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Health Economic Analysis

Definition, names of some common types of health economic analysis

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Health economic analysis refers to methods used to evaluate the economic value of a pharmaceutical treatment or other health care intervention [1]. It is a sub-discipline of Health Economics. Among the general methods used in health economic analysis are cost-benefit analysis, cost-effectiveness analysis and cost-utility analysis. Tools such as these are used to evaluate the tradeoffs between treatment costs and potential benefits, to guide the efficient use of finite resources.

Cost Benefit Analysis

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Perhaps the simplest of these comparisons is cost benefit analysis (CBA). CBA measures the improvement in health per unit of spend. CBA is often expressed in terms of marginal cost and marginal gains, as for example, the increased costs of treatment incurred during the latter half of the 20th century to reduce the rate of heart-attack. Policy makers may also assess the marginal cost per life saved, as in Cutler and Miller's 2005 analysis of the cost/benefit ratio of public health interventions [2]. Other examples of the use of CBA are Nichol (2001) [3] and Gentilello, Ebel & Wickizer (2005) [4]. Nichol found that a strategy to vaccinate healthy employed adults would result in a net savings of $13.66 per person, compared to the cost of absenteeism at work due to flu . Gentilello et al. evaluated the cost/benefit tradeoffs of a short alcohol intervention in selected adults admitted to emergency departments for the treatment of physical injury. About 1/4 of these adults were considered candidates for a brief alcohol intervention. The benefit in reduced healthcare expenditures was a savings of $3.81 for each $1.00 spent in screening and intervention (providing an example of a 'benefit per unit spend' analysis). The authors project that, if offered to all eligible adults in the US, the net savings from this intervention would be $1.82 billion per year.

Cost-benefit analysis provides a concrete assessment of the value the cost of a potential intervention, in dollars or other currency units. This provides useful information to guide public policy or business decisions. Specificity is also a limitation of CBA. Cost estimates have a restricted 'shelf life' owing to the changing value of currency over time. There are also resources we are reluctant to assign a dollar value to, such as the value of a human life.

Cost Effectiveness Analysis

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Cost Effectiveness Analysis (CEA) is another health-economic method, often used to inform a choice between treatments. Where CBA allows us to assess the costs vs. benefits of a single new treatment in real-dollar terms, CEA compares the relative costs and benefits of two or more drugs or treatments. One of the more popular calculations used in CEA is the incremental cost-effectiveness ratio (iCER). This calculation is the "ratio of incremental cost to incremental effectiveness" associated with one therapeutic approach over another [5]. In most fields of economics, this ratio is used to express the additional benefit expected from additional spend, as, for example, additional dollars spent on a public health awareness campaign. In health economics, the iCER is often used to compare the expected return on investment from two or more different courses of action, such as treating vs. doing nothing, treating with the latest drug vs. an older less expensive alternative, or treating with a new drug compared to the established standard of care. Another common use is to compare drugs assumed to have equal therapeutic value. The formula for iCER, also simply known as the "cost effectiveness ratio" is

