2. Foundations of economic evaluation

Learning Objectives and Outline

Learning Objectives

• Identify theoretical and methodological differences between different economic evaluation techniques.

• Understand the concepts of summary measures of health, including quality-adjusted life years (QALYs) and disability-adjusted life years (DALYs).

• Be familiar with the steps of valuing costs in economic evaluations.

Outline

• Introduction to Economic Evaluations

  • Types of Economic Evaluations

  • Who Uses Economic Evaluations

• Valuing Health Outcomes

  • QALYs

  • DALYs

• Valuing Costs

Introduction to Economic Evaluations

Introduction

• Earlier lecture touched on the basic framework for decision analysis.

  • Decision trees
  • Cohort or individual simulation model

• We will now touch on some core concepts for representing health benefits and costs.

Economic Evaluation

• Relevant when decision alternatives have different costs and health consequences.

• We want to measure the relative value of one strategy in comparison to others.

• This can help us make resource allocation decisions in the face of constraints (e.g., budget).

Features of Economic Evaluation

• Systematic quantification of costs and consequences.

• Comparative analysis of alternative courses of action.
  • We’ll focus on this in the next lecture.

Techniques for Economic Evaluation

Type of study	Measurement/Valuation of costs both alternative	Identification of consequences	Measurement / valuation of consequences
Cost analysis	Monetary units	None	None

Cost analysis

• Only looks at healthcare costs

• Relevant when alternative options are equally effective (provide equal benefits)

  • Rarely the case in reality!

• Costs are valued in monetary terms (e.g., U.S. dollars)

• Decision criterion: often to minimize cost

Techniques for Economic Evaluation

Type of study	Measurement/Valuation of costs both alternative	Identification of consequences	Measurement / valuation of consequences
Cost analysis	Monetary units	None	None
Cost-effectiveness analysis	Monetary units	Single effect of interest, common to both alternatives, but achieved to different degrees.	Natural units (e.g., life-years gained, disability days saved, points of blood pressure reduction, etc.)

Cost-Effectiveness Analysis (CEA)

Most useful when decision makers consider multiple options within a budget, and the relevant outcome is common across strategies

• Costs are valued in monetary terms ($)
• Benefits are valued in terms of clinical outcomes (e.g., cases prevented or cured, lives saved, years of life gained, quality-adjusted life years gained)
• Results reported as a cost-effectiveness ratio

Cost-Effectiveness Analysis

• Suppose we are interested in the prolongation of life after an intervention.

• Outcome of interest: life-years gained.

• The outcome is common to alternative strategies; they differ only in the magnitude of life-years gained.

• We can report results in terms of $/Life-years gained

Techniques for Economic Evaluation

Type of study	Measurement/Valuation of costs both alternative	Identification of consequences	Measurement / valuation of consequences
Cost analysis	Monetary units	None	None
Cost-effectiveness analysis	Monetary units	Single effect of interest, common to both alternatives, but achieved to different degrees.	Natural units (e.g., life-years gained, disability days saved, points of blood pressure reduction, etc.)
Cost-utility analysis	Monetary units	Single or multiple effects, not necessarily common to both alternatives.	Healthy years (typically measured as quality-adjusted life-years)

Cost-Utility Analysis

• Essentially a variant of cost-effectiveness analysis.
• Major feature: use of generic measure of health.
• Quality-Adjusted Life Year (QALY): A metric that reflects both changes in life expectancy and quality of life (pain, function, or both).
• By far the most widely published form of economic evaluation.

We will focus mostly on CEA (especially CUA) throughout the workshop

Techniques for Economic Evaluation

Type of study	Measurement/Valuation of costs both alternative	Identification of consequences	Measurement / valuation of consequences
Cost analysis	Monetary units	None	None
Cost-effectiveness analysis	Monetary units	Single effect of interest, common to both alternatives, but achieved to different degrees.	Natural units (e.g., life-years gained, disability days saved, points of blood pressure reduction, etc.)
Cost-utility analysis	Monetary units	Single or multiple effects, not necessarily common to both alternatives.	Healthy years (typically measured as quality-adjusted life-years)
Cost-benefit analysis	Monetary units	Single or multiple effects, not necessarily common to both alternatives	Monetary units

