Applied Methods of Cost–Benefit Analysis in Health Care Handbooks in Health Economic Evaluation Series Series editors: Alastair M Gray and Andrew Briggs Decision Modelling for Health Economic Evaluation Andrew Briggs, Mark Sculpher, and Karl Claxton Economic Evaluation in Clinical Trials Henry A Glick, Jalpa A Doshi, Seema S Sonnad, and Daniel Polsky Applied Methods of Cost–Benefit Analysis in Health Care Emma McIntosh, Philip M Clarke, Emma J Frew, and Jordan J Louviere Applied Methods of Cost-Effectiveness Analysis in Health Care Alastair M Gray, Philip M Clarke, Jane Wolstenholme, and Sarah Wordsworth Applied Methods of Cost–Benefit Analysis in Health Care Edited by Emma McIntosh Philip M Clarke Emma J Frew Jordan J Louviere 1 Great Clarendon Street, Oxford ox2 6dp Oxford University Press is a department of the University of Oxford It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide in Oxford New York Auckland Cape Town Dar es Salaam Hong Kong Karachi Kuala Lumpur Madrid Melbourne Mexico City Nairobi New Delhi Shanghai Taipei Toronto With offices in Argentina Austria Brazil Chile Czech Republic France Greece Guatemala Hungary Italy Japan Poland Portugal Singapore South Korea Switzerland Thailand Turkey Ukraine Vietnam Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries Published in the United States by Oxford University Press Inc., New York © Oxford University Press 2010 Chapter 12 © Wolters Kluwer Health | Adis The moral rights of the author have been asserted Database right Oxford University Press (maker) First published 2010 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, or under terms agreed with the appropriate reprographics rights organization Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this book in any other binding or cover and you must impose this same condition on any acquirer British Library Cataloguing in Publication Data Data available Library of Congress Cataloging in Publication Data Data available Typeset by Glyph International, Bangalore, India Printed in Great Britain on acid-free paper by The MPG Books Group, Bodmin and King’s Lynn ISBN 978–0–19–923712–8 10 Oxford University Press makes no representation, express or implied, that the drug dosages in this book are correct Readers must therefore always check the product information and clinical procedures with the most up-to-date published product information and data sheets provided by the manufacturers and the most recent codes of conduct and safety regulations The authors and the publishers not accept responsibility or legal liability for any errors in the text or for the misuse or misapplication of material in this work Except where otherwise stated, drug dosages and recommendations are for the non-pregnant adult who is not breastfeeding Series Preface Economic evaluation in health care is a thriving international activity that is increasingly used to allocate scarce health resources, and within which applied and methodological research, teaching, and publication are flourishing Several widely respected texts are already well established in the market, so what is the rationale for not just one more book, but for a series? We believe that the books in the series Handbooks in Health Economic Evaluation share a strong distinguishing feature, which is to cover as much as possible of this broad field with a much stronger practical flavour than existing texts, using plenty of illustrative material and worked examples We hope that readers will use this series not only for authoritative views on the current practice of economic evaluation and likely future developments, but also for practical and detailed guidance on how to undertake an analysis The books in the series are textbooks, but first and foremost they are handbooks Our conviction that there is a place for the series has been nurtured by the continuing success of two short courses that we helped develop – ‘Advanced Methods of CostEffectiveness Analysis’ and ‘Advanced Modelling Methods for Economic Evaluation.’ Advanced Methods was developed in Oxford in 1999 and has run several times a year ever since, in Oxford, Canberra, and Hong Kong Advanced Modelling was developed in York and Oxford in 2002 and has also run several times a year ever since, in Oxford, York, Glasgow, and Toronto Both courses were explicitly designed to provide a computer-based teaching that would take participants not only through the theory but also the methods and practical steps required to undertake a robust economic evaluation or construct a decision-analytic model to current standards The proof-of-concept was the strong international demand for the courses – from academic researchers, government agencies, and the pharmaceutical industry – and the very positive feedback on their practical orientation So the original concept of the Handbooks series, as well as many of the specific ideas and illustrative material, can be traced to these courses The Advanced Modelling course is in the phenotype of the first book in the series, Decision Modelling for Health Economic Evaluation, which focuses on the role and methods of decision analysis in economic evaluation The Advanced Methods course has been an equally important influence on Applied Methods of Cost-Effectiveness Analysis, the fourth book in the series which sets out the key elements of analysing costs and outcomes, calculating cost-effectiveness, and reporting results The concept was then extended to cover several other important topic areas First, the design, conduct, and analysis of economic evaluations alongside clinical trials have become a specialized area of activity with distinctive methodological and practical issues, and its own debates and controversies It seemed worthy of a dedicated volume, hence the second book in the series, Economic Evaluation in Clinical Trials Next, while the use of cost–benefit analysis in health care vi SERIES PREFACE has spawned a substantial literature, this is mostly theoretical, polemical, or focused on specific issues such as willingness to pay In 2003 we ran a course entitled ‘An Introduction to Stated Preference Discrete Choice Modelling in Health Care’ in collaboration with Professor Jordan Louviere (CenSoC) Much of the material in this course focused on the valuation of benefits using stated preference discrete choice modelling, including the estimation of willingness to pay for use in cost–benefit analysis The new material on discrete choice methods from this course along with existing work in the area of cost–benefit analysis from the authors provides the backbone for this third book in the series We believe the third book in the series, Applied Methods of Cost–Benefit Analysis in Health Care, fills an important gap in the literature by providing not only a comprehensive guide to the theory but also the practical conduct of cost–benefit analysis, again with copious illustrative material and worked out examples This book provides up-to-date practical guidance on using alternative methods of benefit assessment techniques such as stated preference discrete choice experiments within cost–benefit analysis Each book in the series is an integrated text prepared by several contributing authors, widely drawn from academic centres in the UK, the United States, Australia, and elsewhere Part of our role as editors has been to foster a consistent style, but not to try to impose any particular line: that would have been unwelcome and also unwise amidst the diversity of an evolving field News and information about the series, as well as supplementary material for each book, can be found at the series website: http://www herc.ox.ac.uk/books Alastair Gray Oxford July 2006 Andrew Briggs Glasgow Web resources In addition to worked examples in the text, readers of this book can download datasets, spreadsheets, formulas, and programs used in the relevant chapters Materials for this book are maintained at the following web address: http://www.herc.ox.ac.uk/books/cba More information is available at the website We anticipate that the web-based material will be expanded and updated over time This page intentionally left blank Acknowledgements I first became interested in cost–benefit analysis (CBA) in 1995 while working at the Health Economics Research Centre (HERU) at the University of Aberdeen The health economic training obtained in those early days working with colleagues at HERU including Professor John Cairns, Professor Cam Donaldson, and Professor Mandy Ryan was enormously valuable and heavily influenced my areas of