This document summarizes a web-based seminar on using cost-effectiveness analysis as a decision support tool for employers. It defines cost-effectiveness analysis as a method to compare different health interventions or programs based on their costs and outcomes. The document provides examples of how cost-effectiveness analysis can help employers make informed decisions about benefits programs and coverage options by objectively evaluating alternatives in a standardized way. It also discusses strategic considerations for interpreting and applying cost-effectiveness analyses to support evidence-based decision making.
Declaration: The materials incorporated in this document have come from variety of sources and compiler bears no responsibilities for any information contained herein. The compiler acknowledges all the sources although references have not been explicitly cited for all the contents in this document.
Here is the slide on Healthcare economic evaluation. The content of this presentation doesn't belong to me. They are copied from several literature and internet
Declaration: The materials incorporated in this document have come from variety of sources and compiler bears no responsibilities for any information contained herein. The compiler acknowledges all the sources although references have not been explicitly cited for all the contents in this document.
Here is the slide on Healthcare economic evaluation. The content of this presentation doesn't belong to me. They are copied from several literature and internet
Concept of Economic Evaluation in Health CarePrabesh Ghimire
Declaration: The materials incorporated in this document have come from variety of sources and compiler bears no responsibilities for any information contained herein. The compiler acknowledges all the sources although references have not been explicitly cited for all the contents in this document.
Declaration: The materials incorporated in this document have come from variety of sources and compiler bears no responsibilities for any information contained herein. The compiler acknowledges all the sources although references have not been explicitly cited for all the contents in this document.
Health Economics is the science of assessing cost and benefits of health care therapies and service. HE is about making choices between options, when there is scarcity of resources.
Health economics is the discipline of economics applied to the topic of health care. Broadly defined, economics concerns how society allocates its resources among alternative uses. Health economics addresses questions primarily from the perspective of efficiency, maximising the benefits from available resources or ensuring benefits gained exceed benefits forgone. This presentation covers the concept, components, importance, factors influencing, steps and various types of evaluation in health economics.
Concept of Economic Evaluation in Health CarePrabesh Ghimire
Declaration: The materials incorporated in this document have come from variety of sources and compiler bears no responsibilities for any information contained herein. The compiler acknowledges all the sources although references have not been explicitly cited for all the contents in this document.
Declaration: The materials incorporated in this document have come from variety of sources and compiler bears no responsibilities for any information contained herein. The compiler acknowledges all the sources although references have not been explicitly cited for all the contents in this document.
Health Economics is the science of assessing cost and benefits of health care therapies and service. HE is about making choices between options, when there is scarcity of resources.
Health economics is the discipline of economics applied to the topic of health care. Broadly defined, economics concerns how society allocates its resources among alternative uses. Health economics addresses questions primarily from the perspective of efficiency, maximising the benefits from available resources or ensuring benefits gained exceed benefits forgone. This presentation covers the concept, components, importance, factors influencing, steps and various types of evaluation in health economics.
The five that Peter Senge identifies are said to be converging to innovate learning organizations. They are:
1. Systems thinking
2. Personal mastery
3. Mental models
4. Building shared vision
5. Team learning
He adds to this recognition that people are agents, able to act upon the structures and systems of which they are a part. All the disciplines are, in this way, ‘concerned with a shift of mind from seeing parts to seeing wholes, from seeing people as helpless reactors to seeing them as active participants in shaping their reality, from reacting to the present to creating the future’ (Senge 1990: 69). It is to the disciplines that we will now turn.
Systems thinking – the cornerstone of the learning organization
A great virtue of Peter Senge’s work is the way in which he puts systems theory to work. The Fifth Discipline provides a good introduction to the basics and uses of such theory – and the way in which it can be brought together with other theoretical devices in order to make sense of organizational questions and issues. Systemic thinking is the conceptual cornerstone (‘The Fifth Discipline’) of his approach.
Incorporating Life-cycle Price Modelling into Pharmaceutical Cost-effectivene...Office of Health Economics
In this presentation, OHE's Pistollato explains why it is important to consider price changes after marketing in CEA analysis and presents an approach for doing so.
4Theory of Unpleasant SymptomsNameInstitutiomilissaccm
4
Theory of Unpleasant Symptoms
Name
Institution
Course
Instructor
Date
Theory of Unpleasant Symptoms
It is primarily the purpose of nursing to provide health care to individuals so that they can achieve or maintain optimal health. It is, therefore, the nurses' responsibility to generate treatment plans based on the symptoms that patients experience. These treatment plans depend on nursing theories to safeguard that the health services given to patients are evidence-based. One such theory that informs the creation of assessment tools for patients' symptoms is the Theory of Unpleasant Symptoms (TOUS). Thus, using this theory as a guide, the factors that I would look for in an assessment tool are their ability to cover the physiological, psychological, and situational factors of a patient's symptoms, their analysis of symptoms, and the outcomes of the symptoms.