Cost-Benefit Analysis

• Also known as Benefit-Cost Analysis
• Relevant for resource allocation between health care and other areas (e.g., education)
• Costs and health consequences are valued in monetary terms (e.g., U.S. dollars)
• Valuation of health consequences in monetary terms ($) is obtained by estimating individuals willingness to pay for life saving or health improving interventions.
  • e.g.: US estimate of value per statistical life ~$9 million
• Cost-benefit criterion: the benefits of a program > its costs
  • Notice that we’re not making comparisons across strategies–only comparisons of costs and benefits for the same strategy
• To read more: Robinson et al, 2019

Cost-Benefit Analysis

https://pubmed.ncbi.nlm.nih.gov/28183740/

Cost-Benefit Analysis

https://www.cambridge.org/core/product/identifier/S2194588818000271/type/journal_article

Who uses economic evaluations?

• Health Technology Advisory Committees

  • PBAC (Pharmaceutical Benefits Advisory Committee in Australia)

  • Canada’s Drug and Health Technology Agency

  • NICE (The National Institute for Health and Care Excellence, UK)

  • Brazil’s health technology assessment institute

• Groups developing clinical guidelines

  • WHO

  • CDC

  • Disease-specific organizations: American Cancer Society; American Heart Association; European Stroke Organisation

• Regulatory agencies:

  • FDA (U.S. Food and Drug Administration)

  • EPA (U.S. Environmental Protection Agency)

Identifying Alternatives

Identifying Alternatives

• Decision modeling / economic evaluation requires identifying strategies or alternative courses of action.

• These alternatives could include different therapies / policies / technologies.

• Or, our alternatives could capture different combinations or sequences of treatment (e.g., what dose? what age to start?)

• We have a dedicated capstone exercise (ex 2) for this!

Once we have identified the alternatives, we’ll want to quantify their associated consequences in terms of:

• Health outcomes

• Costs

Valuing Health Outcomes

Why summary measures of health?

• QALYs and DALYs both provide a summary measure of health

• Allow comparison of health attainment / disease burden

  • Across diseases

  • Across populations

  • Over time etc.

QALYs

• Origin story: welfare economics

  • Utility = holistic measure of satisfaction or wellbeing

• With QALYs, two dimensions of interest:

  • length of life (measured in life-years)

  • quality of life (measured by utility weight, usually between 0 and 1)

Example: Patient with coronary heart disease (with surgery)

Example: Patient with coronary heart disease (with surgery)

Example: Patient with coronary heart disease (without surgery)

Example: Patient with coronary heart disease

• With surgery: 7.875 QALYs
• Without surgery: 6.625 QALYs
• Benefit from surgery intervention:

  • In QALYs: 7.875 – 6.625 QALYs = 1.25 QALYs

  • In life years: 10 years – 10 years = 0 LYs

Utility weights – How are they obtained?

• Utility weights for most health states are between 0 (death) and 1 (perfect health)

• Direct methods

  • Standard gamble

  • Time trade-Off

  • Rating scales

• Indirect methods:

  • EQ-5D

  • Other utility instrument: SF-36; Health Utilities Index (HUI)

Direct methods - Standard Gamble (SG)

“What risk of death you would accept in order to avoid [living with stroke the rest of your life] and live the rest of your life in perfect health?”

How bad is having a stroke?

• As a result of a stroke, you

  • Have impaired use of your left arm and leg

  • Need some help bathing and dressing

  • Need a cane or other device to walk

  • Experience mild pain a few days per week

  • Are able to work, with some modifications

  • Need assistance with shopping, household chores, errands

  • Feel anxious and depressed sometimes

Direct methods - Standard Gamble (SG)

“What risk of death you would accept in order to avoid [living with stroke the rest of your life] and live the rest of your life in perfect health?”

