Cost-utility analysis
Encyclopedia
Cost–utility analysis is a form of financial analysis
used to guide procurement decisions. The most common and well-known application of this analysis is in pharmacoeconomics
, especially health technology assessment
(HTA).
Cost is measured in monetary units. Benefit needs to be expressed in a way that allows health states that are considered less preferable to full health to be given quantitative values. However, unlike cost–benefit analysis, the benefits do not have to be expressed in monetary terms. In HTAs it is usually expressed in quality-adjusted life years (QALYs).
If, for example, intervention A allows a patient to live for three additional years than if no intervention had taken place, but only with a quality of life weight of 0.6, then the intervention confers 3 * 0.6 = 1.8 QALYs to the patient. If intervention B confers two extra years of life at a quality of life weight of 0.75, then it confers an additional 1.5 QALYs to the patient. The net benefit of intervention A over intervention B is therefore 1.8 – 1.5 = 0.3 QALYs.
The incremental cost-effectiveness ratio
(ICER) is the ratio between the difference in costs and the difference in benefits of two interventions. The ICER may be stated as (C1 – C0)/(E1 – E0) in a simple example where C0 and E0 represent the cost and gain, respectively, from taking no health intervention action. C1 and E1 would represent the cost and gain, respectively of taking a specific action. So, an example in which the costs and gains, respectively, are $140,000 and 3.5, would yield a value of $40,000. These values are often used by policy makers and hospital administrators to determine relative priorities when determining treatments for disease conditions. It is important to note that CUA measures relative patient or general population utility of a treatment or pharmacoeconomic
intervention. Its results give no absolute indicator of the value of a certain treatment.
The National Institute for Health and Clinical Excellence (NICE)
is part of the National Health Service (NHS) in the UK and has been using QALYs to measure the health benefits delivered by various treatment regimens. There is some question as to how well coordinated NICE
and NHS
are in making decisions about resource allocation. According to a recent study “cost effectiveness often does not appear to be the dominant consideration in decisions about resource allocation made elsewhere in the NHS
.” While QALYs are used in the United States, they are not utilized to the same degree as they are in Europe.
In the United Kingdom, as of January 2005, the (NICE
) is believed to have a threshold of about £30,000 per QALY – roughly twice the mean income after tax – although a formal figure has never been made public Thus, any health intervention which has an incremental cost of more than £30,000 per additional QALY gained is likely to be rejected and any intervention which has an incremental cost of less than or equal to £30,000 per extra QALY gained is likely to be accepted as cost-effective. This implies a value of a full life of about £2.4 million.
In North America, a similar figure of US$50000 per QALY is often suggested as a threshold ICER
for a cost-effective intervention.
A complete compilation of cost–utility analyses in the peer reviewed medical literature is available at the CEA Registry Website
However, in CUA, societal benefits and costs are often not taken into account. Furthermore, some economists believe that measuring QALYs is more difficult than measuring the monetary value of life through health improvements, as is done with cost–benefit analysis. This is because in CUA you need to measure the health improvement effects for every remaining year of life after the program is initiated. While for CBA
we have an approximate value of life
($2 million is one of the estimates), we do not have a QALY estimate for nearly every medical treatment or disease.
In addition, some people believe that life is priceless and there are ethical problems with placing a value on human life.
Also, the weighting of QALYs through time-trade-off
, standard gamble, or visual analogue scale
is highly subjective.
Example: Comparing an intervention’s impact on the livelihood of a single woman to a mother of three; QALYs do not take into account the importance that an individual person may have for others’ lives.
In the US, the health care reform law (Patient Protection Affordability and Care Act) has forbiden the use of QALYs “as a threshold to establish what type of health care is cost effective or recommended. Also, “The Secretary shall not utilize such an adjusted life year (or such a similar measure) as a threshold to determine coverage, reimbursement, or incentive programs under title XVIII”.
Financial analysis
Financial analysis refers to an assessment of the viability, stability and profitability of a business, sub-business or project....
used to guide procurement decisions. The most common and well-known application of this analysis is in pharmacoeconomics
Pharmacoeconomics
Pharmacoeconomics refers to the scientific discipline that compares the value of one pharmaceutical drug or drug therapy to another. It is a sub-discipline of health economics. A pharmacoeconomic study evaluates the cost and effects of a pharmaceutical product...
