Cost Effectiveness and CostBenefit Analysis

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Cost- Effectiveness and Cost-Benefit Analysis

• Arizona Evaluation Network
• 2009 Spring Conference
• Patricia Herman, ND, PhD
• University of ArizonaMay 7, 2009

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Overview

• Why do cost-effectiveness or cost-benefit
  analysis?
• Key points
• Decision making tool
• Counterfactual what you are comparing to
• Balance between costs and effects/benefits
• Perspective of the analysis
• Examples
• Other important points
• Hands on exercise

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Which would you choose if you only considered
effectiveness?
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15
1
-5
4
Now which one looks better?
500
-200
1000
100
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Decision Matrix
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What is cost-effectiveness analysis?
It answers the question Are the net effects
worth the net costs?
Effects of Alternative 1
Costs of Alternative 1
minus
minus
Effects of Alternative 0
Costs of Alternative 0
? Costs
? Effects
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What is cost-benefit analysis?
It answers the question Are the net benefits
greater than the net costs?
Benefits of Alternative 1
Costs of Alternative 1
minus
minus
Benefits of Alternative 0
Costs of Alternative 0
? Costs
? Benefits
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Main Points (So Far)

• Decision-making tool
• Comparison of
• Effects (relevant units) to costs () CEA
• Utility (e.g., QALYs) to costs () CUA
• Benefits () to costs () CBA
• Always new alternative vs. standard now
  (business as usual)

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Importance of Perspective
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Benefits and Costs to Whom?

• Different stakeholders will have different views
  (perspectives) as to benefits costs
• Common perspectives
• Individual (eg, participant, student, patient)
• Providers of the alternatives (eg, physicians,
  teachers, equipment manufacturers)
• Other consumers (eg, insurance premium payers,
  other ratepayers)
• Society as a whole

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Terminology
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Examples

• Water rights adjudication
• Energy conservation
• Healthcare
• Specific example of low back pain

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Water Rights Adjudication

• 1981-1984
• Tribes in the West sued the Bureau of Indian
  Affairs for not safe-guarding their water rights.
• Water rights in the West use it or lose it.
• Cost-benefit analysis used to determine the
  amount of water to which the Tribe had a right.

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San Carlos Apache Reservation

• The San Carlos and Gila Rivers meet here at the
  Coolidge Dam.

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If (income from the irrigated crops) gt (cost),
then Tribe water right water to grow those
crops
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Energy Conservation Programs

• 1983-1998
• Many states required electric utilities to offer
  energy conservation programs
• New electric generation is very expensive
• Cost-benefit analysis used to determine the
  amount of energy conservation the utility needed
  to obtain

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Utilities are required to meet peak power
requirements
One of these electric load curves is dominated by
heating load and one is dominated by cooling
load. Can you tell which is which?
Portion of peak kilowatts
Portion of peak kilowatts
Hour of the day
Hour of the day
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If (Avoided Cost of Generation) gt (Cost of
Conservation) then must offer program
Cost of Generation
Cost of Conservation Program
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Energy Conservation Stakeholders/Perspectives
Society as a Whole
Electric Utility
Electric Utility
Non-Participating Ratepayers
Individual Participant
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Healthcare

• 2001-present
• Skyrocketing healthcare costs and managed care ?
  focus on cost efficiency
• Can we provide equal or better healthcare at a
  lower or reasonable cost?
• Cost effectiveness used to determine which
  therapies should be covered

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Lots of therapies available for treatment
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Should a new therapy be adopted?
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Stakeholders in Healthcare
Society as a Whole
Practitioner
Hospital
Patient
Health insurance company
All insurance premium payers
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Example of Naturopathic Care for Low Back Pain

• Warehouse workers
• Naturopathic care
• Acupuncture
• Dietary advice
• Relaxation training
• Exercise and stretching advice
• Usual care
• Exercise and stretching advice

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Effectiveness of the Intervention
Usual Care
Crossover
Naturopathic Care
Follow-up period
Treatment period
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Analyses performed in this study
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Costs Anything That Can Be Put Into s

• Costs resource use unit costs
• Opportunity cost
• Categories of costs
• Cost of the intervention (related to inputs)
• Costs affected by the intervention (related to
  outcomes)
• Cost-effectiveness ( cost-utility) analysis
• All monetized components are costs
• Cost-benefit analysis
• Costs related to inputs are costs
• Costs related to outcomes are benefits

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Cost Components for Low Back Pain Study

