Strategic Solutions, Inc.

There are several different types of cost-effectiveness studies. The most basic is the cost minimization analysis. Let’s suppose you have a disease and there are two treatments available that appear to be equally effective. By determining all the costs involved in the treatment we find that one treatment costs $1,200 and the other $3,500. Obviously it makes sense to choose the former treatment, but for a variety of reasons that doesn’t always happen in medicine. 

The next type is the cost-benefit analysis. Here we look at costs per outcome. For example, we might look at the costs of antibiotics used to treat a specific disease that causes a mortality rate of 35% and investigate the mortality rate when using it, average time taken to cure the disease, adverse events that occur when taking the antibiotic, or all of these outcomes. 

The most common methodology used, however, is the cost-effectiveness study. In this methodology we typically utilize a unit called the QALY, which stands for “quality adjusted life years”). If mortality is involved in the study, we use a unit called the DALY (”disability adjusted life years), which includes mortality rate data. This latter unit is a lot more complicated to calculate, but a similar set of principles are involved. 

It works like this: we first define a utility scale from 0 to 1 in which 1 represents perfect health, and 0 death. For example, if you have diabetes, your utility value will be around 0.84. We use many different techniques to arrive at utility (health state) values, and there is still much debate about which technique is appropriate for different diseases. Many use instruments or scales; other use approaches called the standard gamble, or the time trade-off. 

If you undergo a treatment or intervention that improves your health state (utility value) then your value will increase. We then multiply the difference between the health state by the number of years over which the benefit will endure, or your remaining life span–whichever is the smaller. 

Example: 

Health state before treatment: 0.75 Health state after treatment: 0.88 

Number of years benefit expected to last: 34 Number of QALYS = (0.88 - 0.75) x 34 = 4.42. 

Now we factor in the costs. Let’s look at the following table, which also shows costs for 3 different treatments for the same disease. 

Treatment Z is the least cost-effective, despite providing a slightly higher quality of life. Treatment X and Y are similar, with a similar cost-effectiveness. Since we often use a yardstick of $50,000 (Heudebert et al; Smith & Brown) or even $100,000/QALY (Laupacis et al) as a cost-effective treatment, all three treatments are relatively cost-effective. However, treatment X would be the treatment of choice. In real life, there are often other factors, such as the incidence of adverse events to consider, but this example shows how to rank treatments. 

Many cost-effectiveness studies have been published for interventions or treatments for a wide variety of diseases, but to cover the entire area of medicine, we have a long way to go. The research that goes into cost-effectiveness studies is not trivial: first one must determine exact and detailed costs, and second, the outcome data must be based upon solid scientific evidence-based medicine. 

If a treatment costs more than $100,000 per QALY, does that mean we should not do it? This is a societal question. Treatments that are more than $1000,000/QALY can be supported if there is money to carry out the treatment. However, as the cost-effectiveness of a treatment–say, $2,000,000/QALY–increases, the law of diminishing returns comes into play, and at some point, such treatment will be beyond society to pay for it. 

How much could a health care system save if we rigorously applied cost-effectiveness studies to medicine? This is a worthwhile question to ask because we don’t know the answer. My guess is probably that it’s in the tens of billions of dollars annually.