Introduction to Economic Evaluations

Marcelo Coca Perraillon

University of Colorado
Anschutz Medical Campus

Cost-Effectiveness Analysis
HSMP 6609
2016

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Outline

Agenda for today: The big picture - an overview of this class

What is economic evaluation?
Several examples
Types of economic evaluations
Cost analysis
Cost-effectiveness analysis
Cost-utility analysis
Cost-benefit analysis
Overview of key concepts and elements of economic evaluations
Methods: ICER, decision trees/Markov models
Logistics and syllabus

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 Economic Evaluations

What is an economic evaluation?

(Textbook) “The comparative analysis of alternative courses of action in
terms of both their costs and consequences.”
Alternative courses of action: Health interventions like screening
programs, new ways of delivering care, new medications, or new
imaging technology. Also, intensity (dosage, screening frequency)
Comparative analysis: Always a comparison – current way of doings
things versus new ways; old drugs versus new drugs; new imaging
technology versus old imaging technology. A valid alternative could
be “doing nothing”
Costs: Measured in $
Consequences: Outcomes measured in natural units (cases
detected/averted), years of life gained, years of life gained combined
with a measure of quality (e.g. QALY), or even $
(As with most definitions, not totally right. Will explain in a bit)
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 Economic Evaluations

Purpose

Resources are scarce; we need a way to decide how to allocate them

The ultimate goal is to inform decision makers about the efficient
allocation of resources
Economic evaluations provide a way to systematically think about
cost and consequences of alternatives
An attempt to assess if an intervention or technology provides “value”
We will talk more about how economic evaluations are used (or not)
in the US and in other countries later in the class

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Examples

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 Examples

Bedrosian et al. (2015)

Does the use of MRI for women with invasive lobular carcinoma
change the cost of care?
MRI improves staging → fewer operative interventions to achieve a
margin-negative → fewer re-excisions → lower costs
On the other hand, MRI → delays and additional tests plus mixed
evidence
Compared costs in women who received MRI vs those who did not at
MD Anderson (piggyback clinical trial; about 100 patients)
Conclusion: MRI increases costs (but not a lot)

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 Examples

British Medical Journal (BMJ)

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 Examples

Patel et al. (2004)

Evaluate the cost effectiveness of (informal) caregiver training by

examining health and social care costs, informal care costs, and
quality adjusted life years in caregivers
About 300 caregivers were randomized into two groups: training and
control group
They compared costs and benefits
Conclusion: Caregiver training during rehabilitation of patients
reduced costs of care while improving overall quality of life in
caregivers

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Examples

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 Examples

Heijnsdijk et al. (2015)

Objective: Assess the cost effectiveness of prostate cancer screening

(PSA)
Used data from European Randomized Study of Screening for
Prostrate Cancer (ERSPC)
Simulation of clinical story of 10,000 men who are screening starting
at 55
Predicted the numbers of 1) prostate cancers diagnosed, 2)prostate
cancer deaths averted, 3) life-years and 4) quality-adjusted life-years
(QALY) gained, and cost-effectiveness of 68 screening strategies for
prostate cancer
Conclusion: Prostate cancer screening can be cost-effective when it
is limited to two or three screens between ages 55 to 59 years.
Screening above age 63 years is less cost-effective because of loss of
QALYs because of overdiagnosis.”
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 Examples

My examples

Colorado Family Planning Initiative

Targeted to low-income women at Title X clinics
Provided free long-acting contraceptives (LARCs) (IUDs, implants)
Supported by an anonymous private foundation
Research question: what are the cost savings from the perspective of
the state of Colorado?
Blood screening for celiac disease and diabetes
Large scale screening in children ages 2-17. UC-BDC plans to screen in
Denver (and offer follow-up)
Opportunity to measure (some) costs and benefits
The intervention will last a couple of years but the effects have to be
taken into account over a lifetime
As in the prostrate screening example, we need to use simulations

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 Background

Key elements of economic evaluations

1 Perspective or point of view of the analysis: Who is incurring the

costs and consequences?
Provider, health department, societal, insurance company (private or
Medicare/Medicaid)
2 Time of analysis (aka time horizon): short term, long term? Whole
lifespan?
3 Discounting: Time preference. A benefit/cost now is not the same
as the same benefit/cost 30 years later (inflation/opportunity cost)
4 Sensitivity analysis: Evaluates the effects of uncertainty in numbers
5 Methods: Incremental cost effectiveness ratio, decision trees, Markov
models

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 Background

Prerequisites of EEs

This may sound obvious, but...

