CLASS NOTES: ECONOMIC EVALUATION OF HEALTH PROGRAMS III

HSA 7936, Fall 2010

READINGS

[10] Louise B. Russell, “Opportunity Costs in Modern Medicine,” Health Affairs Vol. 11, No. 2
(Summer 1992): 162-169.

[11] Peter J. Neumann and Dan Greenberg, “Is the United States Ready for QALYs?” Health Affairs Vol.
28, No. 5 (September/October 2009): 1366-1371.

[12] Peter A. Ubel, Michael L. DeKay, Jonathan Baron, and David A. Asch, “Cost-Effectiveness
Analysis in a Setting of Budget Constraints: Is It Equitable?” New England Journal of Medicine Vol.
334, No. 18 (May 2, 1996): 1174-1177.

[13] Alan M. Garber, “Cost-Effectiveness and Evidence Evaluation as Criteria for Coverage Policy,”
Health Affairs Vol. W4 Web Exclusives (19 May 2004): 284-296.

A. CHOICES AMONG PROGRAMS

An approach that can help in clarifying the choices among programs is the opportunity-cost approach, as
explained by Russell (1992).

What is “opportunity cost”?

Comparing programs in this fashion highlights the difficult decisions that must be made in the face of a
fixed budget (limited resources).

Importance of comparing CEA for different groups of individuals.

Important to evaluate choices in terms of incremental benefit.

B. ETHICAL ISSUES

1. QALYs

“The panel recommended that CEA be used as an aid to decision makers who must weigh the information
it provides in the context of [these other] values” [5], pg. 1176.

What are some of the ethical issues associated with the use of QALYs to measure health effects?

What are advantages and drawbacks of various alternatives to QALYs?

Resource allocation decisions will always have an ethical component, because using resources for one
purpose means they can not be used for other purposes and those choices have ethical consequences.
 2. Efficiency vs. Equity

Economic efficiency is attained when scarce resources are allocated such that the marginal social benefit
of the last unit of resources used equals the marginal social cost of that last unit of resources. In the
context of cost-effectiveness analysis, this implies that interventions should be ranked in terms of total
net benefits and the limited budget should be invested accordingly.

However, an efficient outcome may not be an equitable one.

Ubel et al. (1996) examined this issue by surveying three groups of people regarding their choice between
two screening tests for a population at low risk for colon cancer.

Scenario?

Participants?

Results?

C. USING CEA FOR COVERAGE AND REIMBURSEMENT DECISIONS

1. Methodological Issues

One of the obstacles to using CEA in reimbursement and coverage decisions is that there are concerns
about the standardization of CEA as a methodology. As one article put it: “… given the importance of the
decisions that economic evaluation seeks to inform, can the studies be trusted to deliver reliable results?”

2. Other Countries

Australia: Since 1993 Australia has required economic evaluations in applications for new drugs to be
reimbursed by the national healthcare system.

France: uses economic evaluation in approval of new technologies. Guidelines (in English) available at
www.ces-asso.org.

United Kingdom: In 1997, created National Institute of Clinical Excellence (NICE) to develop clinical
guidelines, with guidelines to take account of both clinical effectiveness and cost effectiveness
(www.nice.org.uk).

3. United States

What does Garber (2004) mean by “evidence evaluation as the basis for coverage determinations”?

Why might evidence evaluation alone be unsatisfactory in making coverage decisions about medical
innovations?

In May 2000, HCFA published a “Notice of Intent” to use certain criteria to make national coverage (i.e.,
reimbursement) decisions. Under the proposed plan, a new item or service being considered for coverage
would have to meet a series of criteria:

2
 1. Is there enough evidence to show that the service is medically beneficial for a particular
population?
No: service will not covered
Yes: go to 2

2. Does Medicare already cover a medically beneficial service for the same condition that’s in the
same clinical modality?
No: service will be covered
Yes: go to 3

3. Is the new service substantially more beneficial, substantially less beneficial, or just about as
beneficial as the same-modality service already covered?
Substantially more beneficial: service will be covered
Substantially less beneficial: service will not be covered
About equally beneficial: go to 4

4. Does the new service result in equivalent or lower total costs for the Medicare population than
the Medicare-covered alternative?
No: service will not be covered
Yes: service will be covered

“At some level, people do not believe that resources really are limited, or they recoil from the explicit
nature of the cost-effectiveness exercise itself—that it forces them to think consciously about stark
tradeoffs between money and health that they would rather leave at a subconscious private level”
(Neumann 2004, pg. 309).