Recommendations for 

Conducting Cost 

Effectiveness:

Elements of the Referen

Case

Ciaran S. Phibbs, Ph.D.

April 23, 2014
What will you learn?

 Why do we need to standardize cos

effectiveness analyses

 What needs to be standardized Build on details from previous lectu
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PHS Recommendations

 MR Gold, JE Siegel, LB Russell, M

Weinstein (1996) Cost-EffectiveneHealth and Medicine Oxford UnivePress. Especially Appendix A (pp 304:311)
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PHS Recommendations, JAM

Summary

 Russell LB, et al. The Role of Costeffectiveness Analysis in Health and Me

JAMA. 1996:276:1172-1177.

 Weinstein MC, et Al. Recommendation

the Panel on Cost-Effectiveness in HealMedicine. JAMA. 1996;276:1253-1258

 Siegel JE, et al. Recommendations for 

Reporting Cost-effectiveness Analysis. JAMA. 1996;276:1339-1341.
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Poll

 Have you ever conducted a costeffectiveness analysis? Answers No One study More than one study
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Why Do We Need

Cost-Effectiveness Analys

 Health care interventions affect ma

different outcomes, in different way

 Need a common metric to allow 

comparisons across diverse diseaseconditions, and patient populations compare the value of interventions PTSD and coronary artery disease)
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What is Cost-Effectivene

Analysis?

 Tool for making decisions, a common 

metric to compare diverse interventio

 An intervention or treatment is compa

an alternative; “usual care” is the stancomparator. 

 Essentially asking, is the treatment be

evaluated “better” than the current staof care?
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What is Cost-Effectivene

Analysis?

 Need to find both the costs of the 

intervention (and the comparator) and assign values to outcomes 

 Outcomes must be measured on a sin

scale; the standard is Quality AdjusteYears (QALYs)
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Dominance Principles

 Only available tool if outcomes are 

measured in QALYs 

 An intervention is favored if it is m

effective and costs less

 Extended dominance can be used w

or more treatments are being compa
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Application of Dominanc

Change in Effectiveness

Change

in

Cost

Standard care preferred

+-

- +

Intervention preferred

?

?
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Example of Strong Dominanc

(better outcomes and lower cos

 Neonatal surfactant replacement therapy

reduction on RDS mortality

 Reduced mortality increases costs But, surfactant reduced treatment intens

LOS of those who would have survived anyway

 Net result, lower mortality and lower co This is RARE!!!!!!
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CostEXP - CostCONTROL

_____________________

QALYEXP -QALYCONTROL

Incremental Cost-Effectiven

Ratio

 Calculated when one intervention i

effective and more costly
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Application of Critical

Cost-Effectiveness Ratio

Change in Effectiveness

Change

in

Cost

Intervention preferred

Standard care + preferred

-

- 
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Where does the $50,000 p

QALY Threshold Come Fro

 This is both old and arbitrary. When Medicare extended to cover E

estimated gain was $50,000 per QA

 Revealed public preference Never updated for inflation
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What is the “Reference Ca

 A standard set of methods and 

assumptions to serves as a point of comparison across studies
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Why Do We Need a Refere

Case?

 There are many different assumptions, 

methods, and perspectives that can affecoutcomes of a cost-effectiveness analys

 Without standardization, it would not al

be possible to compare the results acrosstudies.

 Standardization greatly increases the po

value of C-E analysis.
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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-Adjus

Life Years (QALY)
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PHS Recommendations

Summary (continued)

 All health effects in the denominato

the C/E ratio

 The numerator of the C/E ratio capt

all changes in resource consumptioassociated with the intervention

 Discount costs and outcomes at 3% 

annual rate
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PHS Recommendations

Summary (continued)

 Model when effects of intervention 

fully realized during the study perio

 Conduct sensitivity analysis Test statistical significance of costeffectiveness findings  Standards for reporting of C/E anal
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Societal Perspective

 Adopt perspective of society Payer perspective may yield very 

different results; benefits or costs moccur to others, including:

– Patient– Other payers– Other individuals (e.g., family memb– Employers
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Budget Impact Analysis

