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Peter Muennig
Mark Bounthavong

Cost-Effectiveness
Analysis in
Health
THIRD EDITION

A Practical Approach

,...,
DJOSSEY- 8
Peter Muennig
Mark Bounthavong

Cost-Effectiveness
Analysis in
Health
THIRD EDITION

A Practical Approach

D JOSSEY-BASS
A Wiley Brand
COST-EFFECTIVENESS
ANALYSES IN HEALTH
COST-EFFECTIVENESS
ANALYSES IN HEALTH
A PRACTICAL APPROACH

Third Edition

JJ JOSSEY-BASS™
A Wiley Brand
Copyright© 2016 by John Wiley & Sons, Inc. All rights reserved.

Published by Jossey-Bass
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Library of Congress Cataloging-in-Publication Data

Muennig, Peter, author.

Cost-effectiveness analyses in health: a practical approach/ Peter Muennig, Mark
Bounthavong.- Third edition.
p.;cm.
Includes bibliographical references and index.
ISBN 978-1-119-01126-2 (paper), 978-1-119-01127-9 (epdf), 978-1-119-01128-6 (epub)
I. Bounthavong, Mark, 1976-, author. II. Title.
[DNLM: 1. Cost-Benefit Analysis-methods. 2. Health Care Costs. 3. Quality of Life. W 7 4.1]
RA410.5
338.4'33621-dc23
2015036511

Cover design: Wiley

Cover image: © ilolab/Shutterstock

THIRD EDITION
Printed in the United States of America

PB Printing 10 9 8 7 6 5 4 3 2 1
 CONTENTS

List of Tables, Figures, and Exhibits . xi

Preface . . . . . . . xxi
Acknowledgments . . XXV

About the Author . . . . . . . . . . . . . . . . xxvii

Chapter 1 Introduction to Cost-Effectiveness . .1

Learning Objectives. . . . . . . 1
Overview . . . . . . . . . . . 1
Why Cost-Effectiveness Is Useful. .2
Elements of Cost-Effectiveness Analysis . .4
The Average and Incremental Cost-Effectiveness Ratio . .9
Why Conduct Cost-Effectiveness Analysis? . 11
The Reference Case Analysis . . . . . . 14
Cost-Effectiveness Analysis and Policy . 17
Summary . . . 24
Further Readings 24
References . . . 25

Chapter 2 Principles of Cost-Effectiveness Analysis . . 29

Learning Objectives . . . . . . . . . . . . . . 29
Overview . . . . . . . . . . . . . . . . . . 29
The Perspective of a Cost-Effectiveness Analysis . . 29
Capturing Costs . . . . . . . . . . . . 33
Capturing Quality . . . . . . . . . . 35
Interpreting the Cost-Effectiveness Ratio . 39
Types of Economic Analysis . 43
Summary . . . 48
Further Readings 49
References . . . 49
Chapter 3 Developing a Research Project. ,53

Learning Objectives . . . . . . . . . . 53
Overview. . . . . . . . . . . . . . . . . . . . . . . . 53
CONTENTS

Eight Steps to a Perfect Research Project . . 53

Developing a Research Question . . . . . 55
Designing Your Analysis. . . . . . . . . . . . . . . . . . 64
Summary . . . 70
Further Readings 70
References . . . 70

Chapter 4 Working with Costs . 73

Learning Objectives . . . . . 73
Overview . . . . . . 73
Opportunity Costs . . . . . . . 74
Identifying Costs. . . . . . . . 77
Micro-Costing and Gross Costing . . 80
Getting Cost Data . . . 82
Using Diagnosis Codes . . . . . 84
Adjusting Costs . . . . . . . . 86
Costs Associated with Pain and Suffering . 95
Assessing the "Relevancy" of Cost Data . . 97
Other Cost Considerations. . 98
Summary . . . . . 102
Further Readings . . 103
References. . . . .103

Chapter 5 Probabilities and Decision Analysis Models . 105

Learning Objectives . . . . . . . 105
Overview . . . . . . . . . . . 105
The Idea Behind Decision Analysis . 105
Probabilities . . . . . . 109
Decision Analysis Models. . 114
Summary . . . . 131
Further Reading . . . . . . . 132
References. . . . . . . . . . . . . . . . . . . . . 132

Chapter 6 Calculating Life Expectancy . . 135

Learning Objectives . . . . . . 135
Overview . . . . . . . . . . 135
Hand-Calculating Years Gained . 135
Calculating Life-Years Lost Using Markov Models. 140
Summary . . . . 150
Further Readings . 151
References. . . . . 151
 CONTENTS

Chapter 7 Working with Health-Related Quality-of-Life Measures. 153

Learning Objectives . 153
Overview . . . . . . . 153
Framework . . . . . . 154
Deriving HRQL Scores. . 158
Other Considerations and Reminders . 168
Using Disability-Adjusted Life-Years 171
Summary . . . . 172
Further Readings . 173
References. . . . .173

Chapter 8 Calculating QAL Vs . . . . . 177

Learning Objectives . . . . . . 177
Overview . . . . . . . . . . 177
Using the Summation Method. . 178
Using the Life Table Method 180
More On Discounting . . . . . 189
Issues with QALYs . . . . . . 191
Calculating Incremental Cost-Effectiveness. . 192
Disability-Adjusted Life-Year (DALY). . 195
Summary . . . . . 196
Further Readings . . 196
References. . . . . 196

Chapter 9 Conducting a Sensitivity Analysis . . 199

Learning Objectives . . . . . . . 199
Overview . . . . . . . . . . . 199
Performing a Sensitivity Analysis . . 199
Sensitivity Analysis . . . . . . 201
One-Way Sensitivity Analysis . . 203
Two-Way Sensitivity Analysis. . 207
Tornado Diagram. . . . . . . 208
Multiway Sensitivity Analysis . 210
Summary . . . . . 222
Further Readings . . 222
References. . . . . 223

