Cost-utility analysis

The nineteenth-century political theorist Jeremy Bentham first discussed utility theory and utility s c a l e s ^ B e n t h a m stated that if an individual prefers situation A to situation B, the individual must place a higher value (or utility) on situation A than B. Utility scales are similar to ordinal ranking systems in that the utility placed on a situation or object simply records relative rather than absolute levels o f desirability.

In more recent times, utility theory has been developed in accordance with the von Neumann & M orgenstem normative theory o f decision making under uncertainty in order to overcome some o f the limitations posed by CEAs^^"^. Cost-utility analysis

(CUAs), as this form o f evaluation is known, combines evidence on mortality with evidence on morbidity in order to express health outcomes in terms o f a single utility

an individual valued their current health at 0.8, a year spent in this health state has been valued equivalently to 0.8 o f a year in perfect health.

In addition to including issues o f HR-QoL, the advantage o f this utility-based approach is that using a common measure o f health outcome allows for comparisons o f cost- effectiveness across different clinical settings. Results from CUAs can also be used to inform the resource allocation o f a fixed budget through the principle o f QALY maximisation and through the use o f QALY league tables, although the use o f these league tables is controversial*^^.

QALYs are calculated by assigning individuals to "health states' using either a specially custom ised HR-QoL questionnaire or a generic HR-QoL questionnaire such as the EuroQol*^^ (EQ-5D) or the Disability / Distress m a t r i x A set o f weights (utilities) is then required with which to value each individual health state; the result being the total num ber o f QALYs.

The advantage o f using a generic HR-QoL questionnaire to calculate QALYs is that health states can be valued using pre-calculated utility values that have been derived from the general population. The disadvantage o f this approach is, however, that generic questionnaires may not be sensitive to all clinical events, as they have been designed to be used in a number o f different clinical settings. A customised questionnaire that contains disease-specific health states is likely to be more sensitive. However, the analyst will also need to ask patients a number o f questions based on standard gamble techniques or allied scaling methods* to generate a set o f utilities; this can often be extremely time consuming.

3,1.1.4 Cost-benefit analysis

Pareto’s definition o f an efficient allocation o f resources is a situation where no one person could be made better o ff without making a different person worse off. To achieve Pareto efficiency, a necessary precondition is that the allocation o f resources is

economically efficient. That is, that the economy under scrutiny is producing on its production possibility frontier (PPF). This is because if production was inside the PPF, one person could feasibly be made better o ff without making someone else worse off. Further criteria for Pareto efficiency are that no more resources than necessary are used

goods that society values most highly {allocative efficiency). For example, an economy producing all left shoes on its PPF would not be allocatively efficient because clearly a Pareto improvement could be found that would benefit everyone. CBAs address issues o f Pareto efficiency because they seek to address all three notions o f efficiency and include all social and private costs o f benefits whom so ever they may apply to. However, in the absence o f robust effectiveness data, CEAs only address issues o f technical and economic efficiency because they do not attempt to value resource allocations. CUAs, on the other hand, only address issues o f economic and allocative efficiency because they do not indicate whether minimal resources are being used to produce the output o f interest.

The distinguishing feature o f a CBA is that health outcomes are expressed in monetary terms, rather than physical units such as disease free days or QALYs. Because a monetary value is placed on benefits, CBAs do not necessarily need to include a comparative programme. Results for treatment A can, therefore, be expressed as net benefits using the formula:

Net benefitA (£) = BenefitA (£) - CostA (£)

CBAs are often viewed as the theoretically most complete form o f economic evaluation as they are the only form o f evaluation to incorporate non-health related benefits such as the effects o f an intervention that spill over to other people (externalities). However, CBAs are rarely used to evaluate health care technologies because o f the ethical concerns o f placing a monetary value on human life and because o f methodological concerns over the methods used to assign such values

One method o f quantifying non-marketed benefits for use in a CBA is to use

disagreement as to whether scenarios should include certain or uncertain health outcomes.

3.1.2 Costs

Costs are the product o f the quantity o f resources used multiplied by their value or unit cost. Drum mond’ identifies health care, patient / fam ily and other sectors as the three categories o f cost. Health care costs consist o f the costs o f organising and operating a health care programme including the costs o f dealing with adverse clinical events.

Patient / fa m ily costs include those ‘out-of-pocket’ costs incurred as a direct result o f the decision to undergo some form o f health care; this includes the value o f the patients and their families’ time (these are sometimes referred to as indirect costs). Other sector

costs incorporate those resources consumed by other public agencies or the voluntary sector.

Costs are either fix e d or variable. Costs that do not vary with quantity o f output in the short-term (approximately within one year) are fix e d costs, for example rent, equipment leases and some staff wages. Costs such as drugs and bed days that vary according to the level o f output are examples o f variable costs.