User:Roth-Kuhn/sandbox

Incremental cost-effectiveness ratio (ICER): The ICER is used to assess the merit of resource allocation for societal projects (such as healthcare), by calculating the additional cost of extending a particular (health) intervention divided by the additional (health) gain that would result as part of a cost-effective analysis (CEA). CEA]] is presented in the research literature as a methodology to help decision-makers allocate scarce resources. The analytical tool of CEA is the incremental cost-effectiveness ratio (ICER) given by the difference in costs between two health programs divided by the difference in outcomes between the programs. The comparison is typically between a new healthcare program and the existing approach to dealing with the same patient group. As a metric for cost-effectiveness studies, the ICER provides the results in Quality-Adjusted Life Years QALYs gained or lost for use in deciding whether a new program should be adopted or rejected. Individual programs can also be judged in terms of the absolute value of the ICER. Programs with ICERs that lie below a “threshold” ICER, also referred to as the lambda,1 are deemed to be cost effective and should be adopted because the ”price” for producing health improvements implied by the ICER is acceptable.

Quality-Adjusted Life Year (QALY) The Quality-Adjusted Life Year (QALY) is a unit for measuring the health gain of an intervention calculated as the number of years of life saved and adjusted for quality generally applied to the denominator in the ICER2. The quality-adjusted life year (QALY) is a measure of disease burden, including both the quality and the quantity of life lived. It is used in assessing the value for money of a medical intervention. The QALY model requires utility independent, risk neutral, and constant proportional tradeoff behavior. The QALY is often used in cost-utility analysis to calculate the ratio of cost to QALYs saved for a particular health care intervention. This is then used to allocate healthcare resources, with an intervention with a lower cost to QALY saved ratio being preferred over an intervention with a higher ratio. The meaning and usefulness of the QALY is debated, however. The QALY is based on the number of years of life that would be added by the intervention. Each year in perfect health is assigned the value of 1.0 down to a value of 0.0 for death. If the extra years would not be lived in peak health, for example if the patient would lose a limb, or be blind or have to use a wheelchair, then the extra life-years are downgraded to a value less than 1 (but above 0) to account for this. The QALY is a measure of the value of health outcomes. Since health is a function of length of life and quality of life, the QALY was developed as an attempt to combine the value of these attributes into a single index number. The basic idea underlying the QALY is simple: it assumes that a year of life lived in perfect health is worth 1 QALY (1 Year of Life × 1 Utility value = 1 QALY) and that a year of life lived in a state of less than this perfect health is worth less than 1. In order to determine the exact QALY value, it is sufficient to multiply the utility value associated with a given state of health by the years lived in that state. QALYs are therefore expressed in terms of "years lived in perfect health": half a year lived in perfect health is equivalent to 0.5 QALYs (0.5 years × 1 Utility), the same as 1 year of life lived in a situation with utility 0.5 (e.g. bedridden) (1 year × 0.5 Utility). QALYs can then be incorporated with medical costs to arrive at a final common denominator of cost/QALY. This parameter can be used to develop a cost-effectiveness analysis of any treatment.2

Incremental cost effectiveness ratio (ICER) use in Business or Interventions An incremental cost effectiveness ratio (ICER) is an economic measurement used to study business or therapeutic interventional alternatives which have both separate costs and separate outcomes.3 Doing this requires taking the difference between the two costs and dividing it by the difference in the two outcomes, thereby showing how much an alternative will cost to effect one unit of difference in the eventual outcome. Most commonly, an incremental cost effectiveness ratio, or ICER, is used to decide between alternative treatments in the medical field. Although it is difficult to measure the outcome of medical procedures in terms of tangible results to plug into the equation, medical economic professionals have methods to determine ICERs with some degree of accuracy.4 Cost-effectiveness analysis helps identify ways to redirect resources to achieve more. It demonstrates not only the utility of allocating resources from ineffective to effective interventions, but also the utility of allocating resources from less to more cost-effective interventions.  Cost-effectiveness Plane or Matrix Thresholds The cost-effectiveness plane or matrix graphically depicts ICER-based merit of assessed projects plotted into four quadrants (increased cost/decreased benefit, increased cost/increased benefit, decreased cost/decreased benefit, and decreased cost/increased benefit). This graphical depiction thus stratifies the meaning of the ICER into four meaningful outcomes.5  Furthermore, circumstances in which cost and effectiveness are equally lowered or increased yielding identical ICER values are mapped according to cost and effectiveness coordinates, providing the basis for the ICER numeric value. Points in this Bayesian coordinate scheme are plotted along the x-axis according to the value 1-0 where 1 is the experimental effectiveness and 0 is the control effectiveness—or difference in effectiveness.6  Points are plotted along the y-axis 1-0 where 1 is the experimental cost and 0 is the control cost—or difference in cost. The result is a logical framework in which each quadrant represents an experimental outcome compared with the mean. Quadrants are numbered I-IV (see figure 1) and each connotes a different cost/effectiveness outcome with respect to the control. New interventions typically plot into in quadrant I with higher cost and effectiveness compared with established treatments. Experimental treatments in quadrant II cost more and decrease effectiveness compared with the control, while treatments in quadrant III decrease both cost and effectiveness and treatments in quadrant IV decrease cost and increase effectiveness.