According to Srivastava, the Theory of Unpleasant Symptoms focuses on three major elements: the patient's symptoms, factors influencing the symptoms, and the outcomes of the symptoms (2021). The first thing I would look for in an assessment tool is whether it can identify the patient's symptoms. Patients experience multiple symptoms, meaning an assessment tool should cover the different types of symptoms a patient has, their intensity, duration, and quality.
Another factor I would look for in an assessment tool is whether it covers the three factors influencing the symptoms. Lenz highlights that the theory of unpleasant symptoms focuses on the three factors influencing patients' symptoms: physiological factors, psychological and situational factors (2018). An assessment tool that features these three factors will likely produce a holistic diagnosis of the patient's symptoms, leading to an effective treatment plan. Additionally, an assessment tool with all three elements ensures that all symptoms are captured for a correct diagnosis which aids in the quick recovery of the patients. Finally, the last thing I would look for in an assessment tool would be its ability to check for the consequences of the symptoms. Obtaining information regarding the impact of the symptoms is a crucial part of gaining insight into the causes of the symptoms. Nurses can deduce the extent of the unpleasant symptoms resulting from a disease or the side effects of a treatment plan.
In conclusion, the Theory of Unpleasant Symptoms is effective in developing assessment tools that ensure they capture all the symptoms, the factors influencing the symptoms, and the effects of these symptoms. As Gomes notes, the Theory of Unpleasant Symptoms is important in grouping symptoms which is essential in understanding the extent of the symptoms, prescription of interventions, and providing a framework for delivering diagnoses directed toward quality healthcare (2019).
References
Gomes, G. L., Oliveira, F. M., Barbosa, K. T., Medeiros, A. C., Fernandes, M. das, & Nóbrega, M. M. (2019). Theory of unpl ...
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Institute of Medicine (US) Roundtable on Value & Science-Driven Health Care; Yong PL, Olsen LA, McGinnis
JM, editors. Value in Health Care: Accounting for Cost, Quality, Safety, Outcomes, and Innovation.
Washington (DC): National Academies Press (US); 2010.
5 Approaches to Improving Value—Provider and Manufacturer
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INTRODUCTION
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coverage and reimbursement policies are currently going on in both public and private healthcare
sectors, with varying results. Speakers in this session of the workshop explored current payment
design experiments and discussed the efficacy of utilizing these reimbursement tools to improve
the value received from health care.
In this chapter, Carolyn M. Clancy details the pay-for-performance (P4P) model, an effort to
more explicitly link provider payments to quality of care. She highlights the lack of coherent
approaches to P4P and the variable success this approach has had in fundamentally changing
provider practice patterns. For example, while financial incentives for individual physicians have
shown that P4P can induce quality improvements for diabetic patients (Beaulieu and Horrigan,
2005), group-level incentives have had no impact on mammography screening or hemoglobin A
testing rates (Rosenthal et al., 2005). After underscoring that the current incentive system and
healthcare infrastructure fail to accommodate the achievement of real efficiency and quality, she
outlines recommendations for rethinking medical training, measurement, system design, and the
reward system.
Building on Clancy’s recommendations, Donald A. Sawyer identifies how the current healthcare
system stymies innovation in product development. He suggests refocusing the myopic view of
innovation on the horizon of long-term health improvements and financial savings. Reed V.
Tuckson discusses the alignment of manufacturers, technologists, payers, patients, and providers
necessary to establish a system that continues to provide incentives for innovation and maintains
an open market for the development of promising but unproven interventions. He elaborates
specifically on a joint effort between UnitedHealth Group and the American College of
Cardiology to develop appropriateness criteria for cardiac single-photon emission computed
tomography myocardial perfusion imaging—a new and very expensive technology—based on
best evidence as an example of how the interests of diverse stakeholder groups could be aligned.
In conclusion, Steven D. Pearson likens coverage and reimbursement tools to a blunt knife that
lacks subtlety in effecting value improvements, bu ...
Required ResourceTextSchneider, A. (2017). Managerial Accounti.docxaudeleypearl
Required Resource
Text
Schneider, A. (2017). Managerial Accounting: Decision making for the service and manufacturing sectors (2nd ed.) [Electronic version]. Retrieved from https://content.ashford.edu/
· Chapter 5: Joint Cost Allocation and Variable Costing
· Chapter 8: Cost Control Through Standard Costs
Recommended Resource
Multimedia
Crosson, S. (2007). PVA ABC JIT – 4 ABC example (Links to an external site.) [Video File]. Retrieved from http://www.youtube.com/watch?v=eyH4l3VvOCU
Discussion 1 Allocating Joint Costs
Describe the three methods used to allocate joint costs. What are the advantages/disadvantages of each allocation method? Which method would you recommend? Why? Support your position with evidence from the text or external sources. Your initial post should be 200-250 words.
