Economic Analysis and Management

Todd Wagner, PhD

TELL ME WHY WENEED DRUG ELUTING STENTS.

AND DON’T GIVE METHE CONDESCENDINGSIMPLE VERSION FOR MANAGERS. I WANT THEFULL TECHNICAL DESCRIPTION.

EARLY CIVILIZATIONSHAD NO CONCEPT OFZERO.

GOON.

Why Would Managers Care?

• CEA is being used to decide about:– formulary– adoption of new technology– scope of benefits– strategies for management of care– organization of health care

Management Misperceptions

• Only three types of economic analyses exist– Cost identification– what does X cost

– CEA

– Return on Investment

Researcher Misperceptions

• Managers do not understand economics

• Managers want CEAs

• A CEA must reflect a societal perspective and lifetime costs and benefits

Basic Rules

1. Set the stage: ask questions & listen

2. Avoid jargon and use the word “no” liberally

3. Build in feedback (interim results)

4. Help the manager: write a good report

5. Help yourself: publish the results

What is the Study Type?• Cost identification

• Cost minimization

• Cost consequences

• Cost-effectiveness analysis

• Cost-benefit analysis

• Cost-utility analysis

• Other: efficiency, demand

Return on Investment (ROI)

• A type cost-benefit analysis

• Compares input costs to all monetary outputs

• Time frame is often very short (1 or 2 years)

• ROI lacks context when talking about health care.

What is the cost?

• Do we know the cost?

• How precise are our cost estimates?

• How do costs vary over time?

• What affects the cost?

Is Treatment Effective?

• Is there evidence?

• How strong is the evidence?

• A meta analysis may be necessary (http://www.cochrane.org/).

Is a CEA Warranted?

Change in Effectiveness

Changein

Cost

Standard care preferred+

-- +

Intervention preferred

?

?

CEA is more helpful

Net Benefit Model

• In many cases, the QALYs are not well known

• Two approaches:– A net benefit model (Hoch, 2002, Health Economics);

capitalize on effectiveness data

– A break even analysis; how many QALYs would be required for the intervention to be more cost-effective than than control at $50,000 per QALY?

Comparison Group

• An intervention or treatment can never be cost effective by itself

• CEA is always a relative decision– Need at least one comparison group– Treatment X is more cost-effective than Y

Comparison Group (cont.)

• Important to identify the important comparison group(s) for managers

• Many clinical trials use placebo controls

• A CEA with an active comparison may require modeling

Perspective

• Focus on a payer’s costs/benefits rather than on society’s costs/benefits

• Congress might be interested in Medicare’s bottom line

• Excluding patient costs can be important for LTC, RX and some chronic illnesses (e.g., UI)

Transfer Payments

• Welfare and governmental income assistance programs redistribute money.

• Transfer payments may be important, although they are not “real” to society.

• Transfer payments are important for governmental agencies.

• Always include any administrative fees (usually very small).

Changing Assumptions

• Managers might want CEA tailored to their situation

• Consider– Patient population– Clinical risks– Patient volume and costs

Other Outcomes

• Externalities, such as the effect of substance use treatment on crime may be important

• Labor force participation and productivity may be particularly important for employers or means tested programs (e.g., Medicaid)

Measurement of Costs

• VA or non-VA costs?– Pharmaceuticals in the VA are much less

expensive than outside the VA– VA salaries tend to be lower– VA inpatient stays tend to be longer

• Which VA cost data: DSS, HERC national or HERC local?

Main vs Secondary Analyses• Wise to conduct an analysis that

conforms to the Gold Book, even if this is not the manager’s desire

• A second analysis can focus on the question outlined for management.– Encourages standardization– Prevents misuse of the results in the future

Use of CEA by Management

• Q: Is it used?

• A: Never as the only piece of information, and sometimes not at all.– Hagen MD, Garber AM, Goldie SJ, et al.

Does cost-effectiveness analysis make a difference? Lessons from Pap smears. Symposium. Med Decis Making. Jul-Aug 2001;21(4):307-323.

Too Quickly, Too Little

• Managers want the answer immediately, and may not be willing to pay

• Retrospective studies often take 6 months or more

• The cost and time frame for a prospective study depend on the level of costing and the length of the study (generally 25% of the total budget)

Managers May Not Know

• Managers may not know what is wanted (they may be the intermediary)

• Ask many questions; the Gold Book can be used to identify key issues

• Try to find out what other stakeholders might want to know

Questions on Management Analyses?