Decision Analysis

Outline
• Economic modelling

• Decision Analysis

• Decision Tree
 Economic Modelling
• What?

• Why?

• How?
 What? Why?
“all models are wrong, but some are useful”

–Models are simplified versions of reality

–As simple/complex as required without losing
credibility
–Allow:
• Comparison of all feasible alternative interventions/strategies

• Exploration of the full range of clinical policies

• Systematic combination of evidence from variety sources

Drummond et al., 2005

 What? Why?
• Combination and extrapolation of data
from:
– Clinical trials (efficacy)
– Epidemiological studies
– Demography
– Health statistics and/or disease registries
– Costing studies
 CE of an intervention
 How?
• Common tools:
– Decision analysis
– Markov modelling
– Life tables analysis
– Discrete events simulations
– Infectious disease models
Etc…
 Model
The outcomes of a model depend on:
•The states included
•The transition probabilities used
•The cycle length
•Values for costs and outcomes

Briggs et al., 2006

 Models cont…
States in a model
•A model is structured around a set of
mutually exclusive and collectively
exhaustive health states.
•Should be reflective of the nature of the
disease and the decision problem at hand
– Values of transition probabilities, costs and
outcomes depend on the type and number of
states in the model
Siebert et al., 2012
 Models cont…
Data Sources for Probability Estimates
•Collected as part of a research protocol (primary data),
•Abstracted or extrapolated from existing published
research (secondary data).
– in decreasing order of preference: well-conducted RCTs;
observational data, including cohort, case-control, and
cross-sectional studies; uncontrolled experiments;
descriptive series; and expert opinion.

Mandelblatt et al., 1997

 Models cont…

Cycle length
•Choice of cycle length should be based on:
– the clinical problem,
– remaining life expectancy, and
– computational efficiency.
• Shorter cycles will always yield more precise
estimates

Siebert et al., 2012

 Models cont…
Values for Costs and Outcomes
• Important questions to raise
– Were the sources of all values clearly identified?
• Possible sources include market values, patient or client preferences
and views, policy makers views and health professionals judgments
– Were market values employed for changes involving resources
gained or depleted?
– Where market values were absent or did not reflect actual
values, were adjustments made to approximate market value?
– Was the valuation of consequences appropriate for the question
posed?

Drummond et al., 2005

 Decision Analysis
• Why?

• What?

• How?
 Decision Analysis – Why?
• Decision making in healthcare
– New interventions often more
efficacious/effective
– But also more expensive
– May have more adverse effects

 Develop framework to quantify the

costs/benefits
 Decision Analysis – What?
• Quantitative approach to decision making under
uncertainty

• explicit structure

• relevant elements of the decision are stated in

the model

• most favorable outcome under given

circumstance can be determined
 Decision Analysis – How?
6 basic steps:
1. State the problem and perspective of decision
maker

2. List alternative courses of action and their

possible consequences

3. Set objectives (e.g. cost, health, utility) to be

optimized
 Decision Analysis – How?
6 basic steps (cont):
4. Modelling the decision:
• Design/develop decision structure
• Specify consequences and probabilities of ‘events’
• Assign values to each final outcome

5. Identify best alternatives

6. Sensitivity analysis
 Decision Tree
• Components

• Evaluation

• Example
 Decision Tree - Anatomy

Event1
Payoff1
Option1

Event2
Payoff2
Decision
Event1
Option2
p1

Event2
p2
Decision
Node Chance
Node Terminal
Node
Probability
Components of a Decision Tree
• Decision node
– point where the decision maker has a choice
of one or more possible courses of action

– E.g. Intervention vs no intervention

– Conventional representation: blue square

Components of a Decision Tree
• Chance node
– Point at which consequences of an option are
defined

– Each chance node is assigned a probability to

represent the likelihood of each event
occurring
Components of a Decision Tree
– Sum of probabilities from each chance node =
1.0

– E.g. Live/die, mild/moderate/severe symptoms

– Represented by green circle

 Components of a Decision Tree
• Terminal Node
– Where consequences of an option are quantified,
expressed as payoffs

– Payoffs are denominated in units of the decision

maker’s objective. E.g. Utility: value ascribed to a
living health state

– Represented by red triangle

 Evaluation
• “Folding back”
– Beginning at the terminal nodes, expected
values are computed for each chance node

– At each decision node, a single action is

chosen that produces the most favorable
outcome; all other actions are eliminated from
consideration
 Evaluation
• Expected (“weighted average”) value of an
option:

 [ pn * payoffn ]
 Example

Stay healthy
0.6 1
No Intervention

Dev disease
0.6
0.4
Decision
Stay healthy
Intervention 1
0.8

Dev disease
0.6
0.2

Utility Value
 Example

Stay healthy
0.6 1
No Intervention

Dev disease
0.6
0.4
Decision

Expected value of “No Intervention”:

[0.6*1] + [0.4*0.6]
= 0.6 + 0.24
= 0.84
 Example
Expected value of “Intervention”:

= 0.92

Decision
Stay healthy
Intervention 1
0.8

Dev disease
0.6
0.2
 Example
• Interpretation:
– Intervention confers net health gain:

0.92-0.84 = 0.08
 Issues
• (Simple) Decision Analysis:
1. Single time frame

1. Does not capture

– recurrent events
– Changes to probabilities and payoffs with
time
 Issues
• Solutions only valid to the extent that:
– the model structure adequately represents the true
process
– values given to parameters are available and
accurate

• Decision models that are clinically complete may

be overly complicated to construct or to interpret
 Issues

• Probability data for certain chance outcomes

may be lacking, e.g. relatively rare events,
clinical outcomes/prob are known but not true
population values

• Does not guarantee good outcomes, simply a

systematic method of making the best decision
using available data
Questions?
 Markov Models
• Components

• Tree Diagram

• Limitations
 Markov Models
• Advantage over decision analysis:
– Multiple events
– Recurrent events
– Evolution of disease risks with time

• Markov Chain
– Sequence of related/interdependent events
 Markov Model
• Features:
1. People exist in mutually exclusive health
states
2. Time represented as discrete intervals:
cycles
3. In each cycle, people make transitions
between health states
4. Movement between transition states
determined by transition probabilities
 Components

Transition probability
Health state 2
p2

 pn = 1
p3 Health state 3
Health state1

p1 p4

Health state 4
E.g. ≥2 cycle Markov model

Heart Disease

Heart Disease
Healthy Cancer
& Cancer

Dead
Cycle 1 onwards
Conditional transition
Cycle 2 onwards
 Markov Models as Tree Diagrams
healthy

healthy
No Intervention disease
M
disease

Decision

Intervention [branches as above]

M

M
Markov node – point at which subjects are assembled
At the beginning of each cycle and channeled into
various health states
 Example: Smoking
Don't quit
Smoker
#
Smoker Quit
Ex-smoker
0.05
Die
Dead
0.03
Relapse
Smoker
Placebo
Ex-smoker
0.10
Don't relapse
Ex-smoker
#
Die
Dead
0.01
Dead

Varenicline

Buproprion
 Limitations
• Health states lack memory
– Transition states dependent only on health state,
and not how subjects arrived at that health state.
– E.g. recurrent vs first-ever stroke (i.e., time-
dependent models
• Transition probabilities change with cycles
– Risks change with age
– Solution: life table analysis
 Uncertainty and
Sensitivity Analysis
Uncertainty in Econ Evaluations
• Heterogeneity
– differences that occur between patients that
can be explained
– NOT a source of uncertainty, but policy
decisions could be different for different
patient cohorts based on heterogeneity
Uncertainty
Uncertainty in Econ Evaluations
• Variability
– differences that occur between patients by
chance (i.e., randomly)
– “First order uncertainty”
Uncertainty in Econ Evaluations
• Uncertainty
• Parameter uncertainty vs structural/model
uncertainty
• Parameter uncertainty is internal to the
model
• Uncertainty around an estimate
• “Second order” uncertainty
• Parameter uncertainty vs variability
• E.g., occurrence of 2 of 40 vs 200 of 4000: variability
unchanged but uncertainty decreased
Uncertainty in Econ Evaluations
• Structural uncertainty is external to the
model
• Uncertainty around the assumptions imposed by
the model framework
Sensitivity analysis (SA)
• Why is it important?

• What is SA?

• How is SA conducted?
SA - Why
• Incorporate uncertainty and heterogeneity
in models

• Many sources of uncertainty

• Event probabilities
• Outcomes of events
• impact of events on QoL
SA - What
• SA is concerned with understanding how
changes in the model inputs influence its
outputs
• SA are conducted to test the robustness of
the results of the model with respect to
input parameters
• Types
• Deterministic SA (DSA)
• Probabilistic SA (PSA)
DSA – What
• Assumes one true vector of economic
parameters, but we know only its
neighbourhood of values
• E.g., discount rates, patient sub-groups, structural
uncertainty
DSA - How
• One-way and multivariate SA
• One parameter or group of related parameters are
varied relative to its base case value, holding the
rest at baseline values

• Tornado diagram
• Compares the relative importance of variables and
ranks them
Tornado diagram - example
Time horizon
Efficacy – Drug A
Direct Medical Cost
PSA - What
• Assumes that the vector of parameters is
stochastic
• Parameter uncertainty
• E.g., treatment effects, costs

• Cost-effectiveness acceptability curve

• CEAC plots the probability that one treatment is more
cost-effective than another, as a function of the
threshold WTP for one additional unit of efficacy
• graphically presents the degree of uncertainty of a
decision
- example

For any
threshold,
there is a
probability for
which the
therapy under
consideration
would be
considered
cost-effective

William S. Weintraub, and David J. Cohen Circ Cardiovasc Qual Outcomes. 2009;2:55-58
Sensitivity analysis - How

• Shows the probability that the option with the

highest net monetary benefit (NMB) is cost
effective for a given monetary threshold for a
QALY

• Thus, the CEAF combines the ‘frontiers’ of the

different CEACs as the WTP threshold changes
- example

• Drug D is optimal
therapy (on
optimality frontier) if
payer is willing to
pay more than
$45,000/QALY

• If payer is willing to
pay less than
$18,000/QALY,
Drug A is optimal.
Thank you!