Schneider Institute for Health Policy Heller School Brandeis University September Donald S. Shepard, Ph.D. Schneider Institute for Health Policy Heller School, MS 035 Brandeis University Waltham, MA USA Tel: Fax: Web: Module I September 5, 2001 – October 22, 2001 Cost-effectiveness of health programs In health services and other sectors HS 422f

Schneider Institute for Health Policy Heller School Brandeis University September Practical information Teaching assistant: Administrative assistant: Linda Purrini, Next to library in Heller Cost of packet (including diskette): $6.00

Schneider Institute for Health Policy Heller School Brandeis University September Web page

Schneider Institute for Health Policy Heller School Brandeis University September Overview of topics 1.Principles 2.Measuring effectiveness 3.Applications 4.Policy uses

Schneider Institute for Health Policy Heller School Brandeis University September Comparison: depreciation and amortization

Schneider Institute for Health Policy Heller School Brandeis University September Calculations: future value and present value

Schneider Institute for Health Policy Heller School Brandeis University September Calculations: expected cost

Schneider Institute for Health Policy Heller School Brandeis University September by Donald S. Shepard, Ph.D. Schneider Institute for Health Policy Heller School, MS 035 Brandeis University Waltham, MA USA Tel: Fax: Web: Wednesday, Sept. 5 and Monday, Sept 10: Principles of Cost-Effectiveness Analysis

Schneider Institute for Health Policy Heller School Brandeis University September by Donald S. Shepard, Ph.D. Schneider Institute for Health Policy Heller School, MS 035 Brandeis University Waltham, MA USA Tel: Fax: Web: Monday, Sept. 17 Measuring effectiveness and other CEA considerations

Schneider Institute for Health Policy Heller School Brandeis University September by Donald S. Shepard, Ph.D. Schneider Institute for Health Policy Heller School, MS 035 Brandeis University Waltham, MA USA Tel: Fax: Web: Monday, Sept. 24 Applications of Cost-Effectiveness Analysis

Schneider Institute for Health Policy Heller School Brandeis University September by Donald S. Shepard, Ph.D. Schneider Institute for Health Policy Heller School, MS 035 Brandeis University Waltham, MA USA Tel: Fax: Web: Monday, Oct. 1: Policy Uses of Cost-Effectiveness Analysis

Schneider Institute for Health Policy Heller School Brandeis University September by Donald S. Shepard, Ph.D. Schneider Institute for Health Policy Heller School, MS 035 Brandeis University Waltham, MA USA Tel: Fax: Web: Monday, Oct. 15: Modeling in Cost-Effectiveness Analysis

Schneider Institute for Health Policy Heller School Brandeis University September by Donald S. Shepard, Ph.D. Schneider Institute for Health Policy Heller School, MS 035 Brandeis University Waltham, MA USA Tel: Fax: Web: Monday, Oct. 22 : Applications of cost-effectiveness analysis to other sectors

Schneider Institute for Health Policy Heller School Brandeis University September by Donald S. Shepard, Ph.D. Schneider Institute for Health Policy Heller School, MS 035 Brandeis University Waltham, MA USA Tel: Fax: Web: Wednesday, Sept. 5 and Monday, Sept 10: Principles of Cost-Effectiveness Analysis

Schneider Institute for Health Policy Heller School Brandeis University September Key book  Gold, Marthe R. et al. Chapter 6 “Estimating Cost in Cost-Effectiveness Analysis”, Cost-Effectiveness in Health and Medicine. Oxford University Press, New York, 1996, pp (Reports the findings of the 1993 U.S. Panel on Cost-Effectiveness Analysis.)

Schneider Institute for Health Policy Heller School Brandeis University September Key article - 1 Weinstein, M.C., Siegel J.E., Gold, M.R., Kamlet, M.S., and Russell L.B. “The Recommendations of the Panel of Cost-Effectiveness Analysis in Health and Medicine.” JAMA 1996; 276: (This article presents the background, issues, considerations, and final recommendations of the 1993 U.S. Panel on Cost-Effectiveness Analysis for the reference case analysis.)