Chapter 10 Preparing Your Study for Publication. ,225

Learning Objectives . . . . . . . . . . . . . 225
Overview . . . . . . . . . . . . . . . . . 225
Content and Structure of Cost-Effectiveness Articles . . 225
CONTENTS

Title and Abstract. . 230

Introduction . . 231
Methods . . . 233
Results . . . 235
Discussion. . . . 238
Other . . . . . . . . . 238
Technical Appendix. . . . 239
Figures and Illustrations . 240
Summary . . . . 240
Further Reading . . . . . 241
References. . . . . . . . . . . . . . . . . . . . . . . 241

Chapter 11 Basic Concepts in Epidemiology and Application

to Cost-Effectiveness Analysis. ,243

Learning Objectives . . 243

Overview . . . . . . 243
Review of Incidence . . 244
Understanding Error 252
Managing Error in Cost-Effectiveness Analysis 255
Calculating Weighted Means . 261
Evaluating Study Limitations 263
Summary . . . . 274
Further Readings . 275
References. . . . . 276

Chapter 12 Finding the Data You Need. ,279

Learning Objectives . . . . . . . . . 279

Overview . . . . . . . . . . . . 279
Finding Data in the Medical Literature . 279
Grading Published Data . . 281
Using Electronic Datasets. . 282
Data Extraction Tools . . 290
Using Unpublished Data . 293
Using Expert Opinion . 294
Organizing Your Data . 295
Summary . . . . 295
Further Readings . 296
References. . . . . 296

Chapter 13 A Worked Example . . 299

Learning Objectives . . . . . . 299
 CONTENTS

Overview . . . . . . . . . . . . . . . . . 299
Helping Students Learn . . . . . . . . . . . 299
Laboratory Exercise One: Building a Markov Tree . 300
Laboratory Exercise Two: Comparing Interventions . 320
Laboratory Exercise Three: The Cost-Effectiveness of Health
Insurance. . . . . . . . . . . . . . 333
Laboratory Exercise Four: Sensitivity Analysis. . 344
Summary . . . . . . . . . . . . 358

Appendix A Answer Key to Exercises. . 359

Appendix B Life Expectancy and Quality-Adjusted Life

Expectancy Tables. . . . . . . . . . . . 375

Appendix C EQ-5D-5L Health Questionnaire (English Version

for the United States) . . . . . . . . . . . . . . 379

Appendix D Diagnosis, Charges, Medicare Reimbursement,

Average Length of Stay, and Cost-to-Charge Ratio
by Diagnosis-Related Groups, 2011 . . . . . . . 383

Glossary 419

Index 431
 LIST OF TABLES, FIGURES,
AND EXHIBITS

Tables
1.1 Hypothetical League Table for a Village in Malawi with a
$58,000 Health Budget 19
2.1 Costs Included in a Cost-Effectiveness Analysis of Free
Contraception, Conducted from Three Perspectives 31
2.2 Hypothetical Differences in Health-Related Quality of Life
over 10 Years for Diabetic Women and Women in
Perfect Health 36
2.3 Decision Matrix for Various Cost-Effectiveness Scenarios 42
4.1 Comparison of Pharmaceutical Benchmark Prices 77
4.2 Partial List of Costs for Treatment of Influenza Infection 82
4.3 Common Codes Used to Group Diseases 85
4.4 MED PAR Cost Data by DRG for 2011 88
4.5 Medical Component of the Consumer Price Index
2004-2014, Annual Percentage Change over Previous Year 91
4.6 Hypothetical and Discounted Costs of a Cohort of 1,000
Elderly Persons over 10 Years 94
5.1 Probabilities and Costs for Vaccinated and Not Vaccinated
(Supportive Care) Strategies 118
5.2 Calculation of Expected Cost for Each Event Pathway for
Vaccination and Supportive Care Strategies 125
6.1 Number of Deaths due to Influenza Virus Infection, by
Age Group 136
6.2 Deaths, Mean Age of Death due to Influenza Virus
Infection, and Life Expectancy for Persons Aged 15
to 65 138
6.3 Calculating Total Years of Life Lost due to Influenza Virus
Infection in the United States 138
6.4 Total Deaths, Deaths due to Influenza Virus Infection, and
Total Survivors in a Cohort of 1 Million 15-Year-Olds 141
6.5 Total Person-Years Lived by the Cohort of 1 Million
15-Year-Olds 143
LIST OF TABLES, FIGURES, AND EXHIBITS

6.6Person-Years Lived Among the Cohort of 15-Year-Olds,

Including and Excluding Deaths due to Influenza Virus
Infection 144
6.7 Age-Specific Mortality Rates, Survivors, and Number of
Deaths in the Cohort of 1 Million 15-Year-Old Subjects 144
6.8 Progression of a Cohort of 10 Women with Breast Cancer
over a Six-Year Period 146
7.1 Example of How an HRQL Score for Influenza Illness May
Be Derived Using the EQ-5D 166
7.2 EQ-5D Preference Score Variation Among Age Categories 168
8.1 Total Person-Years Lived by the Cohort of 1 Million
15-Year-Olds 181
8.2 Sum of Person-Years Across Age Groups for the Cohort
of 1 Million 15-Year-Olds 181
8.3 Calculating Life Expectancy at a Given Age 182
8.4 Abridged Life Table for 2011 183
8.5 A Quality-Adjusted Life Table 185
10.1 Simple Summary of Costs Used in a Cost-Effectiveness
Model 235
10.2 Cost-Effectiveness Table 236
10.3 Example of a Cost-Effectiveness Table 237
11.1 Calculating the Incidence Rate of Developing Cancer due
to Exposure to Radiation in a Two-Year Observation
Period, 2011-2012 245
11.2 Calculating the Age-Adjusted Mortality Rate Using a
Hypothetical U.S. Population 247
11.3 Frequency Distribution of Hypothetical Cholesterol Val-
ues Obtained from 100 Subjects 256
12.1 Datasets Useful for Finding Frequently Needed Cost-
Effectiveness Parameters 289
13.1 Results of the Base-Case Analysis 332
13.2 Age-Indexed Tables for Use in the New Tree 335
13.3 Base-Case Results for the Markov Model 342
13.4 Base-Case Results After Applying a 3 Percent Discount Rate 343
13.5 Results After Terminating Calculations at Age 65 or Older 345
A.1 Comparison Between Vaccinated and Not
Vaccinated Strategies 364
A.2 Markov Model Using a Vaccine Effectiveness of 75 Percent 365
B.1 Abridged Life Table for the Total Population, United
States, 2011 375
 LIST OF TABLES, FIGURES, AND EXHIBITS

