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Harry Hatry: Cost-Effectiveness Basics for Evidence-Based Policymaking

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Harry Hatry: Cost-Effectiveness Basics for Evidence-Based Policymaking


Washington Evaluators and the Bipartisan Policy Center's Evidence-Based Policymaking Initiative are pleased to co-sponsor a roundtable discussion about the contributions of cost-effectiveness studies to informing policy decisions in government. This panel discussion will explore approaches to conducting cost-effectiveness studies, their value and use in government decisions, and practical steps for improving their utility for decision-makers. The distinguished panelists have collectively experienced the generation and use of cost-effectiveness studies from a variety of academic, non-governmental, and governmental positions. We invite you to join us on Tuesday, December 5th at 2 PM for a lively discussion of the implications of cost-effectiveness research on government decision making.

The panel discussion will be introduced and chaired by Nick Hart, Director of BPC's Evidence-Based Policymaking Initiative and the 2017 Washington Evaluators President.

Panelists:

Harry Hatry, Distinguished Fellow and Director of the Urban Institute's Public Management Program
George Julnes, Professor in the University of Baltimore's School of Public and International Affairs
Sandy Davis, Senior Advisor to BPC's Evidence-Based Policymaking Initiative


Washington Evaluators and the Bipartisan Policy Center's Evidence-Based Policymaking Initiative are pleased to co-sponsor a roundtable discussion about the contributions of cost-effectiveness studies to informing policy decisions in government. This panel discussion will explore approaches to conducting cost-effectiveness studies, their value and use in government decisions, and practical steps for improving their utility for decision-makers. The distinguished panelists have collectively experienced the generation and use of cost-effectiveness studies from a variety of academic, non-governmental, and governmental positions. We invite you to join us on Tuesday, December 5th at 2 PM for a lively discussion of the implications of cost-effectiveness research on government decision making.

The panel discussion will be introduced and chaired by Nick Hart, Director of BPC's Evidence-Based Policymaking Initiative and the 2017 Washington Evaluators President.

Panelists:

Harry Hatry, Distinguished Fellow and Director of the Urban Institute's Public Management Program
George Julnes, Professor in the University of Baltimore's School of Public and International Affairs
Sandy Davis, Senior Advisor to BPC's Evidence-Based Policymaking Initiative

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Harry Hatry: Cost-Effectiveness Basics for Evidence-Based Policymaking

  1. 1. Cost-Effectiveness Basics For Evidence-Based Policymaking Harry P. Hatry Urban Institute Washington, DC
  2. 2. Purposes of this Presentation 1. To encourage evaluators and decision makers to explicitly examine together both cost of interventions and their effectiveness. C/E currently is a highly underused analytical tool 2. To identify the many analytical issues. 2
  3. 3. Agenda • A Bit of History • What is it? What is it Not • Major Features 3
  4. 4. A Definition Wikipedia: • Cost-effectiveness analysis (CEA) is a form of economic analysis that compares the relative costs and outcomes (effects) of different courses of action. • Cost-effectiveness analysis is distinct from cost–benefit analysis, which assigns a monetary value to the measure of effect. 4
  5. 5. C/E is Not: Effectiveness in reducing cost. 5
  6. 6. Key Features of C/E 1. It explicitly calls for the analysis of the cost of the programs or policies being examined--not only the effectiveness. 2. It explicitly looks into the future. It is a tool for prospective analysis—to assess both future effectiveness and future cost. Program Evaluation methodology is primarily retrospective. It focuses on past effectiveness. 3. It specifically examines and compares alternatives. Evaluation studies typically examine only the effects of the particular intervention. 6
  7. 7. Example: Display of Cost-Effectiveness Study Results Intervention Costs Health Benefits Incremental CER compared to the null 1 $120 1.0 120 2 $140 5.5 25 3 $170 3.0 56 4 $190 7.0 27 Source: “W.H.O. Guide to Cost-Effectiveness Analysis,” 2003. 7
  8. 8. Differences between C/E and C/B • C/B analyses seek to monetize each effect. What is the monetary value of reducing infant mortality by Y percent? Or of reducing automobile commuting time Z minutes per day? • C/E provides the data for each outcome indicator to decision makers. • C/B typically provides a single C/B ratio . 8
  9. 9. Issues in Estimating Costs • Cost analysis is a legitimate important profession. • Estimates should include both capital costs and annual operating and maintenance costs. This is called “life-cycle costing.” • Time phased costs should be calculated. How many years should be covered by the analysis? • To what extent do “overhead” costs need to be included? • Should discount rates be applied to monetary costs to yield “present values” equivalents? If so, what rates should be used? 9
  10. 10. 10 Source: Handbook of Practical Program Evaluation 4th ed. 2015.
  11. 11. Two Other Important Issues • Uncertainty of findings, especially in estimates about the future, increasing with the length of the analysis period. Sensitivity analysis is a way to make the uncertainties clearer. • Who benefits? Who loses? Who pays the costs? 11
  12. 12. Thank You! 12

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