Schneider Institute for Health Policy Heller School Brandeis University September

Schneider Institute for Health Policy Heller School Brandeis University September Cost-effectiveness ratio Numerator: net use of health resources Denominator: net improvement in QALYs

Schneider Institute for Health Policy Heller School Brandeis University September Standard reference case Standard set of assumptions for consistent analyses Comparator is the status quo Uses a discount rate of 3%

Schneider Institute for Health Policy Heller School Brandeis University September by DONALD S. SHEPARD, PhD MARK S. THOMPSON, PhD Public Health Reports 94: , 1979 Web: First Principles of Cost ‑ Effectiveness Analysis in Health

Schneider Institute for Health Policy Heller School Brandeis University September DEFINE THE PROGRAM 2.COMPUTE NET COSTS 3.COMPUTE NET HEALTH EFFECTS 4.APPLY DECISION RULES 5.PERFORM SENSITIVITY ANALYSIS Steps in Cost ‑ Effectiveness Analysis

Schneider Institute for Health Policy Heller School Brandeis University September DEFINE THE PROGRAM Develop alternative approaches to the problem Define precisely programs to be analyzed (who, what, where, when, and how)

Schneider Institute for Health Policy Heller School Brandeis University September Compute gross program costs Compute monetary savings Discount costs and savings to present value Compute net costs (gross costs less savings) 2. COMPUTE NET COSTS

Schneider Institute for Health Policy Heller School Brandeis University September Add Additional years with full health Additional years of disease Improvement in health (no extension of life) Negative effects (inconveniences and morbidity) 3. COMPUTE NET HEALTH EFFECTS (IN TERMS OF ADITIONAL YEARS OF HEALTHY LIFE)

Schneider Institute for Health Policy Heller School Brandeis University September Identify case based on signs of net costs and net effects Apply rule for appropriate case 4. APPLY DECISION RULES

Schneider Institute for Health Policy Heller School Brandeis University September Vary uncertain parameters and recompute costs and health effects Examine effects on decision 5. PERFORM SENSITIVITY ANALYSIS

Schneider Institute for Health Policy Heller School Brandeis University September Compute cost ‑ effectiveness (CE) ratio CE = Net costs (in monetary terms, e.g., dollars) Net health effects (in utility terms, e.g., DALYs or QALYs)

Schneider Institute for Health Policy Heller School Brandeis University September Example of a cost ‑ effectiveness (CE) ratio (Routine vaccinations in Ecuador, National, 1985 ) CE = US $675,000 (Net costs) 10,410 DALYs gained (Net health effects based on 347 toddler deaths averted, at 30 DALYs per death averted) CE = $65 per DALY gained

Schneider Institute for Health Policy Heller School Brandeis University September Decision rules in cost ‑ effectiveness analysis Net effects Net costs positiveNet costs zero or negative PositiveCase 1: Compute cost effectiveness ratio; select most cost-effective programs for improving health (lowest ratios) Case 2: Program economically valuable. Should generally be implemented Zero or negative Case 3. Program benefits offset by morbidity and inconvenience. Program should generally not be implemented Case 4: Compute cost effectiveness ratio; select most cost-effective programs for reducing costs (highest ratios)

Schneider Institute for Health Policy Heller School Brandeis University September Conceptual uses of cost-effectiveness analysis Objective: Develop more cost-effective programs Start with an existing or proposed program Identify potential modifications that improve effectiveness (e.g., more powerful intervention, improved patient adherence) Identify potential modifications that reduce costs (e.g., offer intervention only to selected clients, deliver faster, use lower cost personnel)

Schneider Institute for Health Policy Heller School Brandeis University September Conclusions Cost-effectiveness analysis can be a useful tool in allocating resources Quantitative application requires data about program effectiveness compared to the absence of program Conceptual uses are very powerful tools to plan alternative design

Schneider Institute for Health Policy Heller School Brandeis University September Cost analysis Introduce cost exercise

Schneider Institute for Health Policy Heller School Brandeis University September “Refrigerator Costing” Exercise A health center needs to have an operating refrigerator to maintain the potency of vaccines. The table below shows the resource requirements for four type of refrigerators based on subjective estimates and an study for 100 centers in Uganda. The capital costs include the initial inventory of spares and repair requirement. Solar refrigerators and equipment have a 10-year useful life. Other types have a 5-year useful life. Quantities for operation are annual. Use a real interest rate of 3 percent per year. Complete the table (all the yellow cells) with data and computations.

Schneider Institute for Health Policy Heller School Brandeis University September “Refrigerator Costing” Exercise