B.2 Abridged Quality-Adjusted Life Table for the Total Popu-

lation, United States, 2011 376

Figures
1.1 Example of the Effect of a Health Intervention on the
Health States of Patients Admitted to the Emergency
Room for an Acute Asthma Attack 6
1.2 Components of a Cost-Effectiveness Analysis 6
2.1 Graphical Representation of an HRQL Score 35
2.2 Difference in Total QALYs Between Women Treated and
Not Treated for Diabetes over 10 Years 37
2.3 Graphical Representation of the Impact of High and Low
Numerators and Denominators in Calculating Incremen-
tal Cost-Effectiveness Ratios 39
3.1 Flowchart Indicating the Clinical Course of Influenza Illness 66
3.2 Flowchart Indicating the Course of Influenza Infection
Among Subjects Who Receive a Vaccination 66
3.3 Probability of Seeing a Doctor Among Subjects Who
Receive Vaccination Versus Those Who Receive
Supportive Care 67
3.4 Vaccination Strategy Represented with All Probabilities
Filled In 68
3.5 Vaccination Decision Node 69
4.1 Partial Flowchart of the Course of the Flu 78
4.2 Costs Associated with the "Does Not See Doctor" Box 79
5.1 Decision Tree for Whether to Pursue Public Health School
or Write a Novel 106
5.2 Decision Tree with the Potential for Not Finding a Job
After Public Health School 107
5.3 Example of Two Mutually Exclusive Events 110
5.4 Probabilities of Outcomes for Patients Receiving the
Vaccine Intervention 112
5.5 Course of Events During an Influenza Season Among
Those Receiving Supportive Care Alone 117
5.6 Course of Events During an Influenza Season Among
Those Receiving a Vaccination 117
5.7 Supportive Care Versus Vaccination Decision (Figures 5.5
and 5.6) Represented as a Decision Analysis Tree 119
5.8 Event Pathway for Vaccination Versus Supportive Care
Represented as a Decision Analysis Tree 120
LIST OF TABLES, FIGURES, AND EXHIBITS

5.9 The Expected Probability for Each Terminal Node in the

Vaccination and Supportive Care Decision Tree 121
5.10 The Total Cost for Each Terminal Node in the Vaccination
and Supportive Care Decision Tree 122
5.11 Expected Costs for Each Terminal Node in the Vaccination
and Supportive Care Decision Tree 124
5.12 Total Cost and Probability for All Terminal Nodes in the
Vaccination and Supportive Care Decision Tree 126
5.13 Expected Cost and Outcomes for Each Chance Node in
the Vaccinated and Supportive Care Decision Tree 127
5.14 Calculation for the Expected Cost and Probability for a
Patient Who Receives Supportive Care, Becomes Ill, and
Sees Doctor 127
5.15 Expected Costs and Outcomes for Different Chance Nodes
in the Vaccinated and Supportive Care Decision Tree 129
6.1 Markov Model for Influenza Mortality in 15-Year-Olds 145
6.2 Basic Concept of a Markov Model 145
6.3 Complete Decision Analysis Tree for Calculating Life
Expectancy Using TreeAge Pro 148
6.4 A Rolled-Back Model Using the Probability of Death for
the General U.S. Population 149
7.1 Trade-off Between the Status Quo Health State and a Gamble 156
7.2 EQ-5D-5L Form Filled Out by a Patient 163
7.3 Diabetes Markov Model Depicting Three Health States:
Mild, Moderate, and Severe Diabetes 164
8.1 Year-to-Year Progress of Treated and Untreated Subjects
with Leishmaniasis 179
8.2 Basic Markov Model Used to Calculate Life Expectancy 187
8.3 Markov Models Designed to Calculate the Life Expectancy
of Subjects Receiving the Filmore and Reinkenshein
Procedures 188
8.4 Difference in HRQL Among Subjects Who Received the
Filmore or the Reinkenshein Procedure 188
8.5 Filmore Versus Reinkenshein Model Rolled Back to Reveal
Gains in Quality-Adjusted Life Expectancy Associated
with Each Strategy 189
8.6 Filmore Versus Reinkenshein Model with Costs Added 193
8.7 Filmore Versus Reinkenshein Model with Discounting
Added to the HRQL Values 194
8.8 Filmore Versus Reinkenshein Model Rolled Back 195
 LIST OF TABLES, FIGURES, AND EXHIBITS