academic interest These areas of interest continue today albeit diversified to accommodate for the increasing practical requirements of working in applied economic evaluation My early interest in the use of stated preference discrete choice experiments (SPDCEs) in health economics also began at HERU and was inspired by the sound theoretical basis of the approach and the opportunities for the testing of economic axioms within health care This interest was further developed by the intellectual generosity of Professor Jordan Louviere (Censoc, Sydney) and Professor Vic Adamowicz (University of Alberta) – both of whom have been hugely inspirational Chapters 5, 10, 11, and 12 represent the development of such methods in health care Working with Professor Alastair Gray and Dr Philip M Clarke at the Health Economics Research Centre (HERC) for the last ten years along with other HERC colleagues has further fuelled a more applied interest in CBA in health care This has arisen through working in the development of stated preference techniques and applied methods of economic evaluation I am hugely indebted to Professor Gray for his support and encouragement in all aspects of my work Indeed, the work in Chapter 8, arguably one of the first identifiable CBAs in health care, arose from working with Professor Alastair Gray and clinical colleagues Professor Norbert Boos and Dr Mathias Haefeli in Switzerland and proved to be a most enjoyable collaboration Working with Professor Tipu Aziz in Neurosurgery has also provided valuable opportunities to explore the strength of the CBA approach in health care Indeed early work with the MRC hernia trials group arguably started this process Dr Philip M Clarke’s novel work on the travel cost approach in Chapter is an excellent example both in its theoretical grounding and the execution of the approach in health care Chapters and produced by Dr Emma J Frew provide a much overdue and valuable insight to the practical side of developing willingness to pay surveys in health care I am grateful to Professor Andy Briggs for his editorial contribution to this book, particularly his assistance with appropriate methods of uncertainty in Chapter 12 Finally, the support of my family, my husband Jeremy, and my three wonderful children, Angus, Archie, and Rebecca are acknowledged Emma McIntosh, PhD Oxford, March 2010 REFERENCES 37 Kleinman, L., McIntosh, E., Ryan, M., Schmier, J., Crawley, J., Locke, G.R., et al 2002 Willingness to pay for complete symptom relief of gastroesophogeal reflux disease Archives of Internal Medicine 162: 1361–1366 38 Ryan, M., McIntosh, E., Dean,T., and Old, P 2000 Trade-offs between location and waiting time in the provision of elective surgery Journal of Public Health Medicine 22(2): 202–210 39 McIntosh, E 2003 Using discrete choice experiments to value the benefits of health care PhD Thesis University of Aberdeen 40 Briggs, A.H., and O’Brien, B.J 2001 The death of cost minimization analysis? Health Economics 10: 179–184 41 Briggs, A.H., and Fenn, P 1998 Confidence intervals or surfaces? Uncertainty on the cost-effectiveness plane Health Economics 7: 723–740 42 Fenwick, E., O’Brien, B.J., and Briggs, A.H 2004 Cost-effectiveness Acceptability Curves - facts, fallacies and frequently asked questions Health Economics 13: 405–415 43 Donaldson, C., Currie, G., and Mitton, C 2002 Cost effectiveness analysis in health care: contradictions British Medical Journal 325(891): 894 44 Briggs, A., and Fenn, P 1998 Confidence intervals or surfaces? Uncertainty on the cost-effectiveness plane Health Economics 7: 723–740 45 Louviere, J., Burgess, L., Street, D., and Marley, A 2004 Modeling the choices of single individuals by combining efficient choice experiment designs with extra preference information Sydney: University of Technology, Sydney; Report No.: Centre for the Study of Choice (CenSoC) Working Paper No 04-005 46 Stinnett, A.A., and Mullahy, J 1998 Net health benefits: a new framework for the analysis of uncertainty in cost-effectiveness analysis Medical Decision Making 18: S65–S80 47 Polsky, D., Glick, H., Willke, R., and Schulman, K 1997 Confidence intervals for cost-effectivenss ratios: A comparison of four methods Health Economics 6: 243–252 48 Risa Hole, A.A 2007 A comparison of