You want to make sure the alternative you want to compare works
and does no harm (efficacy/effectiveness)
A story about economic evaluation proposals (or why most EEs never
happen)

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 Background

Challenges

The fundamental challenge of EEs is... lack of DATA

Data synthesis (e.g. meta-analysis) is many times a key component of
EEs
Rarely a single sources of data; EEs combine multiple sources of data
I’ll try to provide examples of data sources for the US

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 Types of Economic Evaluations

Types of economic evaluations

How benefits are measured (or not) distinguishes different types of

economic evaluations
1 Cost-analysis (CA)
2 Cost-effectiveness analysis (CEA)
3 Cost-utility analysis (CUA)
4 Cost-benefit analysis (CBA)

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 Types of Economic Evaluations

Cost analysis

Objective: compare the cost of two or more alternatives

Consequences are not examined (partial evaluation)
But... if benefits are the same → it’s like comparing costs and benefits
A common version of cost analysis: cost of illness study (COI): COI
measures the economic burden of a disease(s) and estimates the
maximum amount that could potentially be saved if a disease were to
be eradicated
We will spend some time in cost analysis because it’s common to all
types of economic evaluations

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 Types of Economic Evaluations

More on costs

What costs should be considered depends on the perspective of the

analysis and the time horizon
Health sector: drugs, equipment, hospital stays of the program and
possibly follow-up
Other sectors: Social services, follow-up personnel, home health
Patient and/or family: Travel time, caregiver’s lost income, cost of
informal care...
Productivity changes: Interventions may affect ability to work now
but could increase the ability to work in the future
We’ll talk about these issues for at least two weeks...

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 Types of Economic Evaluations

Cost-effectiveness Analysis (CEA)

Objective: compare the cost and benefits/consequences of two or

more alternatives
Benefits are measured in “natural units”
Effectiveness measure should be relevant/important
Example of benefits: cases averted, births averted, cases detected,
years of life gained, blood pressure, days free of pain...
Can compare several alternatives with same benefit measure

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 Types of Economic Evaluations

Cost-effectiveness Analysis (CEA)

Results presented as (incremental) costs per unit of outcome

Incremental Cost Effectiveness Ratio (ICER)

C1 − C2
ICER =
E1 − E 2
Ci and Ei are the costs and effectiveness measure of alternative i
We will spend some time discussing and calculating ICERs
Limitations: a) There is no preference/value associated with the
measure of benefit. b) Can only compare alternatives in which the
“natural unit” of benefit is the same.

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 Types of Economic Evaluations

Cost-utility Analysis (CUA)

Same objective: compare the cost and consequences of two or more

alternatives
Benefits are measured in quality-adjusted life years (QALYs)
QALYs combine both gains in extra years of life (quantity) with the
quality of those gains
Can compare more alternatives

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 Types of Economic Evaluations

Cost-utility Analysis (CUA)

We will talk a lot about how economists measure “quality”

(preferences)
As before, ICER provides a summary of results but now Ei = QALYi

C1 − C2
ICER =
QALY1 − QALY2
Limitation: not all measures of benefits are transformed into
preferences or quality

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 Types of Economic Evaluations

Using ICER

We have ICER comparing alternative B to usual care, A. Now what?

Easy cases:
1 B is more expensive and less effective (prefer A)
2 B is less expensive and more effective (prefer B)
Not-so-easy cases:
1 B is more expensive and more effective (how do we know if extra
benefit is worth the extra cost?)
2 B is both less expensive and less effective (how do we know if the cost
savings are worth the reduced effectiveness?)