9.1 Sensitivity Analysis Focusing on Structure for the Vaccine

Event Pathway 201
9.2 Sensitivity Analysis Focusing on the Parameter Change
(Remains Well) for the Vaccine Event Pathway 201
9.3 Terminal Branch of the Filmore Arm Represented in
Figure 8.3 203
9.4 Incremental Effectiveness of the Reinkenshein Proce-
dure Relative to the Filmore Procedure over a Range of
Risk Ratios 204
9.5 One-Way Sensitivity Analysis Examining How the
Cost of Providing the Influenza Vaccine Influences
Intervention 205
9.6 Two-Way Sensitivity Analysis Comparing Changes in the
Efficacy of the Influenza Vaccine and the Incidence of
Influenza-Like Illness 208
9.7 Tornado Diagram Example 210
9.8 Microsimulation of Individual Patients Through a
Decision Path 212
9.9 Chance of Incurring Any Given Value of a Normally
Distributed Variable 213
9.10 Diabetes Model in Which Values of Each Variable Are
Normally Distributed 214
9.11 The Triangular Distribution 216
9.12 Other Distributions Used in Monte Carlo Simulations 217
9.13 Cost-Effectiveness Plane with a Single Simulation 219
9.14 Hypothetical Results of 100 Simulations on the Cost-
Effectiveness Plane 220
9.15 Cost-Effectiveness Acceptability Curve 221
9.16 Cost-Effectiveness Acceptability Curve for
Exercises 2 and 3 222
11.1 Nonrandom Error 253
11.2 Random Error 254
11.3 Graphical Representation of the 100 Cholesterol Values 257
11.4 Probability Distribution of the 100 Cholesterol Values 257
11.5 Hypothetical Probability Distribution of 1,000 Cholesterol
Values 258
11.6 The Normal Curve 259
11.7 Example of a Triangular Distribution 262
11.8 Retrospective Study Designs: Case-Control and
Cohort Designs 265
LIST OF TABLES, FIGURES, AND EXHIBITS

11.9 Prospective Study Design 266

11.10 Randomized Controlled Trial Study Design 268
11.11 Network of Studies Comparing Drugs Directly and Indirectly 271
12.1 Pyramid Analogy for the Different Levels of Evidence Criteria 281
12.2 An Example of a Jadad Score Grading Form 282
13.1 Starting a New Project in TreeAge Pro 300
13.2 Configuring the Model 301
13.3 Changing the Calculation Method to Cost-Effectiveness 301
13.4 Selecting the Payoffs for a Cost-Effectiveness Analysis 301
13.5 Selecting the Number of Payoffs 302
13.6 Changing Payoffs Names Under the "Custom Names" Option 302
13.7 Numerical Formatting for the Cost-Effectiveness Analysis 303
13.8 Saving a New Document in TreeAge Pro as a Package
Using the *.trex Extension 303
13.9 Adding Two Chance Nodes to the Existing Decision Node 303
13.10 Deleting a Branch Using the Table Icons 304
13.11 Selecting a Markov Node Using "Change Type"
from the Menu 304
13.12 Markov Node for a Decision Analysis Model 304
13.13 Creating Branches on a Markov Tree 305
13.14 Labeling Branches in a Markov Tree 305
13.15 Assigning an Initial Probability of 100 Percent to the Alive
State in the Markov Model 306
13.16 Changing the Node from Chance Node to a Terminal Node 306
13.17 Edit Jump State Dialog Box Appears When the Chance
Node Is Changed to a Terminal Node 307
13.18 Markov Tree After Changing the Remaining Chance
Nodes into Terminal Nodes 307
13.19 Selecting the Markov Info View in Order to Enter Values 308
13.20 Selecting the Markov Info View Using the Icon on the
Button Toolbar 308
13.21 Markov Info View Dialog Box 308
13.22 Setting the Initial and Incremental Rewards 309
13.23 Preference Box for the Markov Model 310
13.24 Selecting the "Variables/Markov Info" Option from the
Tree Preferences Dialog Box 311
13.25 Termination Conditions for the Markov Node 311
13.26 Setting the Termination Conditions for the Markov Model 312
13.27 Creating a New Variable Using the New Variable Dialog Box 312
13.28 Assigning a Value to the Variable "age" 313
 LIST OF TABLES, FIGURES, AND EXHIBITS

13.29 Defining the Variable "age" 314

13.30 Setting the Probability of Die as tdead2000 [age], Which Is
Derived from an n x 2 Matrix Table 315
13.31 Layout for Entering Values for a User-Defined Table 315
13.32 An Excel Table with the Probabilities of Death Associated
with Each Age 317
13.33 Entering Values for tdead2000 Table 317
13.34 Selecting the Numeric Formatting Preferences from the
Edit Menu 318
13.35 Changing the Payoff Units for Cost and Effectiveness 318
13.36 Overall Illustration of the Markov Model After Parameter
Inputs and Unit Changes 318
13.37 Results of the Rollback Analysis for the Markov Model 319
13.38 Transition State Diagram of a Markov Model with Alive
and Dead States 320
13.39 Results of Rollback Function 321
13.40 U.S. Life Table for Ages O to 100 and Over 321
13.41 Changing the Initial Cycle's Worth of Reward with the
Half-Cycle Correction 322
13.42 Rollback Results Using the Half-Cycle Correction on the
Initial Effectiveness 322
13.43 Opening the Define Initial Reward Window 323
13.44 Entering the Half-Cycle Correction into the Markov Infor-
mation Dialog Box 324
13.45 Defining the Termination Condition to an Age That Is
105 Years or Older 324
13.46 Rollback Analysis with Half-Cycle Correction and Life
Cycle Greater Than 105 Years 325
13.47 Selecting and Copying the Subtree 325
13.48 Adding a Second Subtree to the Decision Node 326
13.49 Multiplying Mortality Probability by a Factor of 1.25 and
Capping It at 1 327
13.50 Changing Calculation Method from Cost-Effectiveness to
Simple Analysis 327
13.51 Results of Rollback Between Filmore and Rinkenshein
Procedures 328
13.52 Modifying the Payoff for a Cost-Effectiveness Analysis 329
13.53 Entering a Willingness to Pay of $40,000 per
Life-Year Gained 329
LIST OF TABLES, FIGURES, AND EXHIBITS

