Cost-Effectiveness Analysis

VI. Health Policy Reference Desk >> F. Health Policy Methods >> Cost-Effectiveness Analysis (last update: 11.11.15)

Topic Outline

1 Primers
2 Cost per QALY
3 Resources
4 Applications

Primers

Gold, Marthe R., Joanna E. Siegel, Louise B. Russell and Milton C. Weinstein. Cost-Effectiveness in Health and Medicine. Oxford University Press, 1996. This book is the product of over two years of comprehensive research and deliberation by a multi-disciplinary panel of economists, ethicists, psychometricians, and clinicians. It articulates consensus methods for conducting CEAs in health, providing a careful discussion of the theoretical and empirical basis for its myriad recommendations. This clearly written with an excellent glossary and index. It is primarily for researchers and teachers, but is also accessible to those consumers and providers without a research background who are interested in how CEAs may contribute to health policy decisions.
Weinstein, M. C., B. O’Brien, J. Hornberger, J. Jackson, M. Johannesson, C. McCabe, and B. R. Luce, Principles of Good Practice for Decision-Analytic Modeling in Health-Care Evaluation: Report of the ISPOR Task Force on Good Research Practices—Modeling Studies, Value in Health, Vol. 6, No. 1, 2003, pp. 9–17. Mathematical modeling is used widely in economic evaluations of pharmaceuticals and other health-care technologies. Users of models in government and the private sector need to be able to evaluate the quality of models according to scientific criteria of good practice. This report describes the consensus of a task force convened to provide modelers with guidelines for conducting and reporting modeling studies.
World Health Organization. Making Choices in Health: WHO Guide to Cost-Effectiveness Analysis. 2003. Includes chapters on: 1. What is Generalized Cost-Effectiveness Analysis? 2. Undertaking a study using GCEA; 3. Estimating costs; 4. Estimating health effects; 5. Discounting; 6. Uncertainty in cost-effectiveness analysis; 7. Policy uses of Generalized CEA; 8. Reporting CEA results; 9. Summary of recommendations; and appendices on various methods (e.g., interpreting international dollars; using DALYs to measure burden of disease).

Cost per QALY

Ryen L. and Svensson M.(2014), The Willingness to Pay for a Quality Adjusted Life Year: A Review of the Empirical Literature, Health Econ., doi: 10.1002/hec.3085. There has been a rapid increase in the use of cost-effectiveness analysis, with quality adjusted life years (QALYs) as an outcome measure, in evaluating both medical technologies and public health interventions. Alongside, there is a growing literature on the monetary value of a QALY based on estimates of the willingness to pay (WTP). This paper conducts a review of the literature on the WTP for a QALY. In total, 24 studies containing 383 unique estimates of the WTP for a QALY are identified. Trimmed mean and median estimates amount to 74,159 and 24,226 Euros (2010 price level), respectively. [These are respectively equivalent to $89,079 and $29,100 USD in 2015]. In regression analyses, the results indicate that the WTP for a QALY is significantly higher if the QALY gain comes from life extension rather than quality of life improvements. The results also show that the WTP for a QALY is dependent on the size of the QALY gain valued. However, this study provided separate estimates for studies that used a stated preference (SP) approach for eliciting valuations versus those that relied on inferring the value of a statistical life (VSL) inferred from behavior (e.g., workers who accept riskier jobs in return for higher pay):
- SP Estimates. Trimmed mean= 49,778 Euros ($59,753 in 2015 USD); median=20,622 Euros ($24,771 in 2015 USD).
- VSL Estimates. Trimmed mean= 228,630 Euros ($274,628 in 2015); median=109,658 Euros ($131,720 in 2015).
- An important caveat is that the authors found “that individuals have a higher WTP if the QALY is based on length of life improvements compared with QoL improvements. Further, the evidence indicates that there is a problem with scale bias, that is, WTP is not linearly proportional to the QALY change respondents are asked to value, which implies that WTP-Q is lower if respondents are asked to value higher changes in QALY.”

Tufts CEA Registry (2013). FAQ #6. 6. What is the acceptable cost/QALY threshold? “In the US, $50,000/QALY is frequently cited as an acceptable cost/QALY. However, most commentators acknowledge that in the real world, most health care innovations that cost less than $100,000/QALY, and frequently those with higher cost/QALY ratios are adopted.” [However, see Braithwaite et al. below].
Braithwaite RS, Meltzer DO, King JT Jr, Leslie D, Roberts MS (2008). What Does the Value of Modern Medicine Say About the $50,000 per Quality-Adjusted Life-Year Decision Rule? Medical Care. 2008 Apr; 46(4):343-5. Based on changes in health spending and quality-adjusted mortality gains between 1950 and 2003, authors estimate the average cost-effectiveness of health spending in 2003 dollars was $109,000 per QALY. Authors also estimated the incremental cost-effectiveness of unsubsidized health insurance versus self-pay for nonelderly adults (ages 21– 64) without health insurance using differences in spending/use to calculate the cost-effectiveness of obtaining employer-based coverage (compared to having no coverage) was $297,000 per QALY. Thus, Americans implicitly appear willing to pay far more than $50,000 or $100,000 per QALY for medical care.

Resources

Cost Effectiveness Analysis (CEA) Registry. The CEA Registry is a comprehensive database of 3,488 cost-utility analyses on a wide variety of diseases and treatments. Maintained by the Center for the Evaluation of Value and Risk in Health (CEVR) at Tufts Medical Center, its goals are to find opportunities for targeting resources to save lives and improve health and to move towards standardization of cost-effectiveness methodology in the field.
HealthEconomics.com has an extensive list of materials used for conducting cost-effectiveness analysis.
William M. Briggs has a Decision Calculator using breast cancer screening as an example. It explains how to evaluate whether a test is worth taking and the calculator allows a user to plug in values for any situation.

Applications

Baicker, K., & Chandra, A. (2010). Uncomfortable Arithmetic — Whom to Cover versus What to Cover. New England Journal of Medicine, 362(2), 95-97. Much of the current debate about expanding health insurance coverage avoids addressing an uncomfortable trade-off: with a limited budget, making benefits more generous means being able to cover fewer people. Moreover, designing insurance benefits that are limited to coverage of higher-value care but are extended to more people will generate greater improvements in health than providing unlimited care for fewer people. Policymakers and patient advocates are reluctant to acknowledge that in a world of scarce resources it will not be enough to eliminate waste: we will have to make active choices in our public insurance programs between increasing the number of people covered and increasing the generosity of that coverage.