• Find the threshold \(p_T\) that sets EV(A) = EV(B)
• Assume respondent answered that they would be indifferent between A and B at a threshold \(p_T = 0.2\)
• Then U(Stroke) = \(p_T\)*U(Death) + \((1-p_T)\)*U(Perfect Health) = 0.2*0 + (1-0.2)*1 = 0.8

Direct Methods - Time Trade-Off (TTO)

• An alternative to standard gamble

• Instead of risk of death, TTO uses time alive to value health states

• Does not involve uncertainty in choices

• Task might be easier for some respondents compared to standard gamble

Direct Methods - Time Trade-Off (TTO)

“What portion of your current life expectancy of 40 years would you give up to improve your current health state (stroke) to ‘perfect health’?”

U(Post-Stroke) * 40 years = U(Perfect Health) * 25 years + U(Dead) * 15 years

U(Post-Stroke) * 40 years = 1 * 25 years + 0 * 15 years

U(Post-Stroke) = 25/40 = 0.625

SG vs TTO

• SG represents decision-making under uncertainty; TTO is decision-making under certainty

• TTO might inadvertently capture time preference (i.e., we might value health in the future less than we do today) as opposed to only valuing the health states

• Risk posture is captured in SG (risk aversion for death) but not in TTO

• Utility values from SG usually > TTO for same state

Direct methods – Rating scales

“On a scale where 0 represents death and 100 represents perfect health, what number would you say best describes your health state over the past 2 weeks?”

• Problem: It does not have the interval property we desire
  • A value of “90” on this scale is not necessarily twice as good as a value of “45”

Visual Analogue Scale (VAS)

The Visual Analog Scale (VAS) is a commonly-used rating scale

Source: https://assessment-module.yale.edu/im-palliative/visual-analogue-scale

Direct methods – Rating scales

• Easy to use: Rating scales often used where time or cognitive ability/literacy prevents use of other methods
• Very subjective and prone to more extreme answers! Usually, utilities for VAS < TTO < SG

Practical issue – keep an eye out for “cheaters”

Hypothetical “cheating” example:

• Drug company X has discovered a drug that prevents diabetes but causes migraines (side-effect)

• They use VAS to estimate the utility of diabetes in their decision model and SG to estimate the utility of migraines

• Is there a problem here? (yes, there is!!)

  • Recall, usually utilities for VAS < TTO < SG

  • Thus, this approach overstates the benefit by using a lower U(Diabetes) and higher U(migraines)

Indirect Methods - EQ-5D

• System for describing health states

• 5 domains: mobility; self-care; usual activities; pain/discomfort; and anxiety/depression

• 3 levels: 243 distinct health states (e.g. 11223)

• Valuations elicited through population based surveys with VAS, TTO

• System for describing health states

• 5 domains: mobility; self-care; usual activities; pain/discomfort; and anxiety/depression

• 3 levels: 243 distinct health states (e.g. 11223)

• Valuations elicited through population based surveys with VAS, TTO

Off-the-shelf numbers for your own CEAs?

Stay tuned for Lecture 6: Curating and transforming model parameters!

DALYs

• Origin story: Global Burden of Disease Study

• Deliberately a measure of health, not welfare/utility

• Focus on disease burden \(\rightarrow\) DALYs are things to be avoided

• As QALYs, two dimensions of interest:

  • length of life (differences in life expectancy)

  • quality of life (measured by disability weight)

DALYs

DALYs = YLL + YLD

• YLL (Years of Life Lost)
• YLD (Years Lived with Disability)

DALYs = YLL + YLD

• Years of Life Lost (YLL): changes in life expectancy, calculated from comparison to synthetic life table

• YLL example: Providing HIV treatment delays death from age 30 to age 50

  • Life years gained = 20 years

  • YLL?