, especially health technology assessment
Technology assessment
Technology assessment Technology assessment Technology assessment (TA, German Tenteractive, and communicative process that aims to contribute to the formation of public and political opinion on societal aspects of science and technology.- General description :...
(HTA).
CUA in health economics
In health economics the purpose of CUA is to estimate the ratio between the cost of a health-related intervention and the benefit it produces in terms of the number of years lived in full health by the beneficiaries. Hence it can be considered a special case of cost-effectiveness analysis, and the two terms are often used interchangeably.Cost is measured in monetary units. Benefit needs to be expressed in a way that allows health states that are considered less preferable to full health to be given quantitative values. However, unlike cost–benefit analysis, the benefits do not have to be expressed in monetary terms. In HTAs it is usually expressed in quality-adjusted life years (QALYs).
If, for example, intervention A allows a patient to live for three additional years than if no intervention had taken place, but only with a quality of life weight of 0.6, then the intervention confers 3 * 0.6 = 1.8 QALYs to the patient. If intervention B confers two extra years of life at a quality of life weight of 0.75, then it confers an additional 1.5 QALYs to the patient. The net benefit of intervention A over intervention B is therefore 1.8 – 1.5 = 0.3 QALYs.
The incremental cost-effectiveness ratio
Incremental cost-effectiveness ratio
The incremental cost-effectiveness ratio of an intervention in health care is a term used in cost-effectiveness analysis in health economics. It is defined as the ratio of the change in costs of a therapeutic intervention to the change in effects of the intervention.The term does not...
(ICER) is the ratio between the difference in costs and the difference in benefits of two interventions. The ICER may be stated as (C1 – C0)/(E1 – E0) in a simple example where C0 and E0 represent the cost and gain, respectively, from taking no health intervention action. C1 and E1 would represent the cost and gain, respectively of taking a specific action. So, an example in which the costs and gains, respectively, are $140,000 and 3.5, would yield a value of $40,000. These values are often used by policy makers and hospital administrators to determine relative priorities when determining treatments for disease conditions. It is important to note that CUA measures relative patient or general population utility of a treatment or pharmacoeconomic
Pharmacoeconomics
Pharmacoeconomics refers to the scientific discipline that compares the value of one pharmaceutical drug or drug therapy to another. It is a sub-discipline of health economics. A pharmacoeconomic study evaluates the cost and effects of a pharmaceutical product...
intervention. Its results give no absolute indicator of the value of a certain treatment.
The National Institute for Health and Clinical Excellence (NICE)
National Institute for Health and Clinical Excellence
The National Institute for Health and Clinical Excellence is a special health authority of the English National Health Service , serving both English NHS and the Welsh NHS...
is part of the National Health Service (NHS) in the UK and has been using QALYs to measure the health benefits delivered by various treatment regimens. There is some question as to how well coordinated NICE
National Institute for Health and Clinical Excellence
The National Institute for Health and Clinical Excellence is a special health authority of the English National Health Service , serving both English NHS and the Welsh NHS...
and NHS
National Health Service
The National Health Service is the shared name of three of the four publicly funded healthcare systems in the United Kingdom. They provide a comprehensive range of health services, the vast majority of which are free at the point of use to residents of the United Kingdom...
are in making decisions about resource allocation. According to a recent study “cost effectiveness often does not appear to be the dominant consideration in decisions about resource allocation made elsewhere in the NHS
National Health Service
The National Health Service is the shared name of three of the four publicly funded healthcare systems in the United Kingdom. They provide a comprehensive range of health services, the vast majority of which are free at the point of use to residents of the United Kingdom...
.” While QALYs are used in the United States, they are not utilized to the same degree as they are in Europe.
In the United Kingdom, as of January 2005, the (NICE
National Institute for Health and Clinical Excellence
The National Institute for Health and Clinical Excellence is a special health authority of the English National Health Service , serving both English NHS and the Welsh NHS...
