Estimating Interventi

Costs

Todd Wagner PhD Todd Wagner, PhD

September 2011
Objectives

 At the end of the class, you should

– Ud d h i Understand what micro-costing mea– Be w d ee co familiar with different micro-cos 

methods 

– U d t d th t th th d 

Understand that the method you use 

affect your ability to conduct meani

subgroup analysis
Focusing Question

 What is the cost of a new health care 

intervention?Examples:

1. Supportive employment intervention fo

Supportive employment intervention fo

with a spinal cord injury

2. Ot h k t i 

O

u

treac

h wor

kers 

to 

improve cancer sc

3. A new therapy for stroke patients
Outline

1. Overall approaches2. Direct Measurement3. Cost Regression Cost Regression4. An imp p ortant assumption: Effic

production and economies of sc

5. E l xamp e
Micro-costing

 This term refers to a set of method

research t ti t t hers use 

to estima

te cos

t

s

 Methods are needed because costs

not readily observable

*cost resulting from a competitive market cost resulting from

a competitive market
Micro-cost Methods

 Direct measure: measure activities and 

prices to them prices to them

 Pseudo-bill: capture services using bil

codes Assign costs to billing codes codes. Assign costs to billing codes

 Cost regression: use statistical techniq

ide y a g a cos s ntify m

a

r

gin

al cos

t

s
Selecting a Method

 Data availability Method feasibility Appropriate assumptions Appropriate assumptions P i i dA Prec

i

s

ion an

d

Accuracy
Combining Methods

 No single method can fill every ne

even withi i l t d ithin a s

ing

le s

t

u

d

y

 Multi

-method may be best, for exa

method may be best, for exa

– Direct method utilization most affec

i i ntervent

ion

– Cost re

gression for other utilization
Outline

1. Overall approaches2. Direct Measurement3. Cost Regression Cost Regression4. An imp p ortant assumption: Effic

production and economies of sc

5. E l xamp e
Direct Measurement

 Four steps

1. S if h d i Specify t

he pro

duct

ion processes

2. En

u e e e pu s o e c p oc

m

erat

e th

e inpu

t

s for 

e

a

ch 

p

roc

3. Identify price for the inputs4. Sum (quantity*price) across all inp

 Level of precision is critical!
Imagine microcosting 

Imagine microcosting

cu

p of coffee

 Growing Harvesting Keep in mind: Distribution

R i

Keep in mind:- Scale of production

- Quality



Roast

ing

 Enjoying

Luckily, the cost of a 

observable.
Examples of Precision

 Intervention used 2 FTE outreach workers f

participants

 Total labor cost is $100,000 for a year Less Precise Method: Labor cost per partici

$, , $ 100,000/1,000 or 

$100

 More Precise Method: Track intervention ti

p p artici

pant. Use time estimates as a relative 

apportion labor costs.
Precision is Precision is

Expensive

 It is time consuming 

to track staff to track staff

activities

 Form was created Form was created

with input from 

outreach workers outreach workers

 Manager reviewed 

th f em 

for accuracy 

each week
Precision and Accurac

 The center of the 

target represents target represents

perfect accuracy

A

 A and B are equally 

accurateAi i

B



A

is more prec

ise 

than B
Accuracy

 SCI-VIP program developed a CP

so th t ti t idi 

that time spent providing suppo

empy g p loyment was gathered as part 

EMR documentation

 This improved data accuracy This improved data accuracy
The Precision Payoff

Subgroup analysis

Expense a

Exam

ple at end of lecture

About subgroup analysis
Direct Measurement: Direct Measurement:

Personnel Activities

 Research staff can produce severa

“ d t” pro

duc

t

s

”

– Exclude develo

pment cost

– Exclude research-related costs– Sh ld h f ll Should measure w

hen program 

fully 

implemented
Personnel Costs

 P ff i d li 

Pay can affect quant

ity an

d quality; attracts 

types of people

 N d i l d b fi ( h i ) Nee

d to 

inc

l

u

de 

benefits 

(

w

hen appropr

iate

)

 Need to include direct/productive and indire

prodi ( i i ) duct

ive costs 

(e.g., meet

ing t

imes

)

 Assumption: changing personnel pricing wi

affect the quality or effectiveness of the inte

 VA Labor costs

h // h h / /f 02 http://www.

herc.researc

h.va.gov

/resources/faq_c02
Outline

1. Overall approaches2. Direct Measurement3. Cost Regression Cost Regression4. An imp p ortant assumption: Effic

production and economies of sc

5. E l xamp e
Cost Regression

 Use a regression model to underst

margi l ff t f i t ti ina

l effec

t o

f an 

i

n

tervention

 Possible method when examining Possible method when examining

existing care for which cost data e

 Not a good method for a new tech

(e g secure messaging) where co(e.g., secure messaging) where co

accounting may be underdevelope
Ex: Cost of Telephone C

 We used a RCT to examine whether te

case monitoring improves substance ucase monitoring improves substance u

relative to usual care.