iCER = C1 - C0
E1 - E0

where C1 - C0 is the change in cost incurred, and E1 - E0 is the difference in impact on health [6]. Both the numerator (cost) and the denominator (effectiveness) can be challenging to define, however. In CEA, "cost" refers to more than monetary costs. It can include demands made on patients' time, on providers' time and opportunity costs related to other healthcare resources such as use of equipment or hospital overhead. For example, Borisova & Goodman (2003) discuss the effects that "out-of-pocket transportation, child care, travel and waiting time" have on treatment compliance in methadone clinics, measuring the impact non-monetary barriers have on treatment [7]. These authors also compare different ways of gauging the importance of treatment barriers. They recommend using a willingness to pay (WTP) approach to measuring costs, rather than evaluating the opportunity cost in simpler terms, such as lost wages. In the denominator, assigning values to health improvements also presents challenges. Physiological measures of [[|health outcomes] include longevity ([[|life expectancy]) or, [[|mortality], risk of [[|morbidity] (including reduced "wellness", impairment or disability), and functional status, such as ability to perform activities of daily living ("ADLs") [8]. More subjective health benefits may include psychosocial functioning,quality of life (QOL) and other patient-reported outcomes measures ("PROPS") such as patients' overall satisfaction with the experience of care [9]. Some of the more popular measures of health outcomes incorporate both [[|life expectancy] and quality of life. Quality Adjusted Life Years (QALYs) are often used in CEA to assess both the number of years and the QOL gained with treatment. QALYs use scores between 0 and 1 to represent the quality of years of life gained. A year of perfect health receives a value of 1. Death during that year receives a value of zero. The challenge in this type of calculation is how to quantify QOL or assign an appropriate value to partially-impaired functioning [NEEDS REF]. Both parts of the iCER can be adjusted by discounting either the cost or the improvement measure (or both) over time (see elsewhere: discounts and allowances). For example, a treatment that would cost $10,000 a year both this year and next can be adjusted as follows: If the treatment adds .2 QALYs the first year and .3 QALYs the second year, the unadjusted cost effectiveness ratio over two years would be $10,000 + $10,000 /.2 + .3, or $40,000 per QALY. However, if we apply a discount of 5% per year to both the cost and the improvement, the cost in year two would be $10,000/1.05 = $9,524. Improvement in that year would be .3/1.05 = .29. The discounted iCER would be $10,000 + $9,524/.2 + .29 = $39,845 per QALY [10]. Malkin, Keeler, Broder & Garber (2008) use the iCER calculation to gauge the effect of length of postpartum hospital stay on infant health. The authors use both infant mortality and QALYs to measure health impact. They also estimate the incremental increase in cost associated with a longer hospital stay, and relate this back to gains in infant health [11]. The authors discuss several of the issues associated with measurement and discounting when implementing this type of study. Some analyses are simplified by assuming no difference in effect between treatments, as is often claimed when evaluating generic prescription drugs as a substitute for a branded medication. For example, van der Westhuizen et al. (2010) looked at the potential marginal savings (compared to current expenditures) if generic antidepressants were to fully replace branded counterparts [12]. (The rationale for generic substitution assumes that the generic treatments are bioequivalent to their branded counterparts [13]). The van der Westhuizen et al. study took a retrospective look at private-sector spending in South Africa during 2004-2006. Prescription medicines made up 18.2% of all private-sector spending on healthcare, with antihypertensive, anti-hyperlipidemic, and antidepressant drugs contributing most to this cost. Generics accounted for 58.7% of antidepressant prescriptions filled, but made up only 28.2% of costs. The authors found a potential 9.3% reduction in the total cost of antidepressant medicines over the three-year study period if the remaining prescriptions were to be converted to generics.

Cost Utility Analysis

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Finally, Cost-utility analysis (CUA) is a sub-type of cost-effectiveness analysis in which a marginal utility score is used to measure the impact an intervention has on health. Utility is based on the social benefit of one health intervention compared to another, over a defined period of time [14]. This type of analysis is most commonly used to make evidence-based decisions in treatment or to support public policy decisions. Examples of the use of cost-utility analysis are Kanis, Brazier & Stevenson, M. (2003) and Cheng, Rubin, & Pone et al. (2000) [15]; [16]. In their study, Kanis at al. compared the utility of different osteoporosis treatments in a study population who had already experienced fractures due to bone loss. They measured improvement in terms of in terms of reducing the number of new fractures over a 10 year interval. After the age of 50, only hormone replacement therapy and calcium (with or without vitamin D) showed cost utility. After the age of 80 other treatments such as alfacalcidol, sodium alendronate and biphosphonates were also cost-effective. In Cheng et al. (2000) the authors use three different methods to assess the value of cochlear implants in profoundly deaf children, using a sample with an average age of 7.5 years. They found a $9029 per QALY cost using a time trade-off method to assess benefits, a $7500 per QALY benefit using a visual analog scale, and $5197 per QALY using the Health Utilities Index [17]. Direct costs were $60,228 but the implant provided a savings of $53,198 in reduced educational expenses. Taking into account the additional benefit in QOL the authors concluded that implants in profoundly deaf children had a positive net utility. (See article elsewhere on Cost Accounting). From a societal perspective, the net benefit of a pharmacologic treatment is maximized when the total marginal social benefits equal the total marginal social costs [NEEDS REF]. However, each of the major stakeholders in healthcare (the patients, providers and third-party payers) has its own priorities when gauging costs and benefits. For example, from the patient’s point of view, benefits may be measured in terms of feeling better, being able to work or other issues related to functionality and quality of life. Physicians may focus more on physiological measures that signal remission or cure. Payers must be concerned with the cost of a treatment and its ability to reduce the use of other medical resources, in addition to its effectiveness.

Comparative Effectiveness Research

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Perhaps the most comprehensive type of comparative effectiveness analysis is Comparative Effectiveness Research (CER). DeMaria (2009) defines CER as "the rigorous evaluation of the impact of different options that are available for treating a given medical condition for a particular set of patients" [18]. CER compares drugs, devices, procedures and different modalities of delivering care to determine which offer the greatest benefits without unacceptable harms.