13.54 Defining the Reward Set in the Initial Stage of the Markov
Model 330
13.55 Rollback Results Comparing the Filmore and Rinkenshein
Procedures 331
13.56 Selecting the Rankings from the Analysis Tab 331
13.57 Rankings Output Comparing the Cost-Effectiveness of
Rinkenshein and Filmore Procedures 332
13.58 Insurance Versus No Insurance Competing
Alternatives Model 334
13.59 Adding Tables Under the Tables View Option 335
13.60 Adding a New Table Under the Add/Change Box 336
13.61 The New Table, clnsurance, Is Not Listed in the
Tables Window 336
13.62 Including Values for a User-Defined Table 337
13.63 Completed Tables for Costs and HRQL for Those Who
Are Insured and Not Insured 337
13.64 Changing the Effectiveness Units to "QALYs" 338
13.65 Creating a New Variable Called "HR" and Defining Its Value 339
13.66 Defining the Value for "age" Under the Variables Proper-
ties Window 340
13.67 Formula for the Four New Variables 340
13.68 Adding the Half-Cycle Correction Factor for the Initial
and Final Stages 341
13.69 Markov Model Comparing Insured and Uninsured Strate-
gies with the Updated Variables and Tables 341
13.70 Rankings Output Comparing Insurance to No Insurance 342
13.71 Tree Properties with the Addition of a Discount Rate 343
13.72 All the Variables That Are Used in the Current
Markov Model 343
13.73 Changing the Start Age at the Decision Node 345
13.74 Changing the Termination Conditions for the Insurance
and No Insurance Arms of the Markov Model 345
13.75 One-Way Sensitivity Analysis Setup Window 347
13.76 Defining Low and High Values for the HR Parameter 347
13.77 Cost-Effectiveness Sensitivity Analysis Output Window 348
13. 78 Results of the One-Way Sensitivity Analyses 349
13.79 Creating a New Distribution Variable 350
13.80 Add/Change Distribution Window 351
13.81 Assigning a Distribution to the Hazard Ratio Variable 351
 LIST OF TABLES, FIGURES, AND EXHIBITS

13.82 Creating Another Distribution Called "dist_clnsur_err"

Using a Triangular Distribution 352
13.83 Distributions for Three Variables (HR, clnsur, and
cNoinsur) in the Model 353
13.84 Tree Properties with the Inclusion of Distributions 353
13.85 Selecting the Probabilistic Sensitivity Analysis 353
13.86 Monte Carlo Simulation Options Window 354
13.87 Selecting Incremental CE Ratio Output from the Monte
Carlo Simulation Results Window 354
13.88 Distributions of ICERs Comparing Insurance Versus No
Insurance Varying the Hazard Ratio and Cost Error Terms 355
13.89 Selecting the ICER Scatterplot Comparing Insurance to
No Insurance 355
13.90 ICER Scatterplot Comparing Insurance to No Insurance 356
13.91 Proportion of ICER Scatterplots Below the Willingness-
to-Pay Threshold of$40,000 per QALY Gained 356
13.92 Cost-Effectiveness Acceptability Curve Parameter Window 357
13.93 Cost-Effectiveness Acceptability Curves for Insurance and
No Insurance 357
A.1 The Rollback Results for the Expected Costs and Out-
comes for Vaccinated and Not Vaccinated Strategies 363
A.2 Markov Model from Chapter 6, Exercise 1 365
A.3 A Tree Diagram with Rollback Results from TreeAge Pro 366
A.4 Cost-Effectiveness Acceptability Curve Showing Where
the 75 Percent Probability of Cost-Effectiveness Is in
Relation to the Willingness-to-Pay Axis 370
A.5 Using the CDC's Wonder Mortality Database and Select-
ing Breast Cancer 373
A.6 Selecting the ICD-10 Code for Breast Cancer 373
A.7 Results of the Breast Cancer Query Grouped by
Gender for 2011 374

Exhibits
2.1 Summary Recommendations for the Correct Placement
of Costs in a Cost-Effectiveness Analysis 38
4.2 Can an Economic Crisis Reduce the Value of Human Life? 92
7.1 EQ-5D-5L Health Domains 158
10.1 The Complete CHEERS Checklist 226
LIST OF TABLES, FIGURES, AND EXHIBITS

12.1 Example of a Table Created by Cross-Tabulation

(Contingency Table) 283
12.2 Major U.S. Health Datasets Available to the Public 284
12.3 Major Sources of International Health Data 286
12.4 Some Data Sources for Which Data Extraction Tools Are
Available 290
 PREFACE

P ersonalized medicine has evolved to where genomic testing can tailor

treatments to individual bodies rather than populations, pharmaceuti-
cal treatment can now essentially cure hepatitis C, and a cancer vaccine can
increase the life of a terminally ill prostate cancer patient. The downside is
that these improvements in health outcomes are expensive. Moreover, they
are taking place in the context of poorly functioning healthcare delivery
systems that cannot marshal market forces to bring in value and health at
the same time. For example, the healthcare delivery system in the United
States has ballooned to an unimaginable $2.9 trillion-an amount that
will soon surpass the entire gross domestic product (GDP) of France. This
comes even as the life expectancy in the United States is declining relative
to nations that do a better job of spending their money on treatments that
matter.
Cost-Effectiveness Analyses in Health: A Practical Approach was written
in order to prepare you, our dear reader, for the inevitable need to
evaluate the interventions and programs meant to improve health. This
book is meant to teach students how to begin to conduct their own
cost-effectiveness analyses.
Rather than go deep into abstract theory or complicated models, this
book teaches you how to work with the fundamentals. Consider this book
a road map that will guide you through the processes for developing your
own cost-effectiveness analysis. With this book, you will be able to develop a
research question, find and evaluate data, build a decision model, stress-test
the model, interpret the results, and summarize your findings in a report
using the most up-to-date techniques and software. We will even walk you
step-by-step through an entire analysis. The only skills that you will need
are basic math skills and some knowledge about using spreadsheets.
Students and professionals with some knowledge of biostatistics
and epidemiology can skip Chapters 11 and 12, which provide a short
review of fundamentals. If you're unfamiliar with these subjects, don't
worry. Chapters 11 and 12 offer a basic introduction to biostatistics
and epidemiology that will be useful when reviewing the literature and
performing a cost-effectiveness analysis.
PREFACE

