Cost Effectiveness Analysis

Cost effectiveness analysis is a method of analysis used for decision making that estimates the total costs of achieving a defined health care objective.
(Example: A life-year saved from a medical treatment or health behavior)

ICER

The most effective method of measuring the cost effectiveness is to calculate the ICER.
ICER = incremental cost effectiveness ratio. The equation is as follows:
Cnew - Cold
Enew - Eold

The Cost Effectiveness Plane

The costs and effectiveness of two different treatments can be graphed onto a cost effectiveness plane to show whether to choose between the two alternatives.

costs.jpg
Source: http://www.bath.ac.uk/health/images/rdsu/costs.jpg

The easiest decisions can be made in quadrants II (the NW corner) and IV (the SE corner). In quadrant II the new treatment or service is less effective and more costly and should be thrown out. In quadrant IV the new method is more effective and also cost less, making it more desirable than the old treatment. The results in quadrants I (the NE corner) and quadrant III (SW corner) the results not dominate in either way. In both instances, there must be a review of the cost and benefits and determine if either the increased costs are worth the more effective treatment (Quadrant 1) or if the less effective but less costly treament should be considered (Quadrant III)

Cost Benefit Analysis

Cost benefit analysis is a method of analysis used for decision making that estimates the total costs and benefits of an activity.
(Example: Establishing a monetary value of all the costs and benefits associated with a given health policy decision.)

--The major difference between cost benefit and effectiveness is that effectiveness does not measure the benefit of the analysis, just how effectual it is.

Cost Utility Analysis

Cost utility analysis is a method used to make policy decisions that considers the quantity as well as the quality of life-years saved from a medical intervention. This is measured by quality-adjusted life-years (QALYs). The QUALYs depends on both the number of life-years generated by the medical procedure and the ensuing quality of life.
(Example: Consider someone who will die within a year without a certain medical treatment, but with it they would expect to live an additional 10 years of a fairly healthy life with the treatment. If you calculate the QALY, you will see that the medical treatment would prove to be very beneficial.)

QALY

It is based on the number of years of life that would be added by the intervention. Each year in perfect health is assigned the value of 1.0 down to a value of 0 for death. If the extra years would not be lived in full health, for example if the patient would lose a limb, or be blind or be confined to a wheelchair, then the extra life-years are given a value between 0 and 1 to account for this.
---For more information on this topic, please refer to the QALYS page.---

Life-years

A measure of the quality of remaining life-years is referred to a health-utility index. There are three survey techniques that are generally used by researchers to develop such index.
1. Rating scale = Where individuals are asked to rate various health outcomes.
2. Standard gamble = An individual is given two hypothetical health alternatives. The first one is a health outcome that is less than perfect. The second one is that the individual undergoes a medical procedure that has a probability of success equal to the value of life. If the procedure is successful, the individual will be in perfect health. If not, then the individual dies.
3. Time trade-off = AN individual is given a hypothetical choice: (s)he can live y years with a particular chronic condition such as the inability to walk, where y > x. The number of healthy years x is then varied until the person is indifferent between the two outcomes. The healthy utility index is equal to x/y.

(Source: Santerre, Neun, Health Economics)
(Source: http://en.wikipedia.org)

Sample Questions:


Question: Suppose you have the following information: You have a headache and you want pain relief. You can purchase Tylenol at $2.30 a bottle and lasts for 8 hours, or you can buy Advil for $2.09 a bottle and lasts for 12 hours. Calculate the ICER and provide an analysis.

Answer:
Tylenol 2.3/8 = 0.2875
Advil 2.09/12 = 0.1742
The information says that Advil has the lower incremental costs and would be more efficient to purchase.

Question: Which of the following is NOT a technique to calculate the health-utility index?
A. Regression analysis
B. Time trade-off
C. Standard gamble
D. Rating-scale

Answer:
A. Regression analysis is used to predict future outcomes between an dependent and independent variable.

Question: What is the formula for ICER?

Answer:
Cnew - Cold
Enew - Eold

Question: What is the major difference between cost effectiveness analysis and cost benefit analysis?

Answer:
The major difference between cost benefit and effectiveness is that effectiveness does not measure the benefit of the analysis, just how effictive it is.

Question: QALY stands for which of the following?
A. Quality Averaged Life Years
B. Quality-Adjusted Life-Years
C. Quantity Averaged Living Years
D. Quantity-Adjusted Living-Years

Answer:
B. QALY is the acronym for Quality-adjusted life years.

Question: What should happen when the results of a cost-effectiveness analysis of new treatment compared to a previous treatment lies in quadrant IV on the cost-effectiveness plane?
A. Go With the Old Treatment
B. Review costs and Benefits
C. Go With the New Treatment
D. None of the Above

Answer:
C. Quadrant IV of the cost effectiveness plane implies that the new treatment has lower costs and greater effect during treatment and should be used instead of the old treatment.

Question: Suppose there are two treatments to extend a person’s life for a serious Illness: Treatment #1 costs $15,000 and evidence shows that it will extend a person’s life by 180 days, or they can go with treatment #2, which costs $22,000 and can extend a person’s life for approximately 300 days. Calculate the ICER and provide an analysis.

Answer:
Treatment 1
15000/180
ICER = 83.33

Treatment 2
22000/300
ICER = 73.33

The information says that Treatment #2 has the lower incremental costs and would be more efficient to purchase.

Question: What should happen when the results of a cost-effectiveness analysis of new treatment compared to a previous treatment lies in quadrant II on the cost-effectiveness plane?
A. Go With the Old Treatment
B. Review costs and Benefits
C. Go With the New Treatment
D. None of the Above

Answer:
A. Quadrant II of the cost effectiveness plane implies that the new treatment has higher costs and a less effect and should not be used.


Question: Suppose there are two ways a person can relieve stomach pain over the counter: Treatment #1 costs $6.79 and evidence shows that it will relieve the pain for 4.5 hours, or they can go with treatment #2, which costs $9.45 and will relieve the person’s pain for 6.5 hours. Calculate the ICER and provide an analysis.

Answer:
Treatment 1
6.79/4.5
ICER = 1.51

Treatment 2
9.45/6.5
ICER = 1.45

The information says that Treatment #2 has the lower incremental costs and would be more efficient to purchase.