approaches to estimating confidence intervals for willingness to pay measures Health Economics 16: 827–840 49 Fieller, E.C 1954 Some problems on interval estimation with discussion Journal of the Royal Statistical Society 16: 175–188 50 Kennedy, P 1995 A guide to econometrics 3rd ed Oxford: Blackwell 51 Efron, B 1979 Bootstrap methods: Another look at the jackknife Annals of Statistics 7: 1–26 52 McIntosh, E., and Ryan, M 2002 Using discrete choice experiments to derive welfare estimates for the provision of elective surgery: implications of discontinuous preferences Journal of Economic Psychology 23(3): 367–382 53 Claxton, K., Sculpher, M.J., McCabe, C., Briggs, A., Akehurst, R., Buxton, M., et al 2005 Probabilistic sensitivity analysis for NICE technology assessment: not an optional extra Health Economics 14: 339–347 54 Petrou, S., Trinder, J., Brocklehurst, P., and Smith, L 2006 Economic evaluation of alternative management methods of first-trimester miscarriage based on results from the MIST Trial British Journal of Obstetrics and Gynaecology 113(8): 879–889 55 Petrou, S., and McIntosh, E 2009 Women’s preferences for attributes of first-trimester miscarriage management: A stated preference discrete-choice experiment Value in Health 12(4): 551–559 56 Bryan, S., Buxton, M., Sheldon, R., and Grant, A 1998 Magnetic resonance imaging for the investigation of knee injuries: an investigation of preferences Health Economics 7: 595–604 253 254 A PRACTICAL GUIDE TO REPORTING AND PRESENTING STATED PREFERENCE DISCRETE CHOICE 57 Johnson, F.R., Banzhaf, M.R., and Desvousges, W.H 2000 Willingness to pay for improved respiratory and cardiovascular health: a multiple format stated-preference approach Health Economics 9: 295–317 58 Johnson, F.R., Desvousges, W.H., Ruby, M., Stieb, D., and De Civita, P 1998 Eliciting stated health preferences: an application to wilingness to pay for longevity Medical Decision Making 18: s57–s67 59 Magat, W.A., Viscusi, W.K., and Huber, J 1998 Paired comparison and contingent valuation approaches to morbidity risk valuation Journal of Environmental Economics and Management 15: 395–411 60 van der Pol, M., and Cairns, J 1998 Establishing patient preferences for blood transfusion support: an application of conjoint analysis Journal of Health Services Research Policy 19983: 70–76 61 Szeinbach, S.L., Barnes, J.H., McGhan, W.F., Murawski, M.M., and Corey, R 1998 Using maximum difference conjoint and visual analogue scaling to measure patients utility for a particular health state Journal of Research in Pharmaceutical Economics 9(3): 83–100 62 Freeman, J.K., Szeinbach, S.L., Barnes, J.H., Garner, D.D., and Gilbert, F.W 1998 Assessing the need for student health services using maximum difference conjoint analysis Journal of Research in Pharmaceutical Economics 9(3): 35–49 63 Anderson, N.H 1971 An exchange on functional and conjoint measurement Psychological Review 77: 153–170 64 Chakraborty, G., Ball, D., Gaeth, G.J., and Jun, S 2002 The ability of ratings and choice conjoint to predict market shares: A monte carlo simulation Journal of Business Research 55: 237–249 65 Reardon, G., and Pathak, D 1990 Segmenting the antihistamine market: an investigation of consumer preferences Journal of Health Care Marketing 10(3): 23–33 66 Boyle, K.J 2001 A comparison of conjoint analysis response formats American Journal of Agricultural Economics 83(2): 441–454 67 Huber, J., Wittink, D.R., Fiedler, J.A., and Miller, R 1993 The effectiveness of alternative elicitation procedures in predicting choice Journal of Marketing Research 30: 105–114 68 Elrod, T., Louviere, J.J., and Davey, K.S 1992 An empirical comparison of ratings-based and choice-based conjoint models Journal of Market Research 29: 368–377 69 Morey, E.R., Rowe, R.D., and Watson, M 1993 A Repeated Nested-Logit Model of Atlantic Salmon Fishing American Journal of Agricultural Economics 75: 578–592 70 Mitchell, R.C., and Carson, R.T 1989 Using surveys to value public goods 3rd ed Washington, DC: Resources for the Future 71 Ryan, M., and Gerard, K 2001 Using choice experiments to value ehalth care programmes: where are we and where should we go? Paper presented at the 3rd International Health Economics Association Conference, 22–25th July, 2001, University of York, UK 