We wrote this book with the public health student in mind, but
healthcare professionals and students, policymakers, formulary managers,
pharmacoeconomists, healthcare payers, directors of departments and
hospitals, and even curious patients will find the information and lessons
accessible and easy to understand. We do not expect you to become
world-class experts after reading this book. However, you will feel more
confident about understanding cost-effectiveness analysis and conducting
basic analyses. You will also be prepared to tackle advanced materials if you
choose to.
In short, Cost-Effectiveness Analyses in Health: A Practical Approach
was written to provide a how-to guide to performing cost-effectiveness
analysis. The examples used in this book provide simplified scenarios in
order to teach the material, but readers should be able to apply these
methods to their own research questions of interest.

How to Use This Book

In addition to introducing the cost concepts of cost-effectiveness analysis,
this book walks students through basic cost-effectiveness analyses. To fully
benefit from the book, students should complete the exercises in each
chapter; these exercises guide students through the process of obtaining
electronic data, analyzing the medical literature, building a decision analysis
tree, and conducting a sensitivity analysis.
Different students have different needs. The following points should
help you make the most effective use of this book:

• Using this book for theoretical study alone. Health managers and
clinicians often wish to understand cost-effectiveness analysis methods
but do not wish to conduct research. This book has been designed
to allow students to understand the field of cost-effectiveness analysis
methods using an applied approach.
• Using this book as a textbook. Instructors teaching courses that have
biostatistics and epidemiology as prerequisites may skip Chapter 11;
however, this chapter provides an excellent review of those concepts
applicable to cost-effectiveness research. Introductory courses in cost-
effectiveness analysis should skip Chapter 12, which is intended only
for students who are actively working on a research project.
• Using this book for self-study. Those who are actively working on a
cost-effectiveness research question will find Chapter 12 invaluable but
might not need as much background information (found in Chapters
1 through 3) as beginning students.
 PREFACE

• Using Internet resources. This book provides links to data sources,

journals, and other useful cost-effectiveness information on the Inter-
net. The Internet is a critical resource for cost-effectiveness research,
but as we all know, the addresses for web pages sometimes change. For
this reason, links to specific web pages are provided alongside links to
the organizations that host these pages and are maintained at www
.wiley.com/ go/ muennig3e.

A Note on Methods
In 1996, the U.S. Public Health Service's Panel on Cost-Effectiveness in
Health and Medicine released methodological standards for conducting
cost-effectiveness analyses. These standards were developed in response
to a wide degree of variation in the ways in which such analyses were
conducted. The use of disparate approaches to cost-effectiveness analysis
sometimes leads to widely different study results when different research
groups examine the cost-effectiveness of a single screening test or medical
treatment.
Since the First U.S. Panel on Cost-Effectiveness in Health and Medicine
in 1996, the field of cost-effectiveness analysis has evolved considerably.
This prompted the formation of the Second U.S. Panel on Cost-Effectiveness
and Health, which is hard at work updating the 1996 recommendations.
It is expected that the new recommendations will be released in 2016. We
have updated the Third Edition in anticipation of these changes. However,
the panel has not finalized their full set of recommendations by the time of
the first printing of this edition. Any updates and instructor's supplements
will be reflected on the book's web site: www.wiley.com/go/muennig3e.
Additional materials such as videos, podcasts, and readings can be found at
www.josseybasspublichealth.com. Comments about this book are invited
and can be sent to publichealth@wiley.com.
 l'"EFACE

T he writing of this book required the assistance of a large supporting

cast. It's impossible to list everyone. But here's our humble attempt
to do so.
We would both like to acknowledge the late Andy Pasternack, of
Jossey-Bass/Wiley. Andy first stole Peter away from a contract with Oxford
University Press, and Peter has never looked back. Andy was a gentle man
with a big heart and great vision who passed away while this book was in
the planning stages.
The rest of the staff at Jossey-Bass/Wiley provided an immeasurable
amount of assistance, in particular: Seth Schwartz, who took over Andy's
role and worked tirelessly to bring this text into being; Melinda Noack for
keeping us on track (and catching those pesky mistakes); and the produc-
tion editor Kumudhavalli Narasimhan and copyeditor Ginny Carroll, who
ensured that the text was comprehensible and lucid to all readers other
than ourselves.
The TreeAge example wouldn't be possible without the contributions
and expertise of Andrew Munzer from TreeAge Software, Inc.
We also want to acknowledge the draft manuscript reviewers Sheryl
Foster, David J. Vanness, Roger Edwards, and Victoria Phillip (they are
the crucial gatekeepers for ensuring that this edition is accurate and
trustworthy).
These lessons and ideas needed an audience before we could record
them in this book. Therefore, we thank the students and residents who
had to endure these instructions as we refined them. All errors and
misinterpretations are the responsibility of the authors and not these
excellent people.
Disclosures: The authors did not receive any financial compensation
from TreeAge Software, Inc. The opinions and views of the authors do not
reflect those of the U.S. Department of Veterans Affairs.
ACKNOWLEDGMENTS

From Peter Muennig

I owe everything to Gezi, who lights my way in the dark, creates beautiful
objects with me, and always gives me certainty that tomorrow will be as
new and wondrous an adventure as today. I would also like to thank Mark
for making this book into something much greater than it was before.
And, of course, my family of teachers and unyielding emotional pillars (in
random order): Radster, Heidi, Felise, Rufie, Dave, Thom, Misha, Jessica,
Josh, Danny, Alex, Hong, and Prairie.

