payers– Other individuals (e.g., family members)– Employers

Health Economics Resource Center
Budget Impact Analysi

Budget Impact Analysi

• For VA studies

,y 

 ma

y also consider doin

Budget Impact Analysis, in addition to 

• Provides VA managers with informatio

Provides VA managers with informatio

the time line of the costs and benefits; 

important for budget planning important for budget planning.

• May help speed adoption/implementat

• Will be covered in a later lecture

Health Economics Resource Center
Denominator vs Numera

Denominator vs. Numera

•

All h l h ff i h d i ll

hea

l

t

h effects 

in t

he 

denom

inator, 

expressed in QALYs 

• The numerator of the C/E ratio capture

chan

g p es in resource consum

ption asso

with the intervention

• There are gray areas that could be pla

There are gray areas, that could be pla

either

• A id d bl ti Avoid

double counting.

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Poll: Do these belong in the num

of the ICER? Yes/no answe

• Health care costs associated with the 

intervention

• Length of stay Length of stay• Costs of patient time• The value of lost productivity

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Components Belonging in t

Numerator of the C/E Rati

• Costs of health care services• Costs of patient time ***• C f osts o

f care-gi i ( id d id) i

v

ing 

(paid an

d unpaid)

• Other costs 

(g ) e.

g. travel time

)

• Costs measured in constant dollars• Use wage rates to value time costs

Health Economics Resource Center
Components Belonging in t

Numerator of the C/E Ratio (c

• Non-health care costs

– E.

g, , j , ., education, criminal 

justice, environ

• Costs imposed on others

– E l fi .g., emp

loyers, rest o

f soc

iety

• Do NOT include lost 

p y; roductivity; wo

result in double counting

Health Economics Resource Center
Components Belonging in t

Numerator of the C/E Ratio (c

• Health care costs that result from livin

Health care costs that result from livin

– Include costs for intervention-related dise

within original expected life span and fowithin original expected life span, and fo

years of life

– Include costs of treating adverse events Include costs of treating adverse events– Exclude unrelated health care costs and n

care costs within ori

gp p inal ex

pect life s

pan

– Exclude non-health care costs for added 

life

– No recommendation for unrelated health 

for added years of life 

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Components Belonging in t

Denominator of the C/E Ra

• Measure health effectiveness in QALY• QALYS should be preference based QALYS should be preference based• Weights based on community preferen• Use a generic health-state classificatio

opposed opposed to d sease to

d

isease

-spec c ifi

c

• Use age- and sex-specific HRQL to va

gai dl ns an

d

loses

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Modeling May Be Necess

Modeling May Be Necess

• Most clinical trials don’t cover full tim

horizon of the 

potential effects

• It is allowable to use modeling and/or 

from other sources to complete the anafrom other sources to complete the ana

• Use of expert judgment should be avo

possible

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Discounting

• Real discount rate of 3%• All costs should be adjusted for inflati

All costs should be adjusted for inflati

• Both costs and health outcomes should 

di d scounted

• Co duct se s t v ty a a ys s o t e d s

nduct sensitivity analysis of the dis

rate.

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Sensitivity Analysis Sensitivity Analysis

• Conduct sensitivity analysis•

1

-way sensitivity analysis for key assu

way sensitivity analysis for key assu

• 1-way sensitivity analysis under-state 

uncertai h ld l d l i 

inty; s

hould a

lso con

duct mu

l

t

i

sensitivity analysis

Health Economics Resource Center
Bootstrap Determination of Cost-Effec

Confidence Region

• Sample n observations with replaceme• Find incremental cost Find incremental cost

-effectiveness ra

effectiveness ra

• Repeat 1,000 times• Find percentage of replicates that are n

“cost

-

e ect ve ffect

ive

”

– this is the p-value– p-val b th h ld lue may vary 

by thres

h

old

Health Economics Resource Center

Sensitivity Analysis: How D

Significance Vary by CE Thres

0.1

0.060.08

alue

0.02

P V0.04

0

CE Threshold

Health Economics Resource Center

CE Threshold
Standards for Reporting Re

Standards for Reporting Re

• Si l JE t l R d ti f Siege

l JE, e

t a

l. 

Recommen

d

ations 

fo

Reporting Cost-effectiveness Analysis

JAMA 1996;276:1339 JAMA. 1996;276:1339

-1341 Checkl

1341. Checkl

• List of information that needs to be inc

allow comparison across studies

• This is very important from a policy This is very important from

a policy

perspective

Health Economics Resource Center
Alternative Method Alternative Method

• Just to mention, alternative to reportin

net benefit re

gression

• Hoch JS, Briggs AH, Willan AR. Som

old something new something barrowold, something new, something barrow

something blue: a framework for the m

of health econometrics and cost-effectanal

ysis. Health Economics. 2002;11

430.

Health Economics Resource Center
Other References Other References

• Methods for the Economic Evaluation of Health 

Methods for the Economic Evaluation of Health Programmes (Paperback)by Michael F. Drummond, Mark J. Sculpher, GeorgT B i J O’B i G L Torrance, 

Bern

ie 

J. O’B

r

ian, 

Greg 

L. St dd t St

oddar

t O f 

O

x

fo

• Hayward RA, Kent DM, Hayward RA, Kent DM, Vijan S, Hofer TP. Rep

S, Hofer TP. Rep

clinical trial results to inform providers, payers, consumers. Health Affairs 2005;24(6):1571-1581

• Heitjan DF. Fieller’s Method and Net Health Bene

Economics 2000;9:327-335.

Health Economics Resource Center 
Other References Other References

• ISPOR Task Force for CEA in clinical trials, see• Ramsey, , Scott

, et al. Good Research Practices f

Effectiveness Analysis Alongside Clinical Trials: ISPOR RCT-CEA Task Force Report. Value in 2005; ( ), 8 

(5), 521-533. Also available on the ISPOR 

page, http://www.ispor.org/workpaper/clinical_tria

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