• Cost of the intervention
• Cost of adjunctive care
• Chiropractic
• Massage
• Physiotherapy
• Pain medications
• Cost of absenteeism (lost productivity)

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Incremental (Net) Societal Costs per Patient
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Benefits/Effects

• Medical Outcomes Survey (SF-36)
• Used to estimate quality-adjusted life-years
  (QALYs) the utility measure
• Used for both the societal worker perspectives
• Absenteeism days
• Used as the effectiveness measure for the
  employer perspective

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Cost of Intervention (per patient)

• Cost of naturopathic care
• 125 per hour (US)
• 1 hour initial visit 2 30 minute visits per
  week 4 weeks per month 3 months 1.25
  protocol hrs 11.75 hours of naturopathic care
• 125 11.75 hours 1,469
• Cost of usual care
• 125 per hour (US)
• 1 hour initial visit 2 30 minute visits per
  month 3 months 1.25 protocol hrs 1.75 hours
  of usual care
• 122.40 4 hours 337

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Incremental (Net) Societal Costs per Patient
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Cost of Adjunctive Care (US) (average cost per
patient over 6 months, net of baseline use)
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Incremental (Net) Societal Costs per Patient
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Cost of Absenteeism (US) (average cost
per patient over 6 months, net of baseline)

• Naturopathic care
• Baseline absenteeism 10.2 days per 6 months
• Absenteeism during after intervention 5.4
  days
• Usual care
• Baseline absenteeism 10.1 days per 6 months
• Absenteeism during after intervention 12.0
  days
• Average US wage rate 21.44 per hour (2005
  employer cost of compensation production,
  transportation, and material moving sector)
• Absenteeism costs
• Naturopathic care -4.8 days or (817)
• Usual care 1.9 days or 324

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Incremental (Net) Societal Costs per Patient
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Incremental (Net) Societal Costs per Patient
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Quality-Adjusted Life-Years (QALYs)
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Net Benefits (Gain in QALYs) per Patient Over 6
Months

• Calculated from SF-36 (Brazier, J Health Econ,
  2002)
• Gain in quality-adjusted life-years (QALYs)
• Naturopathic care 0.0293
• Usual care 0.0036
• Net gain 0.0256
• Roughly equivalent to 9.4 additional perfect
  health days (0.0256365 days) OR
• 31 days of perfect health rather than baseline
  health quality (70 of perfect)

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Cost-Effectiveness Plane (Societal Perspective)
Incremental (Net) QALYs
Incremental (Net) Costs
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Decision Matrix
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Cost-Effectiveness Plane
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Cost-Effectiveness Employer Perspective

• Costs (per employee)
• Cost of intervention 1,469 - 337 1,132
• Employer portion of adjunctive costs (employer
  paid 0-80 of adjunctive costs up to annual
  limit) -107
• Effectiveness (absentee days per employee)
• -4.8 days minus 1.9 days -6.7 days
• Cost-effectiveness ratio 1,025/6.7 days or 154
  per absentee day avoided

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Decision Matrix
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Cost-Utility Employee (Individual) Perspective

• Costs - Employee (out-of-pocket) portion of
  adjunctive costs -1,096
• Utilities 0.0256 quality-adjusted life-years
  (QALYs)

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Decision Matrix
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Uncertainty

• Sample variation
• Used bootstrap technique
• Assumptions regarding unit costs, absenteeism,
  missing data
• Univariate sensitivity analyses
• Probabilistic sensitivity analysis (Monte Carlo)

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Cost-Effectiveness Plane Societal Perspective
Bootstrap Results for Sample Variation
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Cost-Effectiveness Plane Societal Perspective
Bootstrap Results for Sample Variation
2-Dimentional Confidence Interval
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What about time?

• The appropriate time horizon for CEA should
  extend far enough in the future to capture the
  major benefits (effects) and costs.

• Each stream (net effects and net costs) is
  discounted before being compared.

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Efficiency Is Not the Whole Answer

• Cost-effectiveness and cost-benefit analyses are
  measures of economic efficiency
• Decisions are rarely made exclusively on
  efficiency grounds
• Equity (the distribution of costs and benefits/
  effects across groups) is also important
• Other factors that influence decisions
• Consumer demand
• Political expediency
• Risk

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Summary

• Decision tool Are the benefits (effects) worth
  the costs?
• Comparison of new alternatives to business as
  usual
• Perspective determines costs
• Sensitivity analysis essential
• Time horizon important
• Costs are an important part of evaluation for any
  intervention

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With thanks to Gary Larsen