IE 492 February th

27 , 2017
Last week
Introduction
Economic evaluation of healthcare interventions
Motivation
Basic types of cost-outcome studies
Purpose and foundations of CEA
Elements of CEA

Today
ICER & ACER
Measuring health outcomes
Types of cost-outcome studies
All cost-outcome studies measure the costs in
monetary values; it is the benefits that are measured
in different metrics
Type of Cost Benefit
Analysis Measure Measure

Cost Minimizing monetary value none

Cost-Benefit monetary value monetary value

Cost-Effectiveness monetary value clinical state

Cost-Utility monetary value utility (QALY)

Elements of CEA
Strategies/options being compared
Perspective of the analysis
Time horizon
Scope of the analysis
Measuring and valuing costs and outcomes
Time preferences
Accounting for uncertainty
Incremental Cost-Effectiveness Ratio
CEA evaluates a given health intervention through the use of a cost-
effectiveness ratio (CE ratio)
Assumption: Programs are divisible with proportional costs and
effectiveness.
In examining the net effect of substituting one option for another, we use
incremental cost-effectiveness ratio (ICER)

=

Ex:
Program A: Treatment Costs = $20,000
Effectiveness (Life Expectancy) = 4.5 years
Program B: Treatment Costs = $10,000
Effectiveness = 2.5 years
ICER = $10,000/2years
= $5,000 per life year saved
Incremental Cost-Effectiveness Ratio
If quality comes into picture
Program A: Treatment Costs= $20,000
Effectiveness (QALY) = 4.5 years * 0.8 = 3.6
Program B: Treatment Costs=$10,000 Effectiveness
= 2.5 years * 0.9 = 2.25
ICER = $10,000/1.35 QALYs
= $7,407.4 per QALY gained
If focus is on selecting among mutually exclusive
alternatives (i.e., competing choices), we use
incremental cost-effectiveness ratio (ICER) as in the
examples above.
Ex: CEA of Influenza Testing/Treatment
Illness days
Strategy Cost avoided
No testing or Rx $92.70 0
Amantadine $97.50 0.54
Testing/Amantadine $115.00 0.44
Rimantadine $119.10 0.59
Testing/Rimantadine $125.50 0.48
Testing/Zanamivir $134.30 0.60
Zanamivir $137.10 0.74

The first step in calculation of incremental CE ratios among

mutually exclusive options: Order the options by cost
Ex: CEA of Influenza Testing/Treatment
Next step: Identify the strategies that are strictly (or
strongly) dominated and eliminate them
When a strategy is more expensive and less effective than
another strategy, it is strictly dominated
Strategy Cost Illness days avoided
No testing or Rx $92.70 0
Amantadine $97.50 0.54
Testing/Amantadine $115.00 0.44
Rimantadine $119.10 0.59
Testing/Rimantadine $125.50 0.48
Testing/Zanamivir $134.30 0.60
Zanamivir $137.10 0.74
Ex: CEA of Influenza Testing/Treatment
Next: calculate incremental cost and effectiveness
values, then calculate ICER

Strategy Cost Days Incr Cost Incr Eff ICER

No testing or Rx $92.70 0 - - -
Amantadine $97.50 0.54 $4.80 0.54 $8.89
Rimantadine $119.10 0.59 $21.60 0.05 $432.00
Testing/Zanamivir $134.30 0.60 $15.20 0.01 $1520.00
Zanamivir $137.10 0.74 $2.80 0.14 $20.00
Ex: CEA of Influenza Testing/Treatment
Next: Identify the strategies that can be eliminated by extended (or
weak) dominance, and eliminate them
When a strategy is more expensive and less effective than a linear
combination of other strategies (more on this later), it is weakly
dominated
It occurs when a strategys incremental cost-effectiveness ratio is
greater than that of a more effective strategy
Strategy Cost Days Incr Cost Incr Eff ICER
No testing or Rx $92.70 0 - - 0
Amantadine $97.50 0.54 $4.80 0.54 $8.89
Rimantadine $119.10 0.59 $21.60 0.05 $432.00
Testing/Zanamivir $134.30 0.60 $15.20 0.01 $1520.00
Zanamivir $137.10 0.74 $2.80 0.14 $20.00
Ex: CEA of Influenza Testing/Treatment
Next: After removing the extended dominated
strategy and recalculate ICERs (repeat as necessary)
Strategy Cost Days Incr Cost Incr Eff ICER
No testing or Rx $92.70 0 - - 0
Amantadine $97.50 0.54 $4.80 0.54 $8.89
Rimantadine $119.10 0.59 $21.60 0.05 $432.00
Zanamivir $137.10 0.74 $18.00 0.15 $120.00