 Intervention averaged 9.1, control ave

calls 

( ,p ) difference=7.2

,

p<001

)

 DSS tracks SUD telephone care costs 

stops (543 544 545) stops (543, 544, 545)

 We summarized the cost data per pers
Regression

Intent to treat

Instrume

Variabl

Group effect 79.882

[14.640]**

Number of phone calls 10.53

[2 32]*[2.32]*

female 0.477 ‐4.14

[0.161]** [22.47

site 1 2.404 ‐2.92

[34.201] [14.73

Age ‐2.047 0.87

[15.771] [0.86

other covariates omitted for brevityObservations 642 667Robust standard errors in brackets
Assumptions

 Cost and workload data are accura

capt d ure

 Accuracy could vary by location Accuracy could vary by location Costs are biased toward 0 if the w

is not being captured
Cost Regression

 Large literature on analyzing cost data Cost data are frequently skewed Cost data are frequently skewed

– Skewed errors violates assumptions of O

Least Squares Least Squares

– Error terms not normally distributed with 

means and variance means and variance

– Transformation 

 T pical method: log of cost T

ypical method: log of cost

 Can make OLS assumptions more tenable

Duan, N. (1983) Smearing estimate: a nonparametric retransformation method, Journal of the American Statistical As

Manning WG, Mullahy J. Estimating log models: to transform or not to transform? J Health Econ 2001 Jul;20(4):461-9Basu A, Manning WG, Mullahy J. Comparing alternative models: log vs Cox proportional hazard? Health Economics 200
Outline

1. Overall approaches2. Direct Measurement3. Cost Regression Cost Regression4. An imp p ortant assumption: Effic

production and economies of sc

5. E l xamp e
Important Assumption

Important Assumption

Scale Economies

 We created a health guide for a RC

We created

a health guide for

a RC

 We paid $14 per guide for 1000 g If we ordered more, the cost per g

would decrease eventually reachiwould decrease, eventually reachi

 Which cost estimate should you u

th CEA? e
Poll

 Which method should you use

– #1 or – #2
Economies of Scale

 If the unit costs ($/Q) of producing a g

decrease as the 

q y (Q) g 

uantit

y (Q) of 

goods i

use the unit cost when there are constareturns to scale returns to scale.

$/Q

Increasing 

returns to

C

returns to

scale
Outline

1. Overall approaches2. Direct Measurement3. Cost Regression Cost Regression4. An imp p ortant assumption: Effic

production and economies of sc

5. E l xamp e
Example of Direct Measuremen

the Importance of Precision the Importance of Precision

Wagner T H Engelstad L P Mcphee S J & Pasick R J (2007) The costs of Wagner, T. H., Engelstad, L. P., Mcphee, S. J. & Pasick, R. J. (2007) The costs of 

outreach intervention for low-income women with abnormal Pap smears, Prev 

Chronic Dis, 4, A11.

Wagner TH, Goldstein MK. Behavioral interventions and cost-effectiveness analy

P M d 2004 39 1208 Prev 

Me

d 2004;39:1208-14.
Background

 Highland Hospital (Oakland CA) 

l t fl o o ow-i l R ti 

income people. Routin

p p erforms Pap smears in the ED.

 P bl L t f f ll Problem: Low rates of follow-up a

abnormal Pap ( smears (~30% follo
Objective

 We evaluated the cost-effectivene

usual ( il d t l i d 

l care (a mailed postal remind

with a tailored outreach interventi

compared to usual care alone.