From Mark Bounthavong

The origins of this edition came from an innocent e-mail to Peter regarding
clarification on a figure. Since then, Peter has been an invaluable friend
and mentor in guiding me through the writing process-thank you! I
also owe the beginnings of my interest in this field to my two academic
advisors during my pharmacy school days: Mark and Anandi. Like all great
mentors, they opened the door to a whole different world. And, of course,
to my family, friends, teachers, and students, who always encouraged and
supported me despite not understanding what I was really trying to say. (I
hope it's clearer in this book.)
Another random document with
no related content on Scribd:
MEASURE THAT PAN!

Do keep a ruler handy,

To measure pans it’s dandy.
Place the rule across the top,
Right size pan prevents a flop!

Round Layer Pan ... at

Square Pan ... 2″ to 2½″ least 1¼″ deep for 8″ Oblong Pan ... 1½″ to
deep. pan; 1½″ deep for 9″ 2½″ deep.
pan.

Pie Pan ... measured

Tube-Center Pan 4″ Bread Loaf Pan 3½″
from inside rim to
deep. deep.
outside rim.
 Cooky Sheet or Baking Sheet ...
without sides.

Jelly Roll Pan or Baking Sheet ...

with low sides (½″).

Choose the size pan that the recipe states

When baking bar cookies, bread, pies, or fine
cakes.
Measure with care to get just the right size,
It makes quite a diff’rence ... you’ll soon realize!
 Individual Custard
Muffin Pan ... deep or Casserole or Baking
Cups ... set in shallow
shallow cups. Dish ... with cover.
pan to bake.

Round Pudding Mold

Fluted Pudding Mold ...
Roasting Pan ... with ... for brown bread, plum
for steamed puddings,
rack. puddings, and other
etc.
steamed puddings.
 This page gives the
meaning of terms in
this book!

SUGAR
It’s here just to help SALT
you to be a Prize
Fine white granulated Cook! Cooking salt in cloth
sugar, unless otherwise sacks. It is cheaper and
specified in recipe. stronger than table salt.

GOLD
MEDAL
FLOUR
Gold Medal
“Kitchen-
CHOCOLATE EGGS
tested”
Unsweetened Enriched Flour—the Large fresh eggs
baking chocolate. country’s most popular (2 oz.) or
If sweet chocolate brand of all-purpose equivalent
or bits or pieces flour. Recipes in this amounts from
are required, book have been smaller eggs.
recipe will so perfected for Gold Medal
state. only.

MOLASSES
MILK BUTTERMILK and Dark molasses. If
SOUR MILK black New
Fresh, sweet milk,
Orleans molasses
unless otherwise
is specified, ask
 indicated. May be used grocer for “black
interchangeably. Too old strap.”
milk has disagreeable
flavor!

WHEATIE
S
The
crispy,
SPICES and whole-
FLAVORINGS wheat ROLLED OATS
flakes
High quality nationally Either quick-
always, for flavor cooking or regular
known as the “Breakfast
and dependability. of Champions.” (uncooked).

BAKING
POWDER
MOIST
Any of the
SHREDDED
well-
COCONUT
known
Shredded nationally COFFEE
coconut that’s distribute
moist ... either d brands The beverage—
from a can or a of baking not uncooked
package ... or powder ground coffee.
shredded from a give good results with
fresh coconut. the recipes in this book.

SHORTENING
Any fresh, mild-flavored
solid fat ... animal or
vegetable, such as those
at right. Butter is indicated in certain recipes for flavor.
HOW TO PREPARE some special
ingredients the quick, easy way!

Remove melted
Place it on waxed Place it in a small bowl set
chocolate from bowl or
paper set in bowl or in a wire strainer over
paper with rubber
over boiling water. boiling water.
scraper.

PREPARING NUTS
Some foods look and taste their best if the nuts in them are in big
chunks. In others, the nuts should be in smaller pieces. The recipes
tell you just how.
Broken Nuts: It’s quick Cut-Up Nuts: Cut with Coarsely Chopped
and easy to break nuts scissors (works better Nuts: Chop with long,
with fingers into about than knife) into about ¼- straight knife. Hold point
⅓-inch chunks. inch pieces. against cutting board,
chop crisply through
spread out nuts—
TOAST NUTS: to be sure they will taste fresh. Heat swinging handle around
through in moderate oven. in quarter circle.

Finely Chopped Blanched Nuts: Sliced or Slivered

Nuts: Chop same Drop shelled nuts Nuts: First blanch
as for Coarsely into boiling water. ... then cut with very
Chopped, but into Let stand 2 to 5 sharp knife while
finer pieces. minutes (until skins nuts are moist and
are loosened). Pour warm.
off hot water, add
some cold. Pinch
each nut between
thumb and finger to
push off skins, and
lay nuts on plate or
paper toweling to
dry.

Ground Nuts: Use fine knife of food

grinder for finely ground ... coarse knife for
coarsely ground. Nuts should be dry.
PREPARING DRIED FRUITS

Seeded raisins are the

Seedless raisins are Plump seedless raisins by
large variety from which
the small variety, both washing and spreading
seeds have been
dark and light ... dried them out in a flat pan.
removed. The
from seedless grapes. Cover. Heat slowly in mod.
sweetness released
Cut them to get the full oven (350°) until they puff
when they were slit open
sweetness and flavor. up and wrinkles come out.
makes them sticky.

Cut up dates and other Snip through long To tint shredded

sticky fruits with wet shreds of coconut with coconut: Soak it in milk
scissors. Dip scissors in scissors to shorten or water (¼ cup for ½
water occasionally. them. The shorter cup coconut) with a few
shreds blend into drops of food coloring
doughs more evenly. added. Drain, dry on
absorbent paper.
To cut citron or candied orange or
lemon peel, first slice it thinly—then cut
slices into ½″ or ¼″ squares.