Choosing the most effective treatment also has implications for reducing healthcare costs. According to a Kaiser Family Foundation brief on US health reform, "identifying the most effective and efficient interventions has the potential to reduce unnecessary treatments, which in turn, may help lower costs" [19]. The Patient Protection and Affordable Care Act (PPACA) established a Patient-Centered Outcomes Research Institute (PCORI) tasked with setting priorities in CER. In February 2009, Congress appropriated $1.1 billion for CER in the American Recovery and Reinvestment Act, including $400 million to the Secretary of Health & Human Services, $300 million to the Agency for Healthcare Research and Quality (AHRQ), and $400 million to the National Institutes of Health (NIH) [20]; [21]. One of the reasons to pursue comparative effectiveness research as an integral part of health reform is the need to reduce healthcare costs. The US spends a higher percentage of GDP on health care than most major developed economies, while not enjoying the best outcomes [22]. The OECD reports that while US life expectancy at birth has increased by 8.2 years since 1960, higher gains have been made in most other OECD countries [23]. US life expectancy at birth also lags slightly behind all other OECD nations. Its current infant mortality is slightly higher than most, and lower than only Chile, Turkey, and Mexico within the OECD [24]; [25]. Historically, the US has also grappled with poor access to healthcare among a large percentage of its population, compared to other developed economies [26]. The health care reform legislation passed in 2009 will address primarily the problem of access [NEEDS REF]. With access slated to increase and per-capita health-care costs still on the rise, it has become even more important to rein in costs by spending health care dollars more efficiently. Evidence for questionable efficiency includes the regional variation in medical practice, such as a 3-fold difference in spending between low and high-spending regions in the use of some interventions [27]. Higher spending is not consistently related to better outcomes, suggesting that best practices are not being applied [28]. Information gathered in CER is critical because it gives stakeholders access to evidence that can support informed choices among the available treatments [29]. It allows patients, caregivers and other stakeholders to make better, evidence-based choices and may serve as a lever to slow rising costs without compromising the quality of care. The type of data that CER generates goes beyond efficacy data such as that provided to the FDA. FDA New Drug Applications are focused on demonstrating that a drug has superior efficacy when compared to placebo, or when compared to an earlier standard of care. CER focuses on effectiveness rather than on efficacy [30]. Efficacy is the maximum response achievable from a drug. Effectiveness is a measure of the net benefit of a treatment. CER measures effectiveness by considering all of the impacts of a treatment, including efficacy, safety, quality of life, functional improvements and cost. Although the research may have implications for choosing cost-effective as well as high quality treatments, the PPACA prohibits federal agencies from using the evidence generated in CER to restrict the care or services offered to patients or to make coverage decisions [31]. Sometimes it is possible to gather information on comparative effectiveness from existing data, using some type of [[|meta-analysis]. In other cases, new studies are needed to compare the effectiveness of different treatments head-to-head. The priorities for CER will be based on recommendations made by Federal Coordinating Council for Comparative Effectiveness Research [32] and by the Committee on Comparative Effectiveness Research Prioritization of the Institute of Medicine [33].