 D CEA b di i k Does CEA vary by disease risk.
Pap Abnormality

 Atypi l ll f d 

ica

l squamous cells o

f un

determ

significance (ASCUS)

 Atypical glandular cells of undeterm

si

g () nificance 

(AGUS

)

 Low-grade squamous intraepithelial 

(LGSIL)

 High-grade squamous intraepithelial 

(HGSIL)

Solomon D, Davey D, Kurman R, et al. The 2001 Bethesda System: terminology for reporting results of ce2002; 287:2114-9. 
Study Overview

 Randomized, controlled trial Usual care: notified by telephone 

depending on the degree of abnormdepending on the degree of abnorm

Provided intervention after 6 mon

 Intervention: Usual care plus outre

and tailored individual counseling and tailored individual counseling

 Estimated costs using direct meas
Effectiveness

Abnormal Pap Follow-up at Highland Hospital

non-OB Patients

100%

70%80%90%

Up

40%50%60%

e % Followed 

20%30%40%

Cumulative

0%

10%

1 2 3 4 5 6 7 8 9 10 11 

Months since Initial Pap

Intervention Control
Unit Costs (2002 dollar

Intervention

(n=178)

Outreach worker costs $142 Travel costs at $.365 per mile $4 Office space and supplies $28 Outreach worker quality assurance $19 Usual care Usual care $1 Subtotal $47 Patient Travel Costs for Follow-up $19 Total unit cost from societal perspective $214 Cost to add intervention from provider perspective $194 
Intervention Costs

• Method 1: Sum all the intervention co

divide by number of p p articipants ( y

eas

• Method 2: Estimate the cost of the

intervention for each patient patient (hard)

• If you want to ask, “was the intervent

cost‐effective effective for subgroups? subgroups?”, then yo

to use method 2?
Cost per follow-up

Cost Incremental 

cost

Effectiveness Incremental 

effectiveness

Incremen

costeffectiven

Societal Perspective 

Control $77 0.32I t ti n ervention $355 $278 0 61 . 0 29 . $959

Bootstrapped 95% CI (787-136Payer Perspective Control $67 0.32 

Intervention $335 $268 0.61 0.29 $926 Bootstrapped 95% CI (754-133Societal Pers

pective 

ASCUS/AGUS $75 0.32

 347 $272 0.57 0.25 $1,090  LGSIL $74 0.30 (813-165 374 $300 0.64 0.34 $882 

HGSIL $105 0 43 . (579-458

 405 $300 0.87 0.44 $681  (486-198

* Effectiveness is proportion of women in group who received follow-up for the abno
Poll 1

 Do you understand what micro-co

means?

– Yes– No– Don’ k il ff ’t know until I get more coffee
Poll 2

 Do you feel more familiar with m

costi th d ? ting methods?

– Direct measurement

 Yes No

– Cost Regression

 Yes No
Poll 3

 Could you explain to a colleague t

rel ti hi b t i lationship between micro-costinp gp y recision and subgroup analysis?

– Yes– No– I don’t have any g colleagues
Resources

 Converting time into money

– Smith M, Barnett P, Phibbs C, Wagner T, Yu W. Micro-cost methods o

health care costs: Health Economics Resource Center VA Palo Alto Mhealth care costs: Health Economics Resource Center, VA Palo Alto, M

2005.

– Smith M, Cheng A. A Guide to Estimating Wages of VHA Employees 

Menlo Park CA: Health Economics Resource Center; 2010.

 Converting travel distance into money.

– Phibbs CS, Luft HS. Correlation of travel time on roads versus straight 

Med Care Res Rev. 1995; () 52 4 :532-542.

– $.19 per mile travel reimbursement is US tax code for health care 

reimbursement http://www.irs.gov/newsroom/article/0,,id=232017,00.

– PSSG has VAST dataset on travel times. http pg g ://vaww.pssg.med.va.gov/

 Caregiver costs (if needed)

– US Bureau of Labor Statistics http://www.bls.gov/oco/ocos326.htm– Russell LB Completing costs: patients Russell LB. Completing costs: patients’ time Med Care Jul 2009;47(7 time. Med Care. Jul 2009;47(7 
Resources

 When we estimate the cost of labor, we need to add employe

(30%) and overhead (the “back office” components of an orgkeep it running such as HR and IT) keep it running such as HR and IT)

 Calculating overhead costs

– 33%-- Arthur Andersen. The costs of research: examining patterns of expenditure

sectors.

http://www.aau.edu/WorkArea/DownloadAsset.aspx?id=2842.

– Estimating overhead costs empirically

 Barnett PG, Berger M. Indirect Costs of Specialized VA Mental Health Treatment. Technical Re

Health Economics Resouce Center; 2003.

 Barnett P, Berger M. Cost of Positron Emission Tomography: Method for Determining Indirect C

Menlo Park: Health Economics Resource Center; 2003.
Questions