Guided Response: Review several of your classmates’ postings. Respond to at least two of your classmates by asking a question to challenge their recommended allocation method. Support your question and/or comments with evidence from the text or external sources.
Discussion 2 Variable/Absorption Costing
As you read in Chapter 8, there are arguments (for and against) variable costing and absorption costing. Select one of these costing methods and explore the various arguments. Determine whether you are “for” or “against” this selected method. Provide evidence from the text to support your position. Your initial post should be 200-250 words.
Guided Response: Review several of your classmates’ postings. Respond to at least two of your classmates who explored a different costing method than your own by stating whether you agree or disagree with their position. Be sure to include cited support/examples to clarify your point of view.
LearningObjectives
After studying Chapter 8, you will be able to:
Explain the signi�icance of pro�it analysis for an organization.
Describe the major characteristics and conditions of a standard cost system.
Understand the information contained in a standard cost sheet.
Compute materials price and usage variances, and identify potential causes of such variances.
Compute labor rate and ef�iciency variances, and identify potential causes of such variances.
Explain the major considerations that are the basis of standard costs for overhead and compute
budget variances and capacity variances for overhead.
Explain why the capacity variance is related only to �ixed overhead costs.
Understand issues relating to variance investigation and disposal of variances.
8 Cost Control Through Standard Costs
nd3000/iStock/Thinkstock
Explain how standard costs can be used in various different settings.
Describe ethical considerations relating to standards and variances.
WhereDoIStartWithStandardCosts?
Jean-Claude Recca, President of Rue de Lorraine, a chain of fast-food restaurants in central France, just
returned from a reunion of his INSEAD graduating class. During the day of activities in the Riviera, he talked
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Cost Effectiveness Analysis in Health economics
1. Center for Prevention
Brief
and Health Services
ISSUE August 2004
Cost-Effectiveness Analysis:
An Employer Decision Support Tool
This issue brief summarizes information presented at Cost-Effectiveness Analysis: An
Employer Decision Support Tool, a web-based seminar at the National Business Group
on Health sponsored by the Agency for Healthcare Research and Quality. Statistics
and figures that are not annotated with a source were presented by the speakers.
A glossary of italicized terms and a bibliography of additional cost-effectiveness resources
are listed at the end of the brief.
Introduction
Table of Contents: Large employers face a challenging future in
Introduction 1 managing health care benefits. Managers have many
Cost-Effectiveness Analysis Basics 2 program and coverage options, but are limited by
Why Employers Use CEA 3 budget constraints and data availability.
Common Applications 4
Traditionally, decision-makers have used return on
S t r ategic Implicat i o n s 6
Practical Examples 9 investment calculations to help guide their
S t r ategic Tips for Interpreting CEA 10 investment choices, but they can also consider
Sample Abstract 11 another tool — cost-effectiveness analysis.
Case Studies 12
Conclusion 14
Cost-effectiveness analysis (CEA) is a method of
Glossary 15
Resources 17 financial evaluation that has gained prominence
References 19 within academic and policy communities in the last
20 years. But this methodology can also have
business applications as a decision support tool. This
issue brief explains cost-effectiveness analysis, outlines its usefulness to employers,
demonstrates how cost-effectiveness relates to corporate strategy, and gives examples
of its applications in health benefits decisions.
2. August 2004 ISSUE Brief 2
Cost-Effectiveness Analysis Basics
Cost-effectiveness analysis is a specific type of economic analysis in which all costs are
related to a single, common effect. Decision makers can use it to compare different
resource allocation options in like terms. A general misconception is that CEA is merely a
means of finding the least expensive alternative or getting the “most bang for the buck.”
In reality, CEA is a comparison tool; it will not always indicate a clear choice, but it will
evaluate options quantitatively and objectively based on a defined model. CEA was
designed to evaluate health care interventions, but the methodology can be used for non-
health economic applications as well. It can compare any resource allocation with
measurable outcomes to any other
resource allocation with measurable
outcomes.
Cost-effectiveness analysis, or
Conducting, Evaluating, and CEA, is a comparison tool to help
Using Analyses evaluate choices. It will not
always indicate a clear choice,
Increasing numbers of analyses are
but it will evaluate options
conducted in academia or research quantitatively based on a defined
organizations and published in model. For managers, CEA
peer-reviewed journals. Government provides peer-reviewed evidence
organizations use analyses to help for decision support.
shape public policy. Health insurers use
CEAs to determine which kinds of
health interventions to cover. There is
a growing body of work that quantitatively compares the health returned on different
interventions employers cover in their benefits packages. As employers are increasingly
asking providers to practice evidence-based medicine, they can direct this trend by
evaluating and acting on evidence, or by holding health plans and consultants accountable
for evaluation and action.