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 Types of Economic Evaluations

The cost-effectiveness plane

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 Types of Economic Evaluations

Back to the harder cases

A) Is the extra benefit worth the extra costs or B) Are the costs
savings worth the reduced benefits?
There is an implicit notion of value. Think about how you make
decisions in your life.
Is it worth it to get an MPH?
Last year’s ski boots (cheaper) than this year’s model (more
expensive)?
Key is what we are giving up and how we value it
The notion of opportunity cost: the loss of potential gain from
other alternatives when one alternative is chosen
The notion of a threshold value. The (in)famous $50,000 per QALY.
We will come back to these issues during the semester

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 Types of Economic Evaluations

Cost-benefit Analysis (CBA)

Once again, same objective: compare the cost and consequences of

two or more alternatives
But now benefits are measured in monetary units
CBA is the type of economic evaluation that is more consistent with
economic theory
CBA can tell us if an intervention is worth doing
The problem of using CBA in health is that it is very difficult to
transform measures of benefits into monetary values

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 Types of Economic Evaluations

Cost-benefit Analysis (CBA)

What is the dollar value of a case averted? What is the value of an

extra year of life? What is the value of not being able to walk?
This doesn’t mean that economists don’t try... We will study ways to
assign monetary values to (some) benefits
CBA is extensively used in certain project evaluations (infrastructure)
but not so often in health
If benefits > costs, then it is worth it to do the project
Summary measure: benefit/cost ratio or (benefit − cost)

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 Types of Economic Evaluations

A note on terminology (jargon)

“Economic evaluation” is the more general term. It may refer to one

of the four types of studies we discussed (CA, CEA, CUA, and CB)
“Cost-effectiveness analysis” is also used as a general term but it
refers to CEA and CUA. Blame your textbook (up to third edition)
for insisting on separating CEA and CUA
There is always confusion with names – this class is called Cost
Benefit and Effectiveness in Health...
More important than definitions is understanding the principles and
making the right decisions
Remember, EE is about making decision on how to allocate resources

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 Methods

Methods

We have talked about how to calculate ICER

But there are other ways of conducting economic evaluations:
decision trees/Markov models
Think of them as alternative ways of calculating ICER, but ways that
allow us to incorporate uncertainty more directly
It’s going to be clearer by the end of the semester, don’t worry

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 Methods

Decision analysis

Defintion: A systematic approach to decision making under

uncertainty (Raiffa 1968)
It originated as a way of figuring out how we should make decisions
when there is uncertainty (that is somehow quantifiable)
Here is the confusing part: it can also be used to perform an
economic evaluation study
Another definition: Decision analysis is a way to gather all the
information needed to perform an economic evaluation, including
uncertainty about effects
Your textbook does not cover much on decision analysis; we will
complement it with other readings
We will use Excel; TreeAge is the most popular software but it’s not
the best tool for learning (black box). Excel is actually more flexible
(but requires more programming)
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 Methods

Decision Tree

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 Methods

Decision Tree

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 Methods

Markov Models

Useful when events are recurrent (like migraines)

Essentially, a recursive decision tree with cycles/periods
Mutually exclusive “states” representing possible consequences
Simulate a cohort going from one state to the other in each cycle
with certain probability
Each state may have a cost and/or benefit associated with it, which
transforms Markov models into an economic evaluation

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 Methods

Example: Burlone et al. (2013)

Evaluating the effects of extending contraceptive coverage under the ACA

in OR

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 Importance

Why this class should be useful

Although CEA is not often considered as a basis for making decisions

in the US, the field is advancing rapidly
Several studies have influenced practice (e.g. screening for cancer)
Techniques to allocate costs are helpful in the real world
Decision analysis tools are also helpful in the real world
We will talk about ways to measure health (the benefits part of CEA)
And there is of course the joy of learning

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 Objectives

At the end of the class you will be able to:

Critically assess an EE evaluation study

Replicate an EE study
Present results of an EE study
Know where to start if asked to do an EE (then call a friend)
The school of pharmacy offers a more advanced class PHSC 7611:
Applied Cost-Effectiveness Analysis

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 Logistics

Textbook and homeworks

The great thing about the textbook is that it covers pretty much every
important topic in EE. The problem is that it covers every topic
The class notes are your guide to the key parts in each chapter but
you should read the assigned chapters
Read chapter before or after class?
We will have homework most weeks. First homework due next week.
Choose articles wisely
Groups
Excel
Office hours (do stop by)

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