72 Ruby, M.C., Johnson, F.R., and Mathews, K.E 1999 Just say no: opt-out alternatives and anglers’ stated-preferences Technical working paper, No T-9801 R, Triangle Economic Research 73 Ryan, M., and Skatun, D 2004 Modelling non-demanders in choice experiments Health Economics 13(4): 397–402 74 Small, K.A., and Rosen, H.S 1981 Applied welfare economics with discrete choice models Econometrica 49: 105–130 75 Hanemann, W.M 1984 Welfare evaluations in contingent valuation experiments with discrete responses American Journal of Agricultural Economics 66: 332–341 REFERENCES 76 Freeman, A.M 1993 The measurement of environmental and resource values: theory and methods 3rd ed Washington: Resources for the Future 77 Hanson, K., McPake, B., Nakamba, P., and Archard, L 2005 Preferences for hospital quality in Zambia: results from a discrete choice experiment Health Economics 14(7): 687–701 78 Tversky, A., and Kahneman, D 1991 Loss aversion in riskless choice: a reference dependent model Quarterly Journal of Economics 106: 1039–1061 79 Bateman, I.J., Carson, R.T., Day, B., Hanemann, M., Hanley, N., Hett, T., et al Economic valuation with stated preference: A manual 1st ed Cheltenham, UK: Edward Elgar 80 Roe, B., Boyle, K.J., and Teisl, M.F 1996 Using conjoint analysis to derive estimates of compensating variation Journal of Environmental Economics and Management 31: 145–159 81 Pearmain, D., Swanson, J., Kroes, E., and Bradley, M 1991 Stated preference techniques: a guide to practice Hague: Steer Davis Gleave and Hague Consulting Group 82 Johnson, F.R., Desvousges, W.H 1997 Estimating stated preferences with rated-pair data: environmental, health, and employment effects of energy programs Journal of Environmental Economics and Management 34: 79–99 83 Carson, R.T., Louviere, J., Anderson, P., Arabie, D., Bunch, D., Hensher, D.A., et al Experimental analysis of choice Marketing Letters 5: 351–367 84 Wathieu, L 2004 Consumer habituation Management Science 50(5): 587–596 85 Bergland, O., Magnussen, K., and Navrud, S 1995 Benefit transfer: Testing for accuracy and reliability 1995 Jun 20; Paper presented at the sixth Annual Conference of the European Association of Environmental and Resource Economists, Umea Sweden 86 Dolan, P., Gudex, C., Kind, P., and Williams, A 1995 A social tariff for EuroQol: results from a UK general population survey Discussion Paper no 138 York: University of York 87 Morrison, M., Bennett, J., Blamey, R., and Louviere, J 2002 Choice modeling and tests of benefit transfer American Journal of Agricultural Economics 84(1): 161–170 88 Blackorby, C., and Donaldson, D 1990 The case against the use of the sum of compensating variations in cost-benefit analysis Canadian Journal of Economics 23: 471–494 89 McCormack, K., Wake, B., Perez, J., Fraser, C., Cook, J., and McIntosh, E., et al 2005 Laparoscopic surgery for inguinal hernia repair: systematic review of effectiveness and economic evaluation Health Technology Assessment 9(14): 1–218 255 256 A PRACTICAL GUIDE TO REPORTING AND PRESENTING STATED PREFERENCE DISCRETE CHOICE Appendix 12.1 Pre-trial scenarios for surgical, medical, and expectant management miscarriage based on trial attributes and levels Attributes Surgical scenario Medical scenario Expectant scenario ● Time spent at hospital receiving treatment day 0.5 day 0.5 day ● Level of pain experienced Low Moderate Moderate ● Number of days bleeding following treatment days days 14 days ● Time taken to return to normal activities following treatment 3–4 days 3–4 days 3–4 days ● Chance of complications requiring more time or readmission to hospital 5% 10% 5% Post-trial scenarios for surgical, medical, and expectant management of miscarriage based on actual MIST trial data Attributes Surgical scenario Medical scenario Expectant scenario day 1.2 days days ● Time spent at hospital receiving treatment ● Level of pain experienced Low Low Low ● Number of days bleeding following treatment days 11 days 12 days ● Time taken to return to normal activities following treatment 6.7 days 6.7 days 12 days ● Chance of complications requiring more time or readmission to hospital 3% 2% 3% APPENDIX 12.2 Appendix 12.2 Suggested checklist for developing a CBA using SPDCE methods for estimation of benefits Elicitation method