3. 3 ISSUE Brief August 2004
Cost-Effectiveness Ratio
The cost-effectiveness ratio is simply the sum of all benefits divided by the sum of all costs.
This is comparable to a return on investment calculation; however, the benefits are not
measured in terms of just dollars, but in a ratio that incorporates both health outcomes
and dollars. Since healthier employees are more productive, improved outcomes actually
do translate into dollars. But it is important to keep these values separate, so a decision
maker can understand what kind of health benefit is
returned on the investment. For instance, three
investment choices could have cost-effectiveness ratios of
Cost-Effectiveness Ratio =
$10,000/premature birth avoided, $20,000/workplace
(All benefits) injury prevented, or $30,000/life year gained. The
decision maker must then choose the health intervention
(All costs)
that is right in terms of budget and population health
goals.
CEAs compare several program strategies and then rank them by of cost-effectiveness
ratios. An analysis of two screening interventions might show you that one costs
$10,000/life year gained while the other costs $40,000/life year gained. The first
intervention requires monthly screening and the second requires biannual screening.
Realizing that compliance is a greater problem with monthly screening, the decision
maker would have to implement the most appropriate coverage strategy for the population
in question. Sometimes, the analysis compares to baseline options such as “do nothing” or
“usual care.” Both are valid strategic options.
Why Employers Use CEA
Cost-effectiveness analysis:
✓ Supports objective decision making: Decision makers can consider options in a
comparable and objective way that provides support for the final decision.
✓ Brings clarity to data sources and outcomes: CEA evaluates options in similar terms to
avoid “comparing apples to oranges.”
4. August 2004 ISSUE Brief 4
✓ Allows for strategic review of organizations: CEA might justify some operational
centers operating at a loss to increase overall return on investment, employee health,
or both.
✓ Can be used in a host of operational and benefits areas including:
• Screening coverage
• Pharmacy
• Strategic Planning
• Labor Relations
• Disease Management
• Disability Management
• Wellness and Prevention Programs
✓ Presents evidence that can help gain support for changes in benefits plans or
employer-sponsored health programs.
Common Applications
Evaluating Program Options
In the case of health screening, it is often difficult to determine the most cost-effective
frequency. Too frequent screening has high cost and possibly limited health benefits, while
too infrequent screening has low cost, but poor health outcomes. Determining
appropriate screening frequencies is a useful application of cost-effectiveness analysis. The
following table taken from an analysis on cervical cancer screening shows that life years
are saved at a relatively low cost in the first comparison (screening versus no screening),
but at a very high cost in the second comparison (the marginal cost and benefit of
decreasing the interval between screenings). Typically, an intervention that costs less than
$30,000/life year gained is considered cost-effective medicine. Based on this analysis,
cervical cancer screening every four years is a relatively cost-effective benefit to cover. It is
certainly more cost-effective than screening every three years.
5. 5 ISSUE Brief August 2004
Table 1: Example Data from an Analysis of Cervical
Cancer Screening Frequency
Screen every four years Screen every three
vs. no screening years vs. screen every
four years
Life expectancy increase, days 93.8 1.6
Life expectancy increase, days (discounted 5%)* 9.5 0.2
Cost increase, dollars (discounted 5%) $264 $91
Cost per life year gained $10,101 $184,528
Source: E d dy D.M. “Screening for Cervical Cancer,” Annals of Internal Medicine 1990; 113: 214-226.
* Annual discount rat e adjust future costs and benefits to account for time preference and opportunity cost.
Justifying Program Implementation
When building a case to justify the use of funds, strong data is often compelling evidence.
Cost-effectiveness analyses can be used to support qualitative arguments for health
interventions. The following table examines a depression treatment improvement
program. Treatment facilities in the study were offered training for practice leaders and
nurses, enhanced educational and assessment resources, and trained psychotherapists for
patient follow-ups. Not only was the intervention relatively cost-effective, but it also
increased attendance in workers suffering from depression.
Table 2: Example Data from an Analysis of a Depression
Treatment Improvement Program
Quality improvement
program vs. usual
care
Quality-adjusted life year increase 0.0226
Cost increase $485
Cost per quality adjusted life year $21,460
Days of employment increase 20.9
Source: Schoenbaum M. et al. “The Cost-effectiveness of Practice-Initiated Quality Improvement for Depression:
Results from a Randomized, Controlled Trial,” JAMA 2001; 286: 1325-1330.
6. August 2004 ISSUE Brief 6
Cost-effectiveness analysis can be a valuable source of information and data for employers.
Most employers are not in the business of conducting analyses; however, it is reasonable to
expect carriers to rationalize and explain different coverage options in terms of cost-
effectiveness.
