University of Minnesota Medical Technology Evaluation and Market Research Course: MILI/PUBH 6589 Spring Semester, 2012

1. University of MinnesotaMedical Technology Evaluation and Market Research Course: MILI/PUBH 6589Spring Semester, 2012 Stephen T. Parente, Ph.D.$ $Carlson School of Management, Department of Healthcare Management

2. Class #3Introduction to Cost-Effectiveness Analysis

3. Introduction • Many important Medical Technology questions turn on the ultimate ‘value’ the technology adds • Coverage Decisions • Pricing • Go/No Go • Formulary adoption • We have developed sets of tools to measure the value of medical technologies • Cost-Effectiveness Analysis (CE) • Cost Effectiveness analysis provides a systematic approach to valuing and ranking medical technologies

5. Why CE? • Important for Managers to understand what Cost Effectiveness Analysis • Purchasers use these analyses • Important coverage decisions are based on them • Societal perspective: Given a fixed budget how should we distribute our health care dollars? • CE is a comparison tool to help evaluate choices • It will not always indicate a clear choice, but it will evaluate options quantitatively based on a defined model

6. Goal for Lecture • Not training you to perform CE but understand what is evolved and how to interpret CE analyses. • Prof. John Nyman offers a CE course if you want develop skill in this area • Prof. Karen Kuntz offers two courses on Medical Decision making which is also related to CE analysis • Goal for Lecture: • Introduce you to the terminology and concepts on CE analysis • More detail on the ‘Costs’ and the ‘Effectiveness’ measurement will be given later in this course

7. State 2 State 1 Intervention Reduced Heart Function New Device Cost-Effectiveness • A methodology to measure the health benefits attributable to a given intervention • The is a standardized approach(es) to measuring the net benefits of technology • What is the differences in health states attributable to an intervention? Example: Improvement in heart function

8. Cost Effectiveness Analysis • Measures the benefits associated with an intervention relative to its cost • Average Cost-effectiveness ratio (CE ratio):

9. Reference Intervention • It is necessary to distinguish between independent and mutually exclusive interventions • For most purposes, CE analysis requires a reference intervention. • Reference intervention is simply what you are comparing the treatment to • For example, Blood Pressure treatment: ACE inhibitors vs. Diuretics • How to chose reference intervention? • Usually, current medical practice or the standard of care.

10. Numerator of CE ratio • Cost of intervention is all the costs associated with provided a treatment of preventive test. • Example: hospitalization, time, drugs. • The costs averted by an intervention include avoided future health care costs. • E.g. future hospitalizations, physician visits, drugs. • Costs that do not go into the numerator • Those that are in the denominator

11. Who’s Cost? • Patients? • Hospitals? • MDs? • Insurers? • Government? • Society?

12. The Denominator of the CE Ratio • We need to formulate a measure of the benefits of an intervention • Ideally, what features should this measure capture?

13. The Denominator of the CE Ratio • Use a measure of increase in the quality of life due to the intervention. • Includes both increases in longevity and quality of life. • Includes both Quantity and Quality of Life. • Quality Adjusted Life Years (QALY’s) are usually what is measured.

14. QALY Basics • Will cover QALYs in more detail later. • For each year, QALYs are measured from 0 to 1 with 0 being death and 1 being perfect health. • Need to measure Health Related Quality of Life (HRQL). • HRQL score is a valuation of life lived in a particular health state.

15. Basics of QALYs • A simple formula: • QALY’s = Duration of illness x (HRQLtreated - HRQLuntreated) + (years gained x mean HRQL) • QALY’s are usually measured using survey instruments • A quick example, a treatment for a condition called Parente-itis (a truly horrible disease!) • No treatment -- gradual health decline and die in 5 years • Treatment -- reduces the decline and and extends life by 4 years

16. QALY’s QALY is the area between the two lines Change in QALY’s = 1.9

17. QALY’s • Look at the CE ratio using QALYs. • The CE ratio is a measure of the cost of gaining one QALY. The CE ratio can be simply thought of as:

18. MSNBC.com Actually, a long, healthy life costs more Treating obesity and smoking is cheaper than keeping folks fit, study says The Associated Press updated 7:00 p.m. CT, Mon., Feb. 4, 2008 LONDON - Preventing obesity and smoking can save lives, but it doesn’t save money, researchers reported Monday. It costs more to care for healthy people who live years longer, according to a Dutch study that counters the common perception that preventing obesity would save governments millions of dollars. “It was a small surprise,” said Pieter van Baal, an economist at the Netherlands’ National Institute for Public Health and the Environment, who led the study. “But it also makes sense. If you live longer, then you cost the health system more.” In a paper published online Monday in the Public Library of Science Medicine journal, Dutch researchers found that the health costs of thin and healthy people in adulthood are more expensive than those of either fat people or smokers. Van Baal and colleagues created a model to simulate lifetime health costs for three groups of 1,000 people: the “healthy-living” group (thin and non-smoking), obese people, and smokers. The model relied on “cost of illness” data and disease prevalence in the Netherlands in 2003. The researchers found that from age 20 to 56, obese people racked up the most expensive health costs. But because both the smokers and the obese people died sooner than the healthy group, it cost less to treat them in the long run. On average, healthy people lived 84 years. Smokers lived about 77 years, and obese people lived about 80 years. Smokers and obese people tended to have more heart disease than the healthy people. Cancer incidence, except for lung cancer, was the same in all three groups. Obese people had the most diabetes, and healthy people had the most strokes. Ultimately, the thin and healthy group cost the most, about $417,000, from age 20 on. The cost of care for obese people was $371,000, and for smokers, about $326,000. Obesity experts said that fighting the epidemic is about more than just saving money.

19. In-Class Exercise • Go to the League Table at: • http://ehealthecon.hsinetwork.com/PhaseIIIACompleteLeagueTable.pdf • Spend 10 minutes and find the answers to the following questions:

20. In-Class Exercise

21. Other Measures of Benefits of Intervention • General class of meaures is called: Health Adjusted Life Years (HALYs) • Disability Adjusted Life Years (DALYs) = Years of lost life + years lost to disability • DALYs differ from QALYs • Healthy Years Equivalents (HYE) • Number of years in optimal health that would produce the same level of utility for an individual as produced by a lifetime health profile of the intervention • Only QALYs should be used in reference case analysis (Gold, et al. 1996)

22. The Cost Effective Plane + IV I Less effective and more expensive More effective and more expensive Difference in cost + - Less effective and less expensive More effective and less expensive III II - Differences in effectiveness Note: Origin is reference intervention

23. The Cost Effective Plane + I IV More effective and more expensive Dominated Difference in cost + - Less effective and less expensive Cost Saving III II - Differences in effectiveness

24. Comparing More than One Intervention • Incremental cost-effectiveness is the differences in costs between two interventions divided by the differences in QALYs

25. An Example -- CE in terms of life years

26. Different Types of Analysis • Cost Effectiveness: The costs of the intervention relative to some outcome. • Cost-Utility Analysis: Cost Effectiveness using a Health Related Quality of Life measure. • Cost-Benefit Analysis: A dollar value is placed on the benefits as well as the cost of the intervention.

27. Different Types of Analysis • Cost- Minimization Analysis: used when the outcomes of the treatments are similar • Burden of Disease Analysis: Measures the impact of a disease on mortality, morbidity or QALYs lost across a population • E.g. Malaria results in xx lost life years. • More recently, BDA includes quality of life measures (DALYs) • This can affect the ranking of disease -- signficantly increases the depression in the ranking of disease

28. What Makes an Intervention Cost Effective? • What is the value of a life? • How might you try to figure it out? • Roughly, anything below $100,000 to $50,000 per QALY is a “good buy”

29. NICE • National Institute for Health and Clinical Excellence -- NICE! • A UK organization that provides guidance on the use of new and existing medical technologies • Specifically chartered for England and Wales -- the NHS must cover treatments recommended by NICE • Is influential outside of those areas-- so it is important to know it • http://www.nice.org.uk/

30. The Cost Effective Plane + IV I Less effective and more expensive More effective and more expensive Difference in cost + - Less effective and less expensive More effective and less expensive III II - Differences in effectiveness Note: Origin is reference intervention

31. The Cost Effective Plane + I IV More effective and more expensive Dominated Difference in cost + - Less effective and less expensive Cost Saving III II - Differences in effectiveness

32. Not all Evidence is Created Equal • Studies use different strategies to estimate the effectiveness and that should be taken into account in the analysis • Grading the Evidence (Cook, et al. 1992)

33. Intervention Summary the Design of Cost Effectiveness Analysis Health state 2 Cost 2 Health state 1 Cost 1 Change in incidence Increase in lifespan Improvement in quality Incidence of disease Life Expectancy Quality of Life Incidence of disease Life Expectancy Quality of Life Information from medical literature Information from electronic databases Information directly from trials