 For VA studies, may also consider 

a Budget Impact Analysis, in additia CEA

 Provides VA managers with inform

about the time line of the costs and benefits; important for budget plann

 May help speed adoption/implemen Will be covered in a later lecture
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Denominator vs. Numerat

 All health effects in the denominat

expressed in QALYs 

 The numerator of the C/E ratio cap

all changes in resource consumptioassociated with the intervention

 There are gray areas, that could be 

in either

 Avoid double counting.
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Poll: Do these belong in th

numerator of the ICER? Ye

answers

 Health care costs associated with th

intervention

 Length of stay Costs of patient time The value of lost productivity
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Components Belonging in 

Numerator of the C/E Rat

 Costs of health care services Costs of patient time *** Costs of care-giving (paid and unpa Other costs (e.g. travel time) Costs measured in constant dollars Use wage rates to value time costs
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Components Belonging in t

Numerator of the C/E Ratio (

 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; 

result in double counting
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Components Belonging in t

Numerator of the C/E Ratio (

 Health care costs that result from living longer

– Include costs for intervention-related diseases 

original expected life span, and for added year

– Include costs of treating adverse events– Exclude unrelated health care costs and non-h

care costs within original expect life span

– Exclude non-health care costs for added years – No recommendation for unrelated health care 

added years of life 
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Components Belonging in 

Denominator of the C/E Ra

 Measure health effectiveness in QA QALYS should be preference based Weights based on community prefe Use a generic health-state classifica

as opposed to disease-specific

 Use age- and sex-specific HRQL to 

gains and loses
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Modeling May Be Necessa

 Most clinical trials don’t cover full 

horizon of the potential effects

 It is allowable to use modeling and/

data from other sources to complete analysis

 Use of expert judgment should be 

avoided, if possible
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Discounting

 Real discount rate of 3% All costs should be adjusted for infl Both costs and health outcomes sho

discounted

 Conduct sensitivity analysis of the 

discount rate.
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Sensitivity Analysis

 Conduct sensitivity analysis 1-way sensitivity analysis for key 

assumptions

 1-way sensitivity analysis under-sta

overall uncertainty; should also conmultivariate sensitivity analysis
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Bootstrap Determination of C

Effectiveness Confidence Reg

 Sample n observations with replace Find incremental cost-effectiveness  Repeat 1,000 times Find percentage of replicates that ar

“cost-effective”

– this is the p-value– p-value may vary by threshold
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Sensitivity Analysis: How Do

Significance Vary by CE Thres
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Standards for Reporting Re

 Siegel JE, et al. Recommendations 

Reporting Cost-effectiveness AnalyJAMA. 1996;276:1339-1341. Chec

 List of information that needs to be 

included to allow comparison acrosstudies

 This is very important from a policy 

perspective
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Alternative Method

 Just to mention, alternative to reporting 

net benefit regression.

 Hoch JS, Briggs AH, Willan AR. Some

old, something new, something barrowesomething blue: a framework for the maof health econometrics and cost-effectivanalysis. Health Economics. 2002;11:4430.

 HERC Cyber-Seminar, Hoch 8/23/2006
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Other References

 Methods for the Economic Evaluation of Health C

Programmes (Paperback)by Michael F. Drummond, Mark J. Sculpher, George Torrance, Bernie J. O’Brian, Greg L. Stoddart Oxfor

 Hayward RA, Kent DM, Vijan S, Hofer TP. Repo

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

 Heitjan DF. Fieller’s Method and Net Health Benefi

Economics 2000;9:327-335.
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Other References

 ISPOR Task Force for CEA in clinical trials, see: Ramsey, Scott, et al. Good Research Practices for 

Effectiveness Analysis Alongside Clinical Trials: TISPOR RCT-CEA Task Force Report. Value in H2005;8 (5), 521-533. Also available on the ISPOR page, http://www.ispor.org/workpaper/clinical_trial.a
Next HERC Cyber Cours

April 30, 2014

Estimating the Cost of an Interve

Todd Wagner, Ph.D. 

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