Strategic Implications
A System View
Because cost-effectiveness analysis examines a comprehensive set of costs and outcomes, it
is important to avoid narrow strategy that only considers implication for individual
department programs or cost centers. Managers can examine all parts of the health
benefits system to determine if financial losses in one area are recouped in another. For
example, dollars spent in richer benefit reimbursement might increase utilization and
avoid future costs of treatment.
The diagram below presents a system view of employer-sponsored health care.
INPUTS
• Diverse Workforce
• Work Environment
• HR & Benefits
• Vendors & Providers
Health Symptoms Diagnosis & Benefit
Behavior & Disease Treatment Reimbursement
OUTPUTS
• Health Stat u s
• Productivity
• Health Care Costs
• Retention
• Disability/Absenteeism
• Presenteeism
Source: Michael Thompson, PricewaterhouseCoopers
7. 7 ISSUE Brief August 2004
Employers can use cost-effectiveness analysis to review each system component and
choose the best strategy to optimize utilization, improve outcomes, and encourage
healthier and more beneficial lifestyle choices.
Strategic Readiness
Unconventional methods like cost-effectiveness analysis are not an ideal fit for all
organizations. Every company that provides health benefits has a different strategy for
plan design and analysis. In some organizations, an attempt to incorporate cost-
effectiveness analysis into decision making might be resisted or rejected altogether. To
avoid such a misstep, assessment of corporate culture is necessary.
The diagram below shows health care strategy as a continuum. Organizations that are
more access-oriented analyze specific health care costs and delegate cost reduction
responsibility to their carriers. Goals focus on controlling costs so that employers can
continue to offer health care access through employee benefits. Organizations that are
more system-oriented involve employees, employers, and health plans in dialogue about
whole health management. Shared goals focus on increasing health and changing
utilization patterns to control future costs.
Access System
Oriented Health Care Strategy Oriented
Approach Approach
Aware & E n g age &
Leadership
Inactive Enable
Employee Share
Culture
Benefit Responsibility
Health Care Health &
Access & Cost
Focus Performance
Delegated Integrated &
Accountability
Health Plans Optimized
Source: Michael Thompson, PricewaterhouseCoopers
8. August 2004 ISSUE Brief 8
To assess where large employers believe they lie on this continuum, a number of benefits,
health, and human resources professionals rated their organizations on a scale from 1
(mostly access-oriented) to 5 (mostly system-oriented) for the four component areas as
well as overall approach.
9. 9 ISSUE Brief August 2004
Practical Examples
Pharmaceutical Formularies
Employers can use CEA to compare specific drugs on their formularies or evaluate the
cost-effectiveness of their entire pharmaceutical benefits packages. In comparing specific
drugs, such as high-cost statins and beta-blockers, benefits managers address not only cost
differences between brand name and generic, but disparities in effectiveness as well. This
might include examining effectiveness per dose cost. For example, a particular statin may
be the least expensive option per dose, but comparing it to other options in terms of cost
and ability to reduce LDL levels may prove it is a less cost-effective choice (see Table 3).
In analyzing an entire pharmacy program, employers determine costs for particular drugs
in terms of tiers and responsibility. The recent trend has been for employers to shift more
of the costs of medications to employees through higher co-pays or co-insurance, but this
may not always be the most cost-effective long-term solution. Abandoning this strategy
may create a financial loss on some prescriptions, but overall cost savings could be
substantial if absenteeism, presenteeism, and disability are reduced in the process.
Companies might also consider how they will price brand name drugs versus generics,
especially for medications that have proven to be similar in safety and effectiveness.
Table 3: Example Data from a Comparison of Six Statins
Daily Dose (% LDL reduction/dose cost)
Statin 5 mg 10 mg 20 mg 40 mg 80 mg
Statin A N/A 39%/$2.04 43%/$3.07 50%/$3.07 60%/$3.07
Statin B N/A N/A 22%/$1.56 25%/$1.56 35%/$1.97
Statin C N/A 21%/$0.96 27%/$1.11 31%/$1.97 N/A
Statin D N/A 22%/$2.50 32%/$2.52 34%/$3.07 37%/$3.76
Statin E 45%/$2.22 52%/$2.22 55%/$2.22 63%/$2.22 N/A
Statin F 26%/$1.63 30%/$2.18 30%/$2.18 41%/$3.72 47%/$3.73
Source: Michael Jacobs, Mercer Human Resource Consulting
If decision makers were only looking for the lowest cost alternatives, they might select
10mg of statin C. However, 40mg of statin E is the most cost-effective option. This
dosage has the highest LDL reduction for the cost associated with it. Benefit managers
can consider this information in making formulary decisions; however, this may not be
the most favorable option when factors such as employee health characteristics, unions,
and other issues weigh into the choice.