This system has obvious benefits when the potential for ambiguity in ICER is considered. For example, if an experimental treatment increases costs by 10 units and effectiveness by 5 units—plotting into quadrant I—and another treatment decreases costs by 10 units and decreases effectiveness by 5 units—plotting into quadrant III—the ICER is 2 for both treatments, despite their contradictory attributes. While this tetralogical framework simplifies the significance of the ICER, there is proportional significance to the points within the Cartesian system. For example, lower ICER values in quadrant I denote greater benefit per unit cost, approaching quadrant IV spatially and in terms of value. Likewise, higher ICER values in quadrant III approach quadrant IV and boast greater savings per unit of effectiveness sacrificed.

Figure 1. ICER Bayesian Tetralogical Matrix Government Use of the ICER and CEA The ICER is employed in government committees to estimate societal value of proposed projects (such as the National Institute for Health and Clinical Excellence (NICE) in the United Kingdom (UK): the extra-welfarist approach. Many nations rely on cost effectiveness to allocate public funds for health services and products.  Most notably, in the UK, the NICE applies decision rules to ICERs in judging the economic merit of new technological innovations.  Empirical analysis suggests that NICE sets a threshold cost per quality adjusted life year gained in the £20,000-£30,000 range.7   However, formal ICER thresholding is denied by NICE officials, although it is clearly considered in their analysis of treatment benefit.

While discrete ICER thresholds are generally avoided because of the political distastefulness, ICER values clearly impact decision-making. For example, NICE findings generally correlate with ICER values. In other words, accepted therapies tend to have lower ICER values. NICE-accepted treatments include: smoking cessation (ICER £430), asthma inhalers (ICER £5000) and first-line non-small cell lung cancer treatment (ICER £9475). Sample rejected treatments include: advanced colorectal cancer treatment (ICER £29,000), laparoscopic hernia repair (ICER £50,000) and beta interferon (ICER £187,000).8

While it is instructive to consider the impact of ICER’s in setting healthcare policy, other issues factor into the decision-making process. For example, other factors considered by NICE include: the uncertainty of cost effectiveness, the net cost to the National Health Service (NHS), the burden of disease, the availability of other treatments and others.

'The Patient Protections and Affordable Care Act (PPACA)' The Patient Centered Outcomes Research Institute (PCORI) was established to conduct comparative effectiveness research but the PPACA prohibits it from using cost per QALY ICER thresholding9 (the US is characteristically welfarist in its attitude). The PPACA states:

The Patient-Centered Outcomes Research Institute…shall not develop or employ a dollars per quality adjusted life year (or similar measure that discounts the value of a life because of an individual’s disability) as a threshold to establish what type of health care is cost effective or recommended.10

Indeed, PCORI Executive Director, Joe Selby said, “You can take it to the bank that PCORI will never do a cost-effectiveness analysis.”11  Whereas other nations refer to human metrics, such as QALYs, in assessing the merit and financial viability of embracing new healthcare technology and innovations (extra-welfarist), the U.S. typically avoids this stance (welfarist). However, while the notion of setting specific thresholds is prohibited, incorporating ICER into the decision-making process has not been expressly banned by the PPACA. Fears surrounding the potential for discrimination based on age and disability—as the wording of the PPACA attests—form the basis of the aversion to relying on ICER and cost effectiveness. The use of ICER favoring the young and healthy conjures images of “death panels” and “big government” stirring fear and mistrust in the minds of independently-minded Americans.

