Decision Trees

Farrokh Alemi, Ph.D.

Coming Up
How to construct a decision tree?
Components of a tree Interviewing decision makers

How to analyze a decision tree?

Mathematical expectations. Folding back

Example
A preferred provider organization (PPO) has approached the benefit manager of a company of 992 employees. The PPO offered to discount hospitalization services by 6% and outpatient services by 15% if the company would remove co-payments for employees utilizing the PPO

Components of a Tree
Decision
Sequence of events Consequences
Square node, two arcs and options

Circle node, arcs and events Probabilities Utilities or costs

Decision

Join PPO

Continue as is

Decision

Events P2 Clinic visit P1 Join PPO P3 No visit Not hospitalized Hospitalized Hospitalized

Not hospitalized
Hospitalized

P5 Clinic visit P4

Continue as is

Not hospitalized

P6
No visit Time

Hospitalized

Not hospitalized

Decision P2 Clinic visit P1 Join PPO P3 No visit

Events Hospitalized

Consequences C1

Not hospitalized Hospitalized

C2 C3

Not hospitalized
Hospitalized

0 C1

P5 Clinic visit P4

Continue as is

Not hospitalized

C2 C3

P6
No visit Time

Hospitalized

Not hospitalized

The Analysis Process Matters

It informs that a decision is looming Reassures that the analysis is fair It removes decision makers from day-to-day concerns It provides new insights while facilitating discussion

Process
Interview decision makers and construct a preliminary tree Present tree and show how various concerns are captured Solicit a list of new concerns Revise tree

New Concerns

Separate general outpatient care from mental health care Focus on employees who file claims The PPO clinic might have less efficient practices Lower co-pay may lead to over utilization Group practices are more efficient than solo practices Clinicians may generate their own demand Show discounts

Cost to employer Meets deductible P2 Hospitalized P4 Clinic visit Mental health visit C1 C2

P1

Join PPO

P3

Outpatient visit P5

C3 0

Claims Less than deductible

P6 Continue as is

Meets deductible

P7 P8

Hospitalized
P9 Outpatient visit Clinic visit Mental health visit

C4 C5

P10
Claims Less than deductible

C6 0

Estimating Probabilities from Data, Experts & Literature

Differences between PPO and Others Occupancy rate of primary hospital Number of patients seen per day Group .vs. solo practice -5.00% 2.50% 20.00% Impact of 1% Increase -0.43 -0.65 0.007 0.1 2.15% -1.63% 0.14% 1.00% 1.67%

Effect of co-payment 10.00% reduction Net projected change in hospitalization rate

Estimating Costs
Review of cases at the employer site
Average cost of the sample

Review of cases at the PPO

Adjusted for case mix difference (PPO patients 30% sicker)

.46
.37 Join PPO

Hospitalized .98 Outpatient visit .05

.94 *4,796 / 1.3 Clinic .85 *1085 visit Mental health .85 * 252 visit 0

Meets deductible
.83

Claims Less than deductible

.44 .37 Continue as is Meets deductible .81

Hospitalized .98 Outpatient visit .05 Clinic visit Mental health visit

7,549 .80 *1009

.80 * 240 0

Claims Less than deductible

Analysis of Trees
Folding back
Replace a node with its expectation

Continue until the decision node

.44 .37 Continue as is Meets deductible .81

Hospitalized

7,549 .98 * $807.2 + .05 *$192 = $800.66

Outpatient visit

Claims Less than deductible Meets deductible .44 * $7,549 + .81 * $800.66 = $3,970.09

.37 Continue as is

Claims Less than deductible

Continue as is

.37 * $3,970.09 + .63 * 0 =$1,468.94

Net Impact
Expect cost under continue: Expected cost after joining PPO: $871.08 Savings per family per year: $597.86 Sensitivity analysis
Not sensitive to 5% changes in hospitalization rate Not sensitive to 5% changes in clinic visit rate Sensitive to changes in calculation of cost of hospitalization and case mix differences

Myth of Analysis
All options are depicted
All consequences are enumerated
Wait for a better offer Other health care organizations were on the board of the employer Assess utilities and fold back using expected utilities Sensitivity analysis: see if small differences in estimates will change conclusions

Data are valid

Make Your Own

Think through what is the unit of analysis (who decides) Start with the decision Think through possible events and consequences Think through issues that should be captured Make a draft Revise to incorporate new issues