Synthetic, Reference Life Table

Age	Life Expectancy	Age	Life Expectancy
0	88.9	50	39.6
1	88.0	55	34.9
5	84.0	60	30.3
10	79.0	65	25.7
15	74.1	70	21.3
20	69.1	75	17.1
25	64.1	80	13.2
30	59.2	85	10.0
35	54.3	90	7.6
40	49.3	95	5.9
45	44.4

Source: http://ghdx.healthdata.org/record/ihme-data/global-burden-disease-study-2019-gbd-2019-reference-life-table

Synthetic, Reference Life Table

Age	Life Expectancy	Age	Life Expectancy
0	88.9	50	39.6
1	88.0	55	34.9
5	84.0	60	30.3
10	79.0	65	25.7
15	74.1	70	21.3
20	69.1	75	17.1
25	64.1	80	13.2
30	59.2	85	10.0
35	54.3	90	7.6
40	49.3	95	5.9
45	44.4

Source: http://ghdx.healthdata.org/record/ihme-data/global-burden-disease-study-2019-gbd-2019-reference-life-table

DALYs = YLL + YLD

• Years of Life Lost (YLL): changes in life expectancy, calculated from comparison to synthetic life table

• YLL example: Providing HIV treatment delays death from age 30 to age 50

  • Life years (LYs) gained: 20 years

  • YLL: LE(50) - LE(30) = 39.6 - 59.2 = -19.6 DALYs = 19.6 DALYs averted

Note

YLL (measured as DALYs averted) \(\neq\) LYs gained!

DALYs = YLL + YLD

• Years Lived with Disability (YLD): calculated similar to QALYs, utility weight ≈ 1 - disability weight

• YLD example: Effective asthma control for 10 years

  • Disability weight (uncontrolled asthma) = ?

  • Disability weight (controlled asthma) = ?

Disability Weights

• Common values for small set of named health conditions (e.g. early/late HIV, HIV/ART)
• First iteration: expert opinion
• Second iteration: Pop-based HH surveys in several world regions (13,902 respondents)

  • Paired comparison of two health state descriptions which worse

  • Probit regression to calculate disability weights

  • 235 unique health states

Source: Salomon, Joshua A., et al. “Disability weights for the Global Burden of Disease 2013 study.” The Lancet Global Health 3.11 (2015): e712-e723.

DALYs = YLL + YLD

• Years Lived with Disability (YLD): calculated similar to QALYs, utility weight ≈ 1 - disability weight

• YLD example: Effective asthma control for 10 years

  • Disability weight (uncontrolled asthma) = 0.133

  • Disability weight (controlled asthma) = 0.015

  • YLD = 10 * 0.015 - 10 * 0.133 = -1.18 DALYs = 1.18 DALYs averted

DALYs for CEA

• Recommended calculation approach has changed over time (age weighting, discounting, now both out for GBD estimates)
• Some will calculate a “QALY-like” DALY, using utility weight = 1- disability weight
• Discounting still generally done for CEA (will be covered this afternoon!)

Important

Common practice

• High-income setting: QALYs
• Low- and middle- income setting = DALYs

Valuing Costs

Steps

• Identify

• Measure

• Value

We can identify different types of healthcare costs

• Direct Health Care Costs

  • Hospital, office, home, facilities

  • Medications, procedures, tests, professional fees

• Direct Non-Health Care Costs

  • Childcare, transportation costs

• Time Costs

  • Patient time receiving care, opportunity cost of time

• Productivity costs (‘indirect costs’)

  • impaired ability to work due to morbidity?

  • lost economic productivity due to death?

  • friction costs

We can measure costs using different approaches

• Micro-costing (bottom-up)

  • Measure all resources used by individual patients, then assign the unit cost for each type of resource consumed to calculate the total cost

• Gross-costing (top-down)

  • Estimate cost for a given volume of patients by dividing the total cost by the volume of service use

• Ingredients-based approach (P x Q x C)

  • Probability of occurrence (P)

  • Quantity (Q)

  • Unit costs (C)

Adjustments needed for Valuing Costs

• Discounting

• Adjusting for currency and currency year

• Will cover these adjustments in Lecture 3!

Whose perspective?

Sanders GD, Neumann PJ, Basu A, et al. Recommendations for Conduct, Methodological Practices, and Reporting of Cost-effectiveness Analyses: Second Panel on Cost-Effectiveness in Health and Medicine. JAMA. 2016;316:1093–1103.

References

Drummond, Michael F., Mark J. Sculpher, Karl Claxton, Greg L. Stoddart, and George W. Torrance. 2015. Methods for the Economic Evaluation of Health Care Programmes. Oxford university press.