Strategy Cost Days Incr Cost Incr Eff ICER

No testing or Rx $92.70 0 - - 0
Amantadine $97.50 0.54 $4.80 0.54 $8.89
Zanamivir $137.10 0.74 $39.60 0.20 $198.00
Ex: CEA of Influenza Testing/Treatment
$140.00
Zanamivir
strictly dominated Test/Zanam
$130.00
weakly
Test/Riman dominated
$120.00
Rimantadine
Cost

Test/Aman
$110.00

$100.00
Amantadine

$90.00 No Test/Rx

$80.00
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8
Illness days avoided
Ex: CEA of Influenza Testing/Treatment
$140.00
Zanamivir

Test/Zanam
$130.00

Test/Riman

$120.00
Rimantadine
Cost

Test/Aman
$110.00 Slope = $198

$100.00
Amantadine

$90.00 No Test/Rx Slope = $8.89

$80.00
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8
Illness days avoided
Ex: CEA of Influenza Testing/Treatment
If all reasonable alternatives are not included in the
analysis, different conclusions about cost
effectiveness might be made

What if we left Amantadine out of our analysis?

Ex: CEA of Influenza Testing/Treatment
$140.00
Zanamivir

Test/Zanam
$130.00 Slope =
Test/Riman $120
$120.00
Rimantadine
Cost

Test/Aman
$110.00 Slope =
Slope = $45 $198
$100.00
Amantadine

$90.00 No Test/Rx Slope = $8.89

$80.00
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8
Illness days avoided
Ex: CEA of Influenza Testing/Treatment
How to interpret the results?
Recall that:
CEA cannot make the correct choice, instead it
examines the consequences of each choice
Cost-effectiveness is one of many aspects of a decision,
not the only aspect
social, political, or legal issues

Assuming that other aspects are similar for the different

alternatives considered in the flu testing/treatment
example, which strategy should we choose?
Ex: CEA of Influenza Testing/Treatment
Strategy Cost Days Incr Cost Incr Eff ICER
No testing or Rx $92.70 0 - - 0
Amantadine $97.50 0.54 $4.80 0.54 $8.89
Zanamivir $137.10 0.74 $39.60 0.20 $198.00

If the willingness to pay threshold is

<$8.89 per illness day avoided, then No Testing or Rx is favored
in [$8.89, $198), then Amantadine is favored
$198 or more, then Zanamivir is favored

How to determine a willingness to pay threshold?

Difficult question with no clear answer
Average Cost-Effectiveness Ratio

=

Do not use when comparing mutually exclusive

strategies (i.e., when you can only choose one)
Do use when comparing mutually compatible
strategies (when you can choose many or all
strategies)
When allocating health program resources
In this situation the average CE ratio determines
how to gain the most benefit for the least cost
Ex: Allocating resources using CEA
Which of the following mutually compatible health programs should
be chosen if the overall expenditures are limited by $10 million?
Program Net QALYs Net Costs
A 100 $1,800,000
B 100 $5,000,000
C 500 $1,000,000
D 100 $2,200,000
E 100 $1,200,000
F 500 $2,000,000
G 100 $10,000,000
H 200 $1,200,000
I 150 $4,500,000
J 50 $800,000
K 250 $2,000,000
Ex: Allocating resources using CEA
Approach:
Calculate the ACER for each program
Arrange programs in increasing order of ACERs
Start at top and include as many programs as budget will allow
Program Net Cost Net QALYs ACER
C $1.0M 500 $2,000 $1.0M
F 2.0M 500 $4,000 $3.0M
H 1.2M 200 $6,000 $4.2M
K 2.0M 250 $8,000 $6.2M
E 1.2M 100 $12,000 $7.4M
J 0.8M 50 $16,000 $8.2M
A 1.8M 100 $18,000 $10.0M
D 2.2M 100 $22,000

Ex: A combined problem
Consider the combined problem where mutually
exclusive alternatives are as follows
 Together
with
mutually
compatible
alternatives
Challenges in interpreting the results
CEAs can be performed with:
Clinical trial data when cost and effectiveness data are available
Decision analysis models to synthesize data from many sources

Interpretation of cost-effectiveness analysis results can be

challenging due to:
The variety of health outcomes used
Use of QALY is becoming more common

The absence of a definitive criterion for cost-effective

Determining a willingness to pay threshold is not easy

Comparison with other studies is difficult as well

Challenges in interpreting the results
Cost per QALY willingness to pay threshold
$50,000 per QALY gained is referred to as a common cited
benchmark
Recent work suggests ~ $100,000 per QALY in US
Laupacius et al (1992, Canada)
< $20,000/QALY Strong evidence for adoption

