1. Schneider Institute for Health Policy Heller School Brandeis University September 2001 1 Donald S. Shepard, Ph.D. Schneider Institute for Health Policy Heller School, MS 035 Brandeis University Waltham, MA 02454-9110 USA Tel: 781-736-3975 Fax: 781-736-3965 Web: http://www.sihp.brandeis.edu/shepard E-mail: Shepard@Brandeis.edu Module I September 5, 2001 – October 22, 2001 Cost-effectiveness of health programs In health services and other sectors HS 422f

2. Schneider Institute for Health Policy Heller School Brandeis University September 2001 2 Practical information Teaching assistant: Jsuaya@Brandeis.edu Administrative assistant: Linda Purrini, Next to library in Heller 781-736-3930 Purrini@Brandeis.edu Cost of packet (including diskette): $6.00

3. Schneider Institute for Health Policy Heller School Brandeis University September 2001 3 Web page

4. Schneider Institute for Health Policy Heller School Brandeis University September 2001 4 Overview of topics 1.Principles 2.Measuring effectiveness 3.Applications 4.Policy uses

5. Schneider Institute for Health Policy Heller School Brandeis University September 2001 5 Comparison: depreciation and amortization

6. Schneider Institute for Health Policy Heller School Brandeis University September 2001 6 Calculations: future value and present value

7. Schneider Institute for Health Policy Heller School Brandeis University September 2001 7 Calculations: expected cost

8. Schneider Institute for Health Policy Heller School Brandeis University September 2001 8 by Donald S. Shepard, Ph.D. Schneider Institute for Health Policy Heller School, MS 035 Brandeis University Waltham, MA 02454-9110 USA Tel: 781-736-3975 Fax: 781-736-3965 Web: http://www.sihp.brandeis.edu/shepard E-mail: Shepard@Brandeis.edu Wednesday, Sept. 5 and Monday, Sept 10: Principles of Cost-Effectiveness Analysis

9. Schneider Institute for Health Policy Heller School Brandeis University September 2001 9 by Donald S. Shepard, Ph.D. Schneider Institute for Health Policy Heller School, MS 035 Brandeis University Waltham, MA 02454-9110 USA Tel: 781-736-3975 Fax: 781-736-3965 Web: http://www.sihp.brandeis.edu/shepard E-mail: Shepard@Brandeis.edu Monday, Sept. 17 Measuring effectiveness and other CEA considerations

10. Schneider Institute for Health Policy Heller School Brandeis University September 2001 10 by Donald S. Shepard, Ph.D. Schneider Institute for Health Policy Heller School, MS 035 Brandeis University Waltham, MA 02454-9110 USA Tel: 781-736-3975 Fax: 781-736-3965 Web: http://www.sihp.brandeis.edu/shepard E-mail: Shepard@Brandeis.edu Monday, Sept. 24 Applications of Cost-Effectiveness Analysis

11. Schneider Institute for Health Policy Heller School Brandeis University September 2001 11 by Donald S. Shepard, Ph.D. Schneider Institute for Health Policy Heller School, MS 035 Brandeis University Waltham, MA 02454-9110 USA Tel: 781-736-3975 Fax: 781-736-3965 Web: http://www.sihp.brandeis.edu/shepard E-mail: Shepard@Brandeis.edu Monday, Oct. 1: Policy Uses of Cost-Effectiveness Analysis

12. Schneider Institute for Health Policy Heller School Brandeis University September 2001 12 by Donald S. Shepard, Ph.D. Schneider Institute for Health Policy Heller School, MS 035 Brandeis University Waltham, MA 02454-9110 USA Tel: 781-736-3975 Fax: 781-736-3965 Web: http://www.sihp.brandeis.edu/shepard E-mail: Shepard@Brandeis.edu Monday, Oct. 15: Modeling in Cost-Effectiveness Analysis

13. Schneider Institute for Health Policy Heller School Brandeis University September 2001 13 by Donald S. Shepard, Ph.D. Schneider Institute for Health Policy Heller School, MS 035 Brandeis University Waltham, MA 02454-9110 USA Tel: 781-736-3975 Fax: 781-736-3965 Web: http://www.sihp.brandeis.edu/shepard E-mail: Shepard@Brandeis.edu Monday, Oct. 22 : Applications of cost-effectiveness analysis to other sectors

14. Schneider Institute for Health Policy Heller School Brandeis University September 2001 14 by Donald S. Shepard, Ph.D. Schneider Institute for Health Policy Heller School, MS 035 Brandeis University Waltham, MA 02454-9110 USA Tel: 781-736-3975 Fax: 781-736-3965 Web: http://www.sihp.brandeis.edu/shepard E-mail: Shepard@Brandeis.edu Wednesday, Sept. 5 and Monday, Sept 10: Principles of Cost-Effectiveness Analysis

15. Schneider Institute for Health Policy Heller School Brandeis University September 2001 15 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.176-209. (Reports the findings of the 1993 U.S. Panel on Cost-Effectiveness Analysis.)

16. Schneider Institute for Health Policy Heller School Brandeis University September 2001 16 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; 276:1253-1258. (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.)

17. Schneider Institute for Health Policy Heller School Brandeis University September 2001 17

18. Schneider Institute for Health Policy Heller School Brandeis University September 2001 18 Cost-effectiveness ratio Numerator: net use of health resources Denominator: net improvement in QALYs

19. Schneider Institute for Health Policy Heller School Brandeis University September 2001 19 Standard reference case Standard set of assumptions for consistent analyses Comparator is the status quo Uses a discount rate of 3%

20. Schneider Institute for Health Policy Heller School Brandeis University September 2001 20 by DONALD S. SHEPARD, PhD MARK S. THOMPSON, PhD Public Health Reports 94:535-544, 1979 Web: http://www.sihp.brandeis.edu/shepard/downloads First Principles of Cost ‑ Effectiveness Analysis in Health

21. Schneider Institute for Health Policy Heller School Brandeis University September 2001 21 1.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

22. Schneider Institute for Health Policy Heller School Brandeis University September 2001 22 1. DEFINE THE PROGRAM Develop alternative approaches to the problem Define precisely programs to be analyzed (who, what, where, when, and how)

23. Schneider Institute for Health Policy Heller School Brandeis University September 2001 23 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

24. Schneider Institute for Health Policy Heller School Brandeis University September 2001 24 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)

25. Schneider Institute for Health Policy Heller School Brandeis University September 2001 25 Identify case based on signs of net costs and net effects Apply rule for appropriate case 4. APPLY DECISION RULES

26. Schneider Institute for Health Policy Heller School Brandeis University September 2001 26 Vary uncertain parameters and recompute costs and health effects Examine effects on decision 5. PERFORM SENSITIVITY ANALYSIS

27. Schneider Institute for Health Policy Heller School Brandeis University September 2001 27 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)

28. Schneider Institute for Health Policy Heller School Brandeis University September 2001 28 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

29. Schneider Institute for Health Policy Heller School Brandeis University September 2001 29 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)

30. Schneider Institute for Health Policy Heller School Brandeis University September 2001 30 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)

31. Schneider Institute for Health Policy Heller School Brandeis University September 2001 31 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

32. Schneider Institute for Health Policy Heller School Brandeis University September 2001 32 Cost analysis Introduce cost exercise

33. Schneider Institute for Health Policy Heller School Brandeis University September 2001 33 “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.

34. Schneider Institute for Health Policy Heller School Brandeis University September 2001 34 “Refrigerator Costing” Exercise