10. August 2004 ISSUE Brief 10
Disease Management and Treatment
Cost-effectiveness analysis is a useful tool in developing and evaluating disease
management and treatment programs. It allows employers to determine objectively what
services to cover, for which populations, and how often. Employers, providers, and
insurers will normally seek the dominant choice — that choice which has lower costs and
better outcomes than other choices in the same situation. Often, lower costs may be
realized at the expense of outcomes, or better outcomes achieved at unacceptable costs. In
such cases, cost-effectiveness analysis can compare options and lead to smarter choices.
Employers and health plans can also use CEA to determine limits on coverage — for
what age, for which populations, how often, and other restrictions. A helpful reference for
such decisions may be the United States Preventive Services Task Force recommendations
for clinical services. The Task Force critically examines published research, including cost-
effectiveness analyses, to determine the practical feasibility of health interventions
recommended in the literature.
Strategic Tips for Interpreting a CEA
✓ Consider perspective. Which parties are incurring costs and which parties are
receiving benefits? Many studies take a broad societal perspective; they are usually not
written for an employer audience.
✓ Identify the strategies under comparison. Does the study compare different
alternatives (treat using drug A vs. treat using drug B) or examine incremental
changes in the same health intervention (screen every two years vs. screen every four
years)?
✓ Be aware of the analytic horizon. When are costs incurred and when are benefits
received? Most studies use a 3-5% annual discount rate to adjust both costs and
benefits to a present value, but if a benefit is not received until 10 years after an
intervention begins, this is important information to note.
✓ Analyze all stated assumptions. Are the assumptions built into the economic model
clearly defined, and are they valid for employers?
✓ Examine the sensitivity analysis. How do differences in data inputs affect the
outcome? Think how this relates to the health characteristics of your employee
population.
✓ Understand all metrics. How did the author present the cost-effectiveness ratio?
Most studies measure the costs of increased quality of life ($/quality adjusted life year
gained), disability prevented ($/disability adjusted life year prevented) or of life saved
($/life year gained). A study that measures quality adjusted life years is called a
cost-utility analysis, a specific type of CEA.
11. 11 ISSUE Brief August 2004
Sample Abstract
The following abstract from a study published in the Journal of the American Medical
Association shows that nicotine patch therapy, in conjunction with physician counseling,
is a cost-effective approach to smoking cessation. This is an example of information in
published CEAs that can support coverage decisions and justify health improvement
programs.
Cost-effectiveness of the transdermal nicotine patch as an adjunct to physicians' smoking
cessation counseling
K. Fiscella and P. Franks
Primary Care Institute, Highland Hospital, Rochester, NY, USA.
OBJECTIVE: To determine the incremental cost-effectiveness of the transdermal nicotine
patch. DESIGN: Decision analytic model that evaluated the incremental cost-effectiveness
of the addition of the nicotine patch to smoking cessation counseling. Costs were based
on physician time and the retail cost of the nicotine patch, and benefits were based on
quality-adjusted life years (QALYs) saved. PATIENTS: Male and female smokers aged 25
to 69 years receiving primary care. INTERVENTION: Addition of the nicotine patch to
physician-based smoking cessation counseling. MAIN OUTCOME MEASURE: Costs
(1995 dollars) per QALYs saved discounted by 3% annually. RESULTS: The use of the
patch produced one additional lifetime quitter at a cost of $7,332. The incremental cost
effectiveness of the nicotine patch by age group ranged from $4,390 to $10,943 per
QALY for men and $4,955 to $6,983 per QALY for women. A clinical strategy involving
limiting prescription renewals to patients successfully abstaining for the first two weeks
improved the cost-effectiveness of the patch by 25%. CONCLUSIONS: The findings
provide support both for the routine use of the nicotine patch as an adjunct to physicians’
smoking cessation counseling and for health insurance coverage of nicotine patch therapy.
From JAMA 1996; 275: 1247-1251.
12. August 2004 ISSUE Brief 12
Case Studies
Case Study 1 — A Large Manufacturing Company Redefines
Pharmacy Benefits
This global manufacturer of document management systems operates in more than 130
countries with more than 35,000 employees worldwide and 27,000 employees in the
United States. The company’s services include document management and mail security
products and systems.
In 2001, this company took a bold step to stem the rising costs of its health care benefits.
In analyzing where costs were the highest, the company found that those employees with
chronic conditions such as diabetes and asthma incurred the highest cost. Startlingly, they
found that many of these individuals did not refill their prescriptions properly because of
the high co-insurance price. Using predictive modeling to come to this conclusion and
hoping that increasing compliance would lower costs, the company’s medical director
restructured its pricing tiers for pharmaceuticals. The organization implemented a new
multi-tiered system in which generics and those drugs targeting chronic conditions such
as diabetes and asthma (including prescriptions for inhalers and insulin) would require co-
pays as low as 10% of the total cost.
