Introduction to Cost-Effectiveness Analysis (CEA)
Cost-effectiveness analysis is a
tool used to aid decisions about which medical care should be offered.
It is a method of comparing the cost and effectiveness of two
or more alternatives. Such
comparisons are most useful when one of the alternatives being considered
is standard care, as this allows the decision maker to consider whether
an innovation is better than the status quo
When one of the alternatives saves
costs and improves outcomes, it is favored; this principle is called dominance.
The dominance principle can favor the innovation or standard care.
When one of the alternatives is more
costly and yields better outcomes, dominance provides no guidance.
The decision maker will approve of its adoption only if the additional
effectiveness justifies its additional cost.
This is a value decision-the cost-effectiveness analyst
must determine the value of the outcomes that are achieved.
First,
the incremental cost-effectiveness ratio is found. This ratio is simply the change in cost divided by the change
in outcome. To find this
ratio, a single dimensional effectiveness measure is required.
The ratio is evaluated against a threshold criteria for what
constitutes a cost-effective intervention.
To facilitate the comparison of different
interventions, a standard method of cost-effectiveness analysis was developed
by a task force of experts organized by the U.S. Public Health Service
(PHS) (Gold, Siegel,
Russell, & Weinstein, 1996). The
Task Force recommended that cost-effectiveness studies use the Quality-Adjusted
Life Year (QALY) as the outcome measure, acknowledging the widespread
use of this measure in healthcare. The QALY is an outcome measure that
reflects both the quantity and the quality of life (Torrance & Feeny, 1989). Quality
of life adjustments are based on patient or societal ratings of the quality
of life associated with different health states.
The ratings, also known as "preferences" or "utilities," are on
a scale of zero (representing death) to one (representing perfect health).
There are several methods for obtaining these ratings.
The Time-Trade-Off method asks the individual doing the rating
how much healthy life they are willing to give up to be cured of the condition. The Standard Gamble method asks them how much of a risk of
death they are willing to incur in order to be cured of the condition. The Health Utilities Index (HUI) and EuroQoL are instruments used to gather information on quality of life. Methods for assessing economic quality of life are found in the HERC guidebook, Preference Measurement in Economic Analysis.
The cost-effectiveness ratio represents
a measure of how efficiently the proposed intervention can produce an
additional QALY. By using
this standard method, the cost-effectiveness of alternative innovations
may be compared, helping healthcare payers decide what changes they
should adopt. The PHS Task
Force did not recommend a standard of what constitutes a cost-effective
intervention, that is, how low the cost-effectiveness ratio must be
for an intervention to be adopted.
Others have observed that the U.S. healthcare system adopts treatments
that cost less than $50,000 per quality-adjusted life year (Owens,
1998). It has been argued that a higher threshhold is now appropriate.
The goal of the decision
maker is to adopt all interventions that represent efficient ways of producing
QALYs, and to disapprove of interventions with ratios that are too high.
The
PHS Task Force made other recommendations on how a cost-effectiveness
analysis should be conducted:
- Costs should be estimated
from society's perspective. The
effects of an intervention on all cost should be considered, not only
the direct cost of the intervention, but its effect on healthcare expenditures,
and costs incurred by patients.
-
Costs and benefits should
be discounted at a 3% annual rate.
-
When the effect of the
intervention on costs and benefits are not fully realized during the
study period, modeling should be used to estimate the costs and benefits
over the patient's life-time.
-
The task force also described
methods of estimating the statistical significance of cost-effectiveness
findings. Note that when
cost-effectiveness is a primary study hypothesis, variance in costs
and outcomes, and their covariance will affect the sample size.
For
details regarding these issues, the cost-effectiveness analyst will
want to consult the recommendations of the U.S. Public Health Service
panel on cost effectiveness in health and medicine
(Gold
et al., 1996)
Drummond MF, Sculpher MJ, Torrance GW, O'Brien BJ, Stoddart GL.
Methods for the economic evaluation of health care programmes. Third edition: Oxford: Oxford University Press; 2005.
Gold, M. R., Siegel, J. E., Russell, L. B., & Weinstein, M. C. (1996).
Cost-effectiveness
in health and medicine. New York: Oxford University
Press.
Owens, D. K. (1998). Interpretation
of cost-effectiveness analyses [Editorial]. J Gen Intern Med, 13, 716-717.
Torrance, G. W., & Feeny,
D. (1989). Utilities and quality-adjusted life years. Int
J Technol Assess healthcare, 5(4), 559-75.