E Q U I VA L E N T W E I G H T S A N D M E A S U R E S

NUTS IN SHELL SHELLED NUTS

1 lb. = 1 cup nut 1 lb. = 3½ cups nut
ALMONDS
meats meats
1 lb. = 2¼ cups nut 1 lb. = 4 cups nut
PECANS
meats meats
1 lb. = 2 cups nut 1 lb. = 3 cups nut
PEANUTS
meats meats
1 lb. = 2 cups nut 1 lb. = 4 cups nut
WALNUTS
meats meats

= = = =

1 CUP coarsely
finely
WHOLE chopped
broken cut-up chopped
SHELLED minus 1
⅞ CUP
NUTS tbsp.

FINELY
WHOLE PITTED CUT-UP
CUT

1 lb. = 2¼
DATES 2 cups 1¾ cups 1½ cups
cups

PRUNES 1 lb. = 2⅓ 3½ cups 3 cups 2⅞ cups

 cups (cooked) (cooked) (cooked)

1 lb. = 2¾
FIGS —— 2⅔ cups 2½ cups
cups

15-oz. pkg. =
RAISINS —— 2¾ cups 2½ cups
2¾ cups
Some of the sweetest memories of Home are bound up
with Mother’s Cooky Jar. Long after the spicy fragrance of
her ginger cookies baking has faded into the years ... the
thought of that ample cooky jar on the shelf will bring back
vividly the old-time peace ... and comfort ... and security of
Home. Every Home should have a cooky jar!

Hidden Treasures for the

Toddlers
Monkey-Faced Cookies 19
Sugar Cookies 30
Molasses Crinkles 25
Peanut Butter Cookies 40
Brown Sugar Drops 16
Old-Time Cinnamon Jumbles 20
Washboards 25
“Tea-Off” with Cookies (for tea)
Stone Jar Molasses
34
Cookies
31 and
Butter Cookies
43
Lemon Sugar Cookies 30
Chocolate Pinwheels 30
Petticoat Tails 24
New Northland Cookies 23
Dainty Tea Brownies 26
Thumbprint Cookies 41
English Tea Cakes 41
Lemon Snowdrops 41
3-in-1 Jumbles 20
Macaroons 21

For Hungry Home-Comers

Hermits 17
Gingies 34
Busy-Day Nut Drops 16
Snickerdoodles 25
Chocolate Cream Drops 18
Oatmeal Drop Cookies 19
Spiced Prune Drops 17
Wheaties Drop Cookies 17

Lunch Box Surprises (taste-

thrillers all!)
Salted Peanut Cookies 16
Brownies 26
Monkey-Faced Cookies 19
Applesauce Cookies 17
Fig Bars 32
Plantation Fruit Bars 26
Tutti-Frutti Surprises 27
Glazed Orange Jumbles 20
Prune-Orange Bars 29

Put a “Lift” in Simple Desserts

Brazil or Pecan Jumbles 20
Coconut Cream Drops 18
Chocolate Refrigerator
22
Cookies
Orange-Almond Refrigerator
22
Cookies
Butterscotch Cookies with
18
Burnt Butter Icing
Date-Apricot Bars 29

Picnic Stars (under any skies)

Chocolate Cream Drops 18
Oatmeal Refrigerator Cookies 24
Coconut-Lemon Bars 28
Frosted Gingies 34
Fruit-and-Nut Drops 18
Filled Cookies 32
Peanut Macaroons 21
Say “MERRY CHRISTMAS” with
Cookies
Holiday Fruit Cookies 16
Berliner Kranser 42
Poinsettias 32
Zucker Hütchen (“Little Sugar
38
Hats”)
Scotch Shortbread 39
Hazelnut Bars 29
Mandel Kager (“Almond
42
Cookies”)
Lebkuchen 38
Nurnberger 38
Merry Christmas Cookies
37
(Dark and Light)
Spritz 43
Jelly-Meringue-Filbert Bars 28
Almond Wreaths 43
Finska Kakor (“Finnish Cakes”) 39
Sandbakelser (“Sand Tarts”) 39
Almond Crescents 41

Quick Cure for Homesickness

(send plenty to divvy up)
Date-and-Nut Squares 27
Hermits 17
Chocolate Chip Cookies 20
Filled Cookies 32
Date-Apricot Bars 29
Chocolate-Frosted Brownies 26
Ginger Creams 19
His Mother’s Oatmeal Cookies 33
 Fun for the Youngsters (“tricks
or treats” for Hallowe’en)
Animal Cookies 37
Wheaties-Coconut Macaroons 21
Cookies with Faces 31
Decorated Party Cookies
31
(place cards, etc.)
Jewelled Cookies 27
Chocolate Cream Drops 18
Chocolate Pinwheels 30
Gingerbread Boys 34

Bedtime Snacks (for light

refreshment)
Brown Sugar Drops 16
Sugar Jumbles 20
Coffee-and-Spice Drops 17
Ginger Refrigerator Cookies 23
Gold Cookies 25
Honey Peanut Butter Cookies 40
Coconut Jumbles 20
Mincemeat Cookies 17
Date-Oatmeal Cookies 40
 Beau-Catchers (and Husband-
Keepers)
Date-and-Nut Squares 27
Ginger Creams 19
Chocolate-Frosted Brownies 26
His Mother’s Oatmeal Cookies 33
Nut Sugar Cookies 30
Date-Nut Refrigerator Cookies 22
Matrimonial Cake (Date Bars) 29
Chocolate Chip Cookies 20
Toffee-Nut Bars 28

Say It with Cookies (for

birthdays, sick friends, etc.)