Darius N Lakdawalla1, Charles E Phelps2. 1. Quintiles Professor of Pharmaceutical Development and Regulatory Innovation, School of Pharmacy, Price School of Public Policy, Leonard Schaeffer Center for Health Policy and Economics, University of Southern California, Los Angeles, CA, USA; National Bureau of Economic Research, Cambridge, MA, USA. Electronic address: dlakdawa@usc.edu. 2. University Professor and Provost Emeritus, University of Rochester, Rochester, NY, USA.
Abstract
OBJECTIVES: Cost-effectiveness analysis (CEA) embeds an assumption at odds with most economic analysis-that of constant returns to health in the creation of happiness (utility). We aim to reconcile it with the bulk of economic theory. METHODS: We generalize the traditional CEA approach, allow diminishing returns to health, and align CEA with the rest of the health economics literature. RESULTS: This simple change has far-reaching implications for the practice of CEA. First, optimal cost-effectiveness thresholds should systematically rise for more severe diseases and fall for milder ones. We provide formulae for estimating how these thresholds vary with health-related quality of life (QoL) in the sick state. Practitioners can also use our approach to account for treatment outcome uncertainty. Holding average benefits fixed, risk-averse consumers value interventions more when they reduce outcome uncertainty ('insurance value') and/or when they provide a chance at positively skewed outcomes ('value of hope'). Finally, we provide a coherent way to combine improvements in QoL and life expectancy (LE) when people have diminishing returns to QoL. CONCLUSION: This new approach obviates the need for increasingly prevalent and ad hoc exceptions to CEA for end-of-life care, rare disease, and very severe disease (eg, cancer). Our methods also show that the value of improving QoL for disabled people is greater than for comparable non-disabled people, thus resolving an ongoing and mathematically legitimate objection to CEA raised by advocates for disabled people. Our Generalized Risk-Adjusted Cost-Effectiveness (GRACE) approach helps align HTA practice with realistic preferences for health and risk.
OBJECTIVES: Cost-effectiveness analysis (CEA) embeds an assumption at odds with most economic analysis-that of constant returns to health in the creation of happiness (utility). We aim to reconcile it with the bulk of economic theory. METHODS: We generalize the traditional CEA approach, allow diminishing returns to health, and align CEA with the rest of the health economics literature. RESULTS: This simple change has far-reaching implications for the practice of CEA. First, optimal cost-effectiveness thresholds should systematically rise for more severe diseases and fall for milder ones. We provide formulae for estimating how these thresholds vary with health-related quality of life (QoL) in the sick state. Practitioners can also use our approach to account for treatment outcome uncertainty. Holding average benefits fixed, risk-averse consumers value interventions more when they reduce outcome uncertainty ('insurance value') and/or when they provide a chance at positively skewed outcomes ('value of hope'). Finally, we provide a coherent way to combine improvements in QoL and life expectancy (LE) when people have diminishing returns to QoL. CONCLUSION: This new approach obviates the need for increasingly prevalent and ad hoc exceptions to CEA for end-of-life care, rare disease, and very severe disease (eg, cancer). Our methods also show that the value of improving QoL for disabled people is greater than for comparable non-disabled people, thus resolving an ongoing and mathematically legitimate objection to CEA raised by advocates for disabled people. Our Generalized Risk-Adjusted Cost-Effectiveness (GRACE) approach helps align HTA practice with realistic preferences for health and risk.
Authors: Yumi Asukai; Andrew Briggs; Louis P Garrison; Benjamin P Geisler; Peter J Neumann; Daniel A Ollendorf Journal: Pharmacoeconomics Date: 2021-09-24 Impact factor: 4.981
Authors: Maarten J Postma; Declan Noone; Mark H Rozenbaum; John A Carter; Marc F Botteman; Elisabeth Fenwick; Louis P Garrison Journal: Orphanet J Rare Dis Date: 2022-04-05 Impact factor: 4.123