Economic Analysis and Management
Todd Wagner, PhD

Why Would Managers Care?
CEA is being used to decide about:
adoption of new technology
scope of benefits
strategies for management of care
organization of health care
Management Misperceptions
Only three types of economic analyses exist
Cost identification-what does X cost
Return on Investment
Researcher Misperceptions
Managers do not understand economics

Managers want CEAs

A CEA must reflect a societal perspective and lifetime costs and benefits
Basic Rules
Set the stage: ask questions & listen
Avoid jargon and use the word no liberally
Build in feedback (interim results)
Help the manager: write a good report
Help yourself: publish the results
What is the Study Type?
Cost identification
Cost minimization
Cost consequences
Cost-effectiveness analysis
Cost-benefit analysis
Cost-utility analysis
Other: efficiency, demand
Return on Investment (ROI)
A type cost-benefit analysis
Compares input costs to all monetary outputs
Time frame is often very short (1 or 2 years)
ROI lacks context when talking about health care.
What is the cost?
Do we know the cost?

How precise are our cost estimates?

How do costs vary over time?

What affects the cost?
Is Treatment Effective?
Is there evidence?

How strong is the evidence?

A meta analysis may be necessary (
Is a CEA Warranted?
Net Benefit Model
In many cases, the QALYs are not well known
Two approaches:
A net benefit model (Hoch, 2002, Health Economics); capitalize on effectiveness data
A break even analysis; how many QALYs would be required for the intervention to be more cost-effective than than control at $50,000 per QALY?
Comparison Group
An intervention or treatment can never be cost effective by itself

CEA is always a relative decision
Need at least one comparison group
Treatment X is more cost-effective than Y
Comparison Group (cont.)
Important to identify the important comparison group(s) for managers

Many clinical trials use placebo controls

A CEA with an active comparison may require modeling
Focus on a payer’ s costs/benefits rather than on society’ s costs/benefits

Congress might be interested in Medicare’ s bottom line

Excluding patient costs can be important for LTC, RX and some chronic illnesses (e.g., UI)
Transfer Payments
Welfare and governmental income assistance programs redistribute money.

Transfer payments may be important, although they are not real to society.

Transfer payments are important for governmental agencies.

Always include any administrative fees (usually very small).
Changing Assumptions
Managers might want CEA tailored to their situation
Patient population
Clinical risks
Patient volume and costs
Other Outcomes
Externalities, such as the effect of substance use treatment on crime may be important

Labor force participation and productivity may be particularly important for employers or means tested programs (e.g., Medicaid)
Measurement of Costs
VA or non-VA costs?
Pharmaceuticals in the VA are much less expensive than outside the VA
VA salaries tend to be lower
VA inpatient stays tend to be longer

Which VA cost data: DSS, HERC national or HERC local?
Main vs Secondary Analyses
Wise to conduct an analysis that conforms to the Gold Book, even if this is not the manager’ s desire

A second analysis can focus on the question outlined for management.
Encourages standardization
Prevents misuse of the results in the future
Use of CEA by Management
Q: Is it used?
A: Never as the only piece of information, and sometimes not at all.
Hagen MD, Garber AM, Goldie SJ, et al. Does cost-effectiveness analysis make a difference? Lessons from Pap smears. Symposium. Med Decis Making. Jul-Aug 2001;21(4):307-323.
Too Quickly, Too Little
Managers want the answer immediately, and may not be willing to pay

Retrospective studies often take 6 months or more

The cost and time frame for a prospective study depend on the level of costing and the length of the study (generally 25% of the total budget)
Managers May Not Know
Managers may not know what is wanted (they may be the intermediary)

Ask many questions; the Gold Book can be used to identify key issues
Try to find out what other stakeholders might want to know

Questions on Management Analyses?

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