After implementing this new pricing system at the end of 2001, the company realized
significant cost savings. Lower co-payments for the two chronic conditions had increased
compliance. Cost savings also came from fewer emergency room visits and hospital
admissions due to better personal disease management. Median medical costs for each
employee with diabetes fell 12%, and the company saved $1,000 per employee. For those
with asthma, median medical costs dropped 15% with a savings of $900 per person. The
company predicts savings estimated at $1 million in 2004 and even more in future years.
By using data-driven, total health strategy, a change that seemed costly has proven to be
cost-effective.
13. 13 ISSUE Brief August 2004
Case Study 2 — A Large Airline Reexamines Health Benefits Strategy
This airline has more than 3,000 daily departures, flies to 38 states including the District
of Columbia and 41 sites internationally, and employs more than 28,000 individuals. The
organization recently faced several challenges:
• Negotiating with nine unions twice
• Filing for bankruptcy
• Outsourcing health care administration, which had been done internally
• Consolidating 23 health plans down to a single one
During this period, many employees expressed discontent about plan changes, coverage
decisions, and health care access. New executive leaders decided to fundamentally change
health benefit strategy, including the use of cost-effectiveness analysis in plan design
decisions. The company took the following actions:
• Requesting reports from vendors to assess health plan information
• Forming a collaborative union management group
• Establishing an internal plan performance group, including both finance and labor
relations staff, to review health care data sets
The airline is currently pursuing strategy that will facilitate positive health plan changes,
made in collaboration with its unions and its health insurance carrier. Although it still
faces serious financial challenges, the airline is now examining its health plan through
data-driven discussions on whole health management and including cost-effectiveness
analyses in health benefit strategy.
14. August 2004 ISSUE Brief 14
Conclusion
Cost-effectiveness analyses provide quantitative support to managerial decision-making.
Budget requests and in-house proposals for health program change can be more
convincing with the addition of cost-effectiveness data. Asking vendors and consultants to
support their products and proposals with cost-effectiveness data assures managers they
are purchasing based on value. Organizations use these approaches and others because
they recognize that objective economic analyses such as CEA are sound corporate strategy.
15. 15 ISSUE Brief August 2004
Glossary of Cost-effectiveness Terms
Many definitions are from Prevention Effectiveness: A Guide to Decision Analysis and
Economic Evaluation. See references for more information.
✓ Agency for Healthcare Research and Quality (AHRQ): A federal agency with the
mission to improve the quality, safety, efficiency, and effectiveness of health care for all
Americans.
✓ Analytic horizon: The time period over which the costs and benefits of health
outcomes that occur as the result of an intervention are considered.
✓ Annual discount rate: Adjustment made to the value of future costs and
benefits to account for time preference and opportunity cost.
✓ Approach, access-oriented: Providing employees access to the health system through
their benefits packages and managing costs by analyzing data for each covered benefit.
✓ Approach, system-oriented: Promoting employee health through an interrelated
system of programs and benefits and managing costs with the knowledge that
investment in one program or benefit may be offset by savings in others.
✓ Cost-effectiveness: The minimum cost for a given benefit, the maximum benefit for a
given cost, or a balance of low costs and high benefits that has maximum utility.
✓ Cost-effectiveness analysis (CEA): An economic analysis in which all costs are
related to a single, common effect, usually in terms of cost expended per outcome
achieved.
✓ Cost-effectiveness ratio: The ratio of total costs of investment to total accrued
benefits, in terms of both dollars and benefit value.
✓ Cost-utility analysis (CUA): A type of cost-effectiveness analysis in which benefits
are expressed in terms of cost per QALY gained.
✓ Dominant choice: Choice with both lower costs and higher benefits than all other
options.
16. August 2004 ISSUE Brief 16
✓ Life year gained: An outcome measure that incorporates only duration of survival,
not quality of life.
✓ Quality adjusted life year (QALY): A frequently used outcome measure that
incorporates the quality and desirability of a health state with the duration of survival;
quality of life is integrated with length of life using a multiplicative formula.
✓ Return on investment (ROI): The ratio of capital investment in dollars to accrued
return in dollars.
✓ Sensitivity analysis: Mathematical calculations that isolate factors involved in an
analysis to indicate the degree of influence each factor has on the outcome of the
analysis.
✓ Societal perspective: Analytic view that includes all benefits of a program regardless
of who receives them and all costs regardless of who pays them.
17. 17 ISSUE Brief August 2004
Web Resources
✓ Agency for Healthcare Research and Quality
http://www.ahrq.gov/research/costeff.htm
AHRQ is a leader in advancing the science of cost-effectiveness analysis in health care.
This page explains current initiatives in this discipline, including the Research
Initiative in Clinical Economics.
✓ United States Preventive Services Task Force
http://www.ahrq.gov/clinic/uspstfix.htm
USPSTF is an independent panel of experts in primary care and prevention that
systematically reviews the evidence of and develops recommendations for clinical
preventive services.