References

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  1. ^ David Cutler, Mark McClellan, Joseph Newhouse (1998). "The Costs and Benefits of Intensive Treatment for Cardiovascular Disease". NBER Working Paper No. 6514, Cambridge, MA, p __-__.
  2. ^ David Cutler and Grant Miller (2005), "The Role of Public Health Improvements in Health Advances: The 20th Century United States". Demography, 42(1):1-22.
  3. ^ Nichol, Kristin Lee (2001) “Cost Benefit Analysis of a Strategy to Vaccinate Health Working Adults Against Influenza,” Archives of Internal Med, 161:749-759.
  4. ^ Gentilello, LM, Ebel, BE, Wickizer, TM et al. (2005). “Alcohol Interventions for Trauma Patients Treated in Emergency Departments and Hospitals,” Annals of Surgery, 241:541-550.
  5. ^ Folland, S., Goodman, A.C., Stano, M. (2010), The Economics of Health and Health Care, 6th Edition, Saddle River, NJ, 6th ed. Prentice Hall Business Publishing.
  6. ^ Folland et al., op. cit.
  7. ^ Borisova, N. N. & Goodman, A. C. (2003). “The effects of time and money prices on treatment attendance for methadone maintenance clients,” Journal of Substance Abuse Treatment, 26: 43-50.
  8. ^ See NIH Information Center on Health Services Research and Health Care Technology (NICHSR) 2004, Health Outcomes Core Library Recommendations, http://www.nlm.nih.gov/nichsr/corelib/houtcomes.html Retrieved 15 June 2011.
  9. ^ NIH NICHSR op cit.
  10. ^ Folland et al., op. cit.
  11. ^ Malkin, J. D., Keeler, E. Broder, M. S. & Garber, S. (2008). “Postpartum Length of Stay and Newborn Health: A Cost-Effectiveness Analysis,” Pediatrics, 111: e316-e322.
  12. ^ van der Westhuizen E., Burger J.R., Lubbe M.S., Serfontein J.H. (2010) “Further potential savings attributable to maximum generic substitution of antidepressants in South Africa: A retrospective analysis of medical claims,” Journal of Interdisciplinary Health Sciences, 15(1): 1-5.
  13. ^ Note: To assume equal efficacy, the generic drug must demonstrate efficacy and tolerability within an acceptable range of the branded product, using comparable dosing and formulation. In the United States, the Food and Drug Administration (FDA) defines bioequivalence as "the absence of a significant difference in the rate and extent to which the active ingredient or active moiety in pharmaceutical equivalents or pharmaceutical alternatives becomes available at the site of drug action when administered at the same molar dose under similar conditions in an appropriately designed study."
  14. ^ Preedy, V.R., Watson, R.R. (2010). "Handbook of Disease Burdens and Quality of Life Measures", Berlin, Springer Verlag.
  15. ^ Kanis, J.A., Brazier, J.E., & Stevenson, M. “Treatment of Established Osteoporosis; A Systematic Review and Cost Utility Analysis,” [ http://eprints.whiterose.ac.uk/1797/ ], accessed 22 June 2011.
  16. ^ Cheng, A.K., Rubin, H.R., Pone, N.R., et al. (2000). “Cost Utility Analysis of the Cochlear Implant in Children,” JAMA, 284: 850-856.
  17. ^ Horsman, J., Furlong, W. Feeny, D. & Torrance, G. (2003) “The Health Utilities Index (HUI®): concepts, measurement properties and applications”, Health and Quality of Life Outcomes, 1, p 54. Published online 2003 October 16. doi: 10.1186/1477-7525-1-54.
  18. ^ DeMaria, A. N. (2009), “Comparative Effectiveness Research,” Journal of the American College of Cardiology, 53: 973-975.
  19. ^ Kaiser Family Foundation (2009). "Explaining Health Care Reform: What is Comparative Effectiveness Research?" [1], accessed 22 June 2011.
  20. ^ Text of the Recovery Act Related to Comparative Effectiveness Funding. Excerpt from the American Recovery and Reinvestment Act of 2009. March 2009. [2], Retrieved 30 June 2011.
  21. ^ Government Accountability Office: HHS Research Awards: Use of Recovery Act and Patient Protection and Affordable Care Act Funds for Comparative Effectiveness Research. GAO-11-712R, June 14, 2011. http://www.gao.gov/mobile/products/GAO-11-712R Retrieved 1 July 2011.
  22. ^ Kaiser Family Foundation (2010). "Background Brief: US Healthcare Costs," http://www.kaiseredu.org/Issue-Modules/US-Health-Care-Costs/Background-Brief.aspx, accessed 1 July 2011.
  23. ^ OECDiLibrary, Health: Key Tables from OECD, Life expectancy at birth, total population Latest (latest Update: 13 Apr 2011). [3], accessed 1 July 2011.
  24. ^ NOTE: Data cited are comparative statistics for 2006, the last year for which US data were entered.
  25. ^ OECDiLibrary, Health: Key Tables from OECD, Infant mortality Deaths per 1 000 live births (latest Update: 13 Apr 2011). [4], accessed 1 July 2011.
  26. ^ Goldman, D. P. & McGlynn (2005). US healthcare: Facts about cost, access and quality. A RAND corporation corporate publication, [5], accessed 1 July 2011.
  27. ^ Wennberg, J. E., Fisher, E. S., Skinner, J. S. (2002). "Geography and the debate over medical reform" [web exclusive] Health Affairs, W96-W114. [6], accessed 3 July 2011.
  28. ^ Wennberg, J. E., Fisher, E. S., & Skinner, J. S. (1999). "The Dartmouth Atlas of Health Care," Dartmouth, NH: Heath Forum Inc; 1999.
  29. ^ US Department of Health & Human Services Agency for Healthcare Research and Quality. "What is Comparative Effectiveness research?" Online publication WWW.effectivehealthcare.ahrq.gov/index.cfm/what-is-comparative-effectivenss-research1[fix online citation format. Check whether all citations use the correct format for authors' names]
  30. ^ Lele, C. (2011). “Comparative Effectiveness Research,” Perspectives in Clinical Research, 2:48. Available at http://www.picronline.org/text.asp?2011/2/2/48/80365.
  31. ^ PPACA sec. 6301(c), § 1182(b)(2), 42 U.S.C.A. § 1320e-1(b)(2) (West Supp. 1A 2010).
  32. ^ Federal Coordinating Council for Comparative Effectiveness Research. Report to the President and Congress. Washington, DC: Department of Health and Human Services, June 2009. http://www.hhs.gov/recovery/programs/cer/cerannualrpt.pdf. Accessed July 3, 2011.
  33. ^ Institute of Medicine, “Initial National Priorities for Comparative Effectiveness Research,” June 2009. [7], accessed July 3, 2011.
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