CEA (extra welfarist) versus CBA (welfarist) Implementation of the ICER and CEA meets resistance and sparks controversy and debate between proponents of the welfarist viewpoint and their extra-welfarist counterparts. Welfarism upholds the notion that utility-driven individuals are the best suited to promoted their own welfare, which follows the Pareto paradigm that if one individual improves his/her station with none adversely affected, welfare is globally enhanced.12  As such, welfarists view healthcare output as the extent to which overall welfare is augmented—the sum of all individual utilities. In this scheme, welfare is measured in terms of individual preferences for health outcomes including, and other than, health.

In contrast, the extra-welfarists (sometimes called non-welfarists) targets health, rather than welfare and the sum of utilities, as their goal. Extra-welfarists negate individual differences in adaptation or expectation related to coping with disease.13  They assume that healthcare inputs equally benefit all individuals, in contradistinction to the welfarist perspective. This viewpoint eliminates the individual freedom to decide to pursue or eschew healthcare inputs based on unique, individual attributes upon which welfarism is based.14

The controversy flares when the issue of investigating healthcare interventions arises. Generic utility analysis studies conform to the cost benefit analysis (CBA) model whereby all costs and outcomes are monetized (converted to economic terms). However, the notion of converting health into economic terms is widely repugnant and difficult to implement on a wide scale basis. Cost effectiveness analysis (CEA) substitutes monetary figures with health equivalents, eliminating the dehumanizing element of equating health with economic metrics.

QALYs replaces economic measures in CEA. As previously discussed, QALY is an estimate of the life value of dollars spent on medical interventions. While this ostensibly offends the welfarist perspective because of the philosophical attachment to the individual primacy in determining utility, practically and politically, two major groups most vocally reject this approach in the U.S. On the one had, opposition arises from stakeholders with an interest in squelching CEA studies—pharmaceutical and medical device firms and procedurally-oriented physicians who benefit from unchecked utilization. On the other hand, opposition arises from the conscientious objectors who firmly believe that human life is fundamentally not interchangeable with economic metrics. These arguments prevailed in the recent debate over comparative effectiveness research (CER) in healthcare reform. “Cost” has been eradicated from CER either because of these political objections and/or because of the fundamental welfarist posture of the electorate. Meanwhile, many other nations have embraced the extra-welfarists approach, acknowledging that health eludes the standard notion of utility and transcends income and social norms.

Accordingly, committees established in other countries, such as the NICE, examine the cost effectiveness of treatments in determining the merit of offering them to the public. Whereas this approach works in the extra-welfarist climate, in the welfarist U.S. climate, this kind of governmental oversight involving equating human quality-of-life metrics with dollars is viewed with cynicism and suspicion and has been equated with “death panels.” Therefore, CER has been limited to comparative effectiveness limited to medical efficacy comparison without the semblance of human-to-economic value conversion that CEA invokes.

Value Based Purchasing and ICERs Value Base Purchasing and Incremental Cost Effective Analysis - The sound  of  value-based  approaches  to  the  issues  of  reimbursement  or pricing  has  been  often  heard  across  western  countries. Among them are the patient  access  scheme  in  the  Pharmaceutical  Price  Regulation Scheme (PPRS) reform in the UK, the ceiling price estimation using efficiency frontier in Institut fuer Qualitaet und Wirtschaftlichkeit im Gesundheitswesen (IQWiG) in Germany, and performance-based coverage in Centers for Medicate  and  Medicaid  Services  (CMS)  in the  United  States.15  Over  the  next  few years,  it  is  expected  that  Asia  will  follow  the  western  countries  and  seek  a solution for value-based approaches to satisfy their own requirements. In the process of developing the policy, of course, pharmacoeconomics may have great potential to contribute to the debates in Asian nations. In Japan, once the price of a new drug is determined by the government in Japan, the new drug is also approved to be added to the National List for reimbursement. Since a constant reimbursement rate of 70% is applied automatically for all drugs after being listed on the National List, there is no room to discuss the issue of reimbursement rates after approval. Hence, value-based approaches to pricing and reimbursement for new drugs in Japan have been historically focused on how to improve the pricing equations made by the government. It has been argued that stratified cost-effectiveness analysis has a key role in reimbursement decision-making and value-based pricing (VBP). It has previously been shown that when manufacturers are price-takers, reimbursement decisions made in reference to stratified cost-effectiveness analysis lead to a more efficient allocation of resources than decisions based on whole-population cost-effectiveness analysis.16 The analysis of cost-effectiveness by subgroup provides the demand curve for the NHS and the price structure that can be used in VBP negotiations and maintained that this use of stratified cost-effectiveness analyses is essential if the NHS is to benefit from innovation in the short term. Reimbursement based on stratified, rather than whole-population, cost-effectiveness analysis has indeed been shown to lead to a more efficient use of healthcare when prices are fixed. Reimbursement or VBP processes that allow for negotiation regarding trade-offs between price and coverage may lead to improved outcomes, both for health-care systems and manufacturers, compared with processes where coverage is determined based on a stratified cost effectiveness at a given price.16