) is believed to have a threshold of about £30,000 per QALY – roughly twice the mean income after tax – although a formal figure has never been made public Thus, any health intervention which has an incremental cost of more than £30,000 per additional QALY gained is likely to be rejected and any intervention which has an incremental cost of less than or equal to £30,000 per extra QALY gained is likely to be accepted as cost-effective. This implies a value of a full life of about £2.4 million.
In North America, a similar figure of US$50000 per QALY is often suggested as a threshold ICER
ICER
ICER is a wavelet-based image compression file format used by the NASA Mars Rovers. ICER has both lossy and lossless compression modes.The Mars Exploration Rovers “Spirit” and “Opportunity” both use ICER...
for a cost-effective intervention.
A complete compilation of cost–utility analyses in the peer reviewed medical literature is available at the CEA Registry Website
Advantages and disadvantages
On the plus side, CUA allows comparison across different health programs and policies by using a common unit of measure (money/QALYs gained). CUA provides a more complete analysis of total benefits than simple cost–benefit analysis does. This is because CUA takes into account the quality of life that an individual has, while CBA does not.However, in CUA, societal benefits and costs are often not taken into account. Furthermore, some economists believe that measuring QALYs is more difficult than measuring the monetary value of life through health improvements, as is done with cost–benefit analysis. This is because in CUA you need to measure the health improvement effects for every remaining year of life after the program is initiated. While for CBA
Cost-benefit analysis
Cost–benefit analysis , sometimes called benefit–cost analysis , is a systematic process for calculating and comparing benefits and costs of a project for two purposes: to determine if it is a sound investment , to see how it compares with alternate projects...
we have an approximate value of life
Value of life
The potency of life is an economic value assigned to life in general, or to specific living organisms. In social and political sciences, it is the marginal cost of death prevention in a certain class of circumstances. As such, it is a statistical term, the cost of reducing the number of deaths by...
($2 million is one of the estimates), we do not have a QALY estimate for nearly every medical treatment or disease.
In addition, some people believe that life is priceless and there are ethical problems with placing a value on human life.
Also, the weighting of QALYs through time-trade-off
Time-trade-off
Time-Trade-Off is a tool used in health economics to help determine the quality of life of a patient or group. The individual will be presented with a set of directions such as:Imagine that you are told that you have 10 years left to live...
, standard gamble, or visual analogue scale
Visual Analogue Scale
A visual analogue scale is a psychometric response scale which can be used in questionnaires. It is a measurement instrument for subjective characteristics or attitudes that cannot be directly measured. When responding to a VAS item, respondents specify their level of agreement to a statement by...
is highly subjective.
Criticism of cost-utility analysis
There are criticisms of QALY. One involves QALY's lack of usefulness to the healthcare provider in determining the applicability of alternative treatments in the individual patient environment, and the absence of incorporating the patient’s willingness to pay (i.e. behavioral economics) in decisions to finance new treatments. Another criticism involves age; elderly individuals are assumed to have lower QALYs since they do not have as many years to influence the calculation of the measurement; so comparing a health intervention’s impact on a teenager’s QALYs to an older individual’s QALYs may not be considered “fair” since age is such an important factor. Specific health outcomes may also be difficult to quantify, thus making it difficult to compare all factors that may influence an individual’s QALY.Example: Comparing an intervention’s impact on the livelihood of a single woman to a mother of three; QALYs do not take into account the importance that an individual person may have for others’ lives.
In the US, the health care reform law (Patient Protection Affordability and Care Act) has forbiden the use of QALYs “as a threshold to establish what type of health care is cost effective or recommended. Also, “The Secretary shall not utilize such an adjusted life year (or such a similar measure) as a threshold to determine coverage, reimbursement, or incentive programs under title XVIII”.
See also
- Cost-effectivenessCost-effectivenessCost-effectiveness analysis is a form of economic analysis that compares the relative costs and outcomes of two or more courses of action. Cost-effectiveness analysis is distinct from cost-benefit analysis, which assigns a monetary value to the measure of effect...
- Cost–benefit analysis