$20,000 - $100,000 Moderate evidence

> $100,000 Weak evidence

UK: 20,000-30,000 ($32,700-49,100)

WHO: < 2 * national per capita GDP
Measuring health outcomes
Types of health outcomes
Quality-adjusted life-years (QALYs)
Utility (quality) weights
Limitations of QALYs
Health outcomes
Which health outcomes should we use:
When looking at a treatment intervention, we would like to
describe its health outcome in a way that allows us:
To incorporate mortality and morbidity
Mortality = The condition of being susceptible to death
Morbidity = The condition of being unhealthy
To account for individual values and preferences for health
states
To measure all outcomes across same metric
To compare outcomes across diseases, treatments, and
programs
Types of health outcomes
Several types of health outcomes:
clinical markers
utilization of health services
quantitative gains in health
qualitative gains in health
Clinical markers
Examples: blood pressure, cholesterol reduction, blood
sugar, ulcer healing, stroke
Advantages:
easily available
understandable
Disadvantages:
not comparable across diseases
not valued directly
Clinical markers are intermediate outcomes
They may influence health outcome (but so do many
other factors)
Quantitative gains in health
Lives saved (CE measure: cost per life saved)
Does not incorporate quality of life for the survivors
Ex: Weights saving a 5-year old the same as saving an 80-year old
Life-years gained (CE measure: cost per life-year added)
Allows for differential weighting of life-prolonging treatment
Ex: Weights saving a 5-year old more than an 80-year old
Limitations:
Not all health interventions save or prolong lives
Individuals may not value health in the same way at all stages in
their lives
Life-years methodology is flawed always save the youngest
Qualitative gains in health
Quantity of life (survival) is only one aspect of health
Patients are also interested in functional capacity and
well-being
Different patients may demonstrate differential
responses to a disease state

Quality-adjusted life-years (QALYs) is defined as a

metric which captures both the quantity and the
quality of life.
Quality-adjusted life-years (QALYs)
When computing QALYs, duration of a health state is
weighted by the value of (preference for or utility
of) that health state.
Product of two components:
Quantity of life (life years gained)
Health-related quality of life (HRQL)

= 1 1 + 2 2 + + = =1
Graphical representation of QALYs
A person lives 3 years in perfect health, then suffers from angina for 1
year (utility weight = 0.5). He undergoes a CABG (a type of heart surgery),
allowing him to return to near-perfect health (utility weight = 0.9) for 5
years. At this point he suffers from a heart attack, lives for 6 months
following his heart attack in relatively poor health (utility weight = 0.2) and
then dies.
QALYs = (3.5)(1) + (1)(0.5) + (5)(0.9) + (0.5)(0.2) = 8.6 QALYs
CABG MI
1.0

Perfect Post-CABG

Post-MI
Health
0.5
angina

0
1 2 3 4 5 6 7 8 9 10
Comparing QALYs of alternative programs
Ex: The time course of a patient with a chronic
disease is given as follow:
Optimal 1
Health-Related Quality of Life

An acute event, significant

Health
decrease in quality of life
Partial recovery
A second acute event, with
decrease in quality of life

Death

Dead 0
Duration of Life
Comparing QALYs of alternative programs
Assume that we have an intervention which changes the time
course of the patient as follows:
Optimal 1
Health-Related Quality of Life

Health
With Program

QUALITY ADJUSTED LIFE

YEARS GAINED

Without Program

Dead 0
Duration of Life

In this example, the intervention increases both the quantity and

the quality of the patient's life.
 Health-related quality of life (HRQL)
QUALITY OF LIFE
Non-health-related QOL

Health-related quality of life

impairment/ physical psychological social global/general

symptoms function function role perception

functional status
Health-related quality of life (HRQL)
How to determine the value of different health states?

There are various techniques for measuring preferences

Visual analog scale
Standard gamble
Time trade-off
Multi-attribute health status classification systems with
preference scores
Visual Analog Scale (VAS)
Patient is asked to place the arrow on the line that
corresponds to how they feel about the health state
of interest

0 10 20 30 40 50 60 70 80 90 100

Worst Best
Standard Gamble
Patient is presented a choice
Sure Thing (current or hypothetical health state)
Gamble between Death (utility = 0) and Perfect Health
(utility = 1)
= perfect health
1 = (death)
Vary the value of pi and ask the respondent to choose again
Utility
Death 0
Gamble 1 - pi

pi Perfect Health 1
Choose:

