Cost effectiveness analysis If one treatment is both cheaper and more effective than a second treatment,then the second treatment is said to be dominated by the first. It is never optimal to use a dominated treatment, because there is always a more effective and cheaper alternative available. Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics Cost effectiveness analysis • If one treatment is both cheaper and more effective than a second treatment, then the second treatment is said to be dominated by the first. • It is never optimal to use a dominated treatment, because there is always a more effective and cheaper alternative available
Cost effectiveness analysis If neither treatment is dominant,one treatment must be both more expensive and more effective. In such cases,cost-effectiveness analysis is used to help people decide whether the extra expenditure is worth it. Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics Cost effectiveness analysis • If neither treatment is dominant, one treatment must be both more expensive and more effective. • In such cases, cost-effectiveness analysis is used to help people decide whether the extra expenditure is worth it
Incremental cost-effectiveness ratio (ICER) Consider two treatments for the same disease:A and B.A is both more expensive and more effective than B,so neither treatment dominates the other. The ICER of using A over B is: ICERA,B= CA-CB >0 EA-EB Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics Incremental cost-effectiveness ratio (ICER) • Consider two treatments for the same disease: A and B. A is both more expensive and more effective than B, so neither treatment dominates the other. • The ICER of using A over B is:
Lead poisoning example Which treatment strategy is superior? Table 14.2.Comparison oftwo lead poisoning treatments. Treatment strategy Cost of treatment Prob.of reading disability Conservative treatment $786 35.3% Aggressive treatment $1,778 21.6% Source:Data from Table 1 in Glotzer et al.(1995). Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics Lead poisoning example Which treatment strategy is superior?
Lead poisoning example $1,778-$786 ICER Agg,Cons= =$7,241/reading disability 0.353-0.216 This ICER provides a price for avoiding a reading disability. In some sense,people can avoid a reading disability for an average price of $7,241. Note that the ICER does not make a determination about whether this is worth it or not,it is just an empirical fact about costs. Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics Lead poisoning example This ICER provides a price for avoiding a reading disability. In some sense, people can avoid a reading disability for an average price of $7,241. Note that the ICER does not make a determination about whether this is worth it or not, it is just an empirical fact about costs