✓ National Health Service Centre for Reviews and Dissemination
http://www.york.ac.uk/inst/crd/crddatabases.htm
The United Kingdom’s National Health Service maintains databases of economic
evaluations and health technology assessments at the University of York.
✓ Harvard Center for Risk Analysis CEA Registry
http://www.hsph.harvard.edu/cearegistry/
The Harvard School of Public Health maintained a reference list of cost-effectiveness
analyses from 1976-2001. It does not include more current studies, but serves as a
useful historical database.
18. August 2004 ISSUE Brief 18
Print Resources
✓ Haddix A., Teutsch S., Corso P. Prevention Effectiveness: A Guide to Decision
Analysis and Economic Evaluation. New York: Oxford University Press, 2003.
Officials from AHRQ and CDC collaborated with leading academics on this text. It
gives in-depth explanations of cost-effectiveness analysis beginning with theory and
concluding with application.
✓ Gold M. R., Siegel J. E., Russell L. B., Weinstein M.C. Cost-Effectiveness in Health
and Medicine. New York: Oxford University Press, 1996.
This report details the recommendations of the Panel on Cost-Effectiveness in Health
in Medicine, a committee of researchers convened by the United States Public Health
Service to establish guidelines for analyses. The findings of the Panel are also outlined
in three articles in the Journal of the American Medical Association (JAMA 1996;
276: 1172-1177, 1253-1258, and 1339-1341).
✓ Schoenbaum M., Unutzer J., Sherbourne C., Duan N., Rubenstein L.V., Miranda J.,
Meredith L.S., Carney M.F. and Wells K. “The Cost-effectiveness of Practice-Initiated
Quality Improvement for Depression: Results from a Randomized, Controlled Trial,”
JAMA 2001; 286: 1325-1330.
Dr. Schoenbaum, a speaker at the May 2004 web event, conducted an analysis of a
quality improvement program for depression treatment (see Page 3, Table 2 ). His
publication demonstrates the usefulness of cost-effectiveness analysis as an evaluative
tool.
✓ Neumann P.J. “Why Don’t Americans Use Cost-Effectiveness Analysis?” American
Journal of Managed Care 2004; 10: 308-312.
Neumann presents a short editorial explaining resistance to cost-effectiveness analysis
in the United States. He surmises the positions of different stakeholder groups toward
CEA and offers thoughts to help decision makers better use CEA in the future.
19. 19 ISSUE Brief August 2004
References
✓ Fuhrmans V. “A Radical Prescription.” Wall Street Journal, May 10, 2004.
✓ Haddix A. et al. “Prevention Effectiveness: A Guide to Decision Analysis and
Economic Evaluation.” New York, NY: Oxford University Press, 2003.
✓ Fiscella K. and Franks P. “Cost-effectiveness of the transdermal nicotine patch as an
adjunct to physicians’ smoking cessation counseling.” JAMA 1996; 275: 1247-1251.
20. Center for
Prevention ISSUE
and Health August 2004
Brief
Services Cost-Effectiveness Analysis:
An Employer Decision Support Tool
Written by:
Ian Dixon and Andrew Lundeen, National Business Group on Health
About the Center for Prevention and Health Services (CPHS)
The Center houses the Business Group’s projects and resources that relate to the delive ry
of preventive and other health services through employe r - s p o n s o re health plans and work s i t e
d
programs. Through the Center, employers can find practical toolkits to address pre ve n t i ve
health and health promotion issues at the worksite. Em p l oyers will find current information
and recommendations from federal agencies and professional associations, model programs
from other employers, and the latest clinical and health services research results. In addition,
the Center provides opportunities for employer participation in teleconferences and in-person
solutions workshops. Currently, the Center has initiatives in racial and ethnic disparities in health
and health care, terrorism and public health emergency preparedness, maternal and child health,
preventive services, health services research and quality, health and work performance, benefit
design, and wellness programs.
For more information, visit http://www.businessgrouphealth.org/pre vention/index.cfm
or contact Ron Finch, EdD, Director, at finch@businessgrouphealth.org.
About the National Business Group on Health
The National Business Group on Health, formerly the Washington Business Group on Health,
is the national voice of large employers dedicated to finding innovative and forward-thinking
solutions to the nation’s most important health care issues. The Business Group represents over
200 members, primarily Fortune 500 companies and large public sector employers, who provide
health coverage for approximately 50 million U.S. workers, retirees, and their families. The
Business Group fosters the development of a quality health care delivery system and treatments
based on scientific evidence of effectiveness. The Business Group works with other organizations
to promote patient safety and expand the use of technology assessment to ensure access to
superior new technology and the elimination of ineffective technology.
Helen Darling, President
National Business Group on Health
50 F Street NW, Suite 600 • Washington DC 20001
Phone (202) 628-9320 • Fax (202) 628-9244 • www.businessgrouphealth.org