Sure Thing
Current Health ??
Standard Gamble
There will always be a place for which the respondent cant
decide which choice is preferred (indifference point).
Utility theory says that this point represents the utility of the
current state.
If we are indifferent between the Gamble and the Sure
Thing, then the two options must have the same expected
utility.
pi 1 pi Preference
0.99 0.01 Gamble
0.95 0.05 Gamble
0.90 0.10 cant tell
0.85 0.15 Sure Thing
0.80 0.20 Sure Thing
0.75 0.25 Sure Thing
Time Trade-off (TTO)
The patient is offered two alternatives:
A specified amount of time in current (or
hypothetical) health state followed by death
A smaller amount of time in perfect health
followed by death
Current Health State Death

Death
Perfect Health
Time Trade-off (TTO)
Vary the amount of time spent in perfect health, each time asking
the respondent to choose between current health and perfect
health.
When the respondent cannot choose, we say he is indifferent to
current and perfect health.
Use this value to compute utility of current health state.
Current Health Death
Death
Perfect Health

Current Health Death

PH Death

Current Health Death

Perfect Health Death
Time Trade-off (TTO)
Ex: Suppose you expect to live 10 years in your
current condition. What is the smallest amount of
time in excellent health that you would accept in
exchange for 10 years in your current condition?
For example, choose between:
10 years in current health state (followed by death)
9 years in perfect health state (followed by death)
Vary 9 years to find the indifference point. Let
that point be 7.5 years. Then, utility of the current
health state is 0.75.
 Methods of assessment
Monotonic method 0 10 20 30 40 50 60 70 80 90 100

Ping-pong method

0 10 20 30 40 50 60 70 80 90 100

Bisect method
0 10 20 30 40 50 60 70 80 90 100

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Issues in utility assessment
Several pitfalls occur in the subjective assessment of outcomes,
even with the best of intentions to directly ask the patients.
Because of the difference in their structure, the utility assessment
techniques weve discussed so far (VAS, SG, TTO) may give different
results.
Even when we consider one technique:
It is generally reliable and reproducible.
BUT
Different methods of assessment may result in different results.
Ex: Monotonic, ping-pong, bisect
Framing effect: The answer is highly sensitive to wording.
Ex: 10% chance of surgical mortality or 90% chance of surviving surgery?
Preferences may change over time.
Ex: Attitudes toward the pain of labor & analgesic use (assessed before,
during, and after delivery)
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Multi-attribute health status
classification systems
First evaluate the health status of the patient in
different domains (attributes) using a questionnaire
Then calculate utility using a multi-attribute scoring
function derived based on the preferences for health
states defined by these attributes
Some of the widely used systems are:
Quality of Well-Being (QWB)
EQ-5D
Health Utilities Index (HUI)
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Quality of Well-Being (QWB)
There are four attributes considered:
Mobility (3 levels) MOBwt
Physical activity (3 levels) PACwt
Social activity (5 levels) SACwt
Symptom/problem complex (27 items) CPXwt
(If there are multiple symptoms, patient chooses the worst)
The weights are 0.
Preferences for the scoring function were measured with a scaling
technique on a sample of people from the general public.
Respondents were asked to rate various health states between 0
and 1.
QWB score = 1 + MOBwt + PACwt + SACwt + CPXwt
Takes values between 0 and 1.
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EQ-5D
There are five attributes considered:
Mobility
Self-care
Usual activities
Pain/discomfort
Anxiety/depression
Each attribute has three levels: no problem, some problems, major
problems.
Preferences for the scoring function were measured with TTO
technique on a random sample of people from the general public.
The scoring function takes values between 0 and 1.

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Health Utilities Index (HUI)
Two systems: HUI2 and HUI3
The attributes considered in the classification
scheme are different.
Preferences for the scoring function were measured
with VAS and SG techniques on a sample of people
from the general public.
This system considers states worse than health.
The scoring function can take negative values as
well.
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Limitations of QALYs
Risk neutrality assumption
Patients may be risk neutral, risk-seeking, or risk-
averse.
Constant proportional trade-off assumption
Ex: A patient who says that 20 years of angina is
equal to 18 years of no angina, then 10 years of
angina must be equal to 9 years of no angina.
Whose preferences do we use to assign quality
weights?
Patients, expert opinion, general public, etc.
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Limitations of QALYs
Preferences may vary by age, gender, race
Valuation of life years
Does equal value of life years at all ages discriminate
against the elderly?
Trade-offs between quality of life and survival
Many small improvements (100 x 0.01 QALY = 1 QALY)
vs. one large improvement (1 x 1.0 QALY = 1 QALY)
Improvement from quality weight of 0.1 to 0.5 vs.
improvement from 0.5 to 0.9
Are these really equal?
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Discounting health outcomes
Many interventions accrue costs and benefits over
long time periods.
Is it right to simply add QALYs over time?
No.
On average people exhibit time preferences for
health outcomes similar to those for costs.
Recommended discount rate: 3%-5% per year.

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