1Gafni, A. & Birch, S. (2006). Incremental Cost-Effectiveness Ratios (ICERs): The Silence of the Lambda). Social Science & Medicine, 62(9), 2091-2100 2Quality-adjusted life year.  (n.d.).  Retrieved March 25, 2012 from Wikipedia:              http://en.wikipedia.org/wiki/Quality-adjusted_life_year 3What is the cost effectiveness ratio?  Retrieved from:              http://www.wisegeek.com/what-is-the-incremental-cost-effectiveness-ratio.htm 4Jamison, D., et al. (2006) Disease Control Priorities: Priorities in Health.  Washington, DC 5Cook, R. & Heyse, J.F.  (2000).  Use of an Angular Transformation for Ratio Estimation in Cost- Effectiveness Analysis.  Statistics in Medicine, 19, 2989-3003. 6Heitjan, D.F., Moskowitz, A.J., & Whang, W. (1999).  Bayesian Estimation of Cost-Effectiveness Ratios from Clinical Trials.  Health Economics, 8, 191-201. 7McCabe, C., Claxton, K., & Culyer, A.J.  The NICE Cost-Effectiveness Threshold: What it is and What it Means.  Pharmacoeconomics, 26(9), 733-744. 8Devlin, N. & Parkin, D. (2004). Does NICE Have a Cost-Effectiveness Threshold and What Other Factors Influence its Decisions? A Binary Choice Analysis. Health Economics, 13, 437-452. 9Neumann, P.J. & Weinstein, M.C. (2010). Legislating Against Use of Cost-Effectiveness Information. New England Journal of Medicine, 363, 1495-1497. 10Patient Protection and Affordable Care Act. (2010). PL, 111-148. 11Wilkerson, J. (September 28, 2011). PCORI Head Vows Not to do Cost-Effectiveness Studies, But Notes Gray Areas. Retrieved from insidehealthpolicy.com/Inside-Health-General/Public- Content/pcori-head-vows-not-to-do-cost-effectiveness-studies-but-notes-gray-areas/menu-id-869.html 12Brouwer, W.B.F, Culyer, A.J., van Exel, N.J.A, & Rutten, F.F.H. (2008). Welfarism Versus Extra- Welfarism. Journal of Health Economics, 27(2), 325-338. 13Gyrd-Hansen, D. (2005). Willingness to Pay for a QALY. Pharmacoeconomics, 23(5), 423-432. 14Coast, J., Smith, R.D., & Lorgelly, P. (2008). Welfarism, Extra-Welfarism and Capability: The Spread of Ideas in Health Economics. Social Science & Medicine, 67(7), 1190-1998.) 15Kamae, I. & Kobayashi, M.  (October 2010).  Value-Based Pricing and the Principle of the Incremental  Cost-Effectiveness Ratio: The Case and Potential in Japan.  Retrieved from:  https://www.ispor.org/news/articles/October2010/Value-Based-Pricing-Principle-Incremental-Cost-Effectiveness-Ratio.asp 16Hawkins, N. & Scott, D.A.  (2011). Reimbursement and Value-Based Pricing: Stratified Cost- Effectiveness  Analysis May Not Be the Last Word.  Health Economics, 20, 688-698.