employed ◆ Consider requirement for modelling the participation decision as well as response scale (e.g binary, graded) to ensure accurate welfare estimates (i.e providing ‘opt-out’ so as not to overestimate welfare values) ◆ Consider whether inclusion of the status quo is feasible (and whether cost data are available for the status quo) Form of and realism of payment vehicle ◆ Consider how to describe and present the cost attribute (e.g cost to you, travel cost, donation, tax) ◆ Collect data on income of respondents to allow testing of theoretical validity of WTP responses ◆ Consider using equity weights in the final CBA within sensitivity analysis to explore impact on results Timescale over which benefits and costs are elicited ◆ Consider period of discounting and extent to which the welfare values align with the costs required to achieve the welfare gain (loss) ◆ Consider whether preferences have a ‘shelf life’ (e.g due to new developments) at which point they should be re-elicited for the purposes of updating the CBA Resource use (cost) data required for CBA ◆ Ensure resource use data collected can be attributed to achieving the welfare gains i.e improvements in attributes, from the SPDCE ◆ Consider the flexibility of the resource use data and the extent to which the cost data are as flexible as the SPDCE attributes and levels (e.g consider economies of scale and issues around fixed costs; use marginal costs where possible) Mapping attributes to alternative CBA scenarios ◆ Consider the nature of attributes and levels used (are they practical for extrapolating in a mapping exercise to estimate welfare values for alternative configurations of attributes and levels) ◆ Where trial data are available, consider designing attributes and levels in line with trial outcomes ◆ Consider realism of attributes and levels for mapping exercise (generalizability of scenarios) ◆ Carry out ‘mock’ welfare analysis with attributes and levels prior to finalization of design to ensure attributes and levels chosen in the design can be used postanalysis in the various CBA configurations of interest 257 258 A PRACTICAL GUIDE TO REPORTING AND PRESENTING STATED PREFERENCE DISCRETE CHOICE Suggested checklist for developing a CBA using SPDCE methods for estimation of benefits (continued) Accounting for uncertainty in the parameters/CBA ratio ◆ Explore alternative methods of estimating confidence intervals around the MRS (where applicable) ◆ Ensure resource use data estimated can be directly attributed to, and combined with, welfare gains (losses) ◆ Consider using the CBA plane to explore cost/benefit pairing variability where individual preference data are available ◆ Consider modelling SPDCE data along with cost data using Markov modelling methods to explore alternative CBA scenarios at the population/patient group level ◆ Consider using probabilistic sensitivity analysis methods where applicable (would need to consider the distribution of the data) Generalizability: Habituation and context effects ◆ Consider whether habituation of preferences is likely in the respondents identified ◆ Have preferences been explored for rationality and consistency? Are preferences well formed or are they susceptible to change depending upon context? Context dependency may affect the CBA ratio ◆ Consideration of benefits transfer issues: Are CBA values to be transferred to another setting/population, etc.? Chapter 13 The relevance of cost–benefit analysis in health care: Concluding comments Emma McIntosh, W.L (Vic) Adamowicz, and F Reed Johnson As outlined in Chapter 1, the purpose of this handbook was not to re-invent the theoretical wheel of CBA but to provide researchers with up-to-date methodological guidance and practical ‘hands on’ advice for carrying out applied CBA in health care and in doing so hopefully push forward this methodological area The goal of the book was to provide readers with an understanding of the applied methods of CBA in health care as they stand to date as well as an insight to the ongoing methodological challenges in this area Early chapters introduced important theoretical aspects such as key concepts in welfare economics and the relevance of market failure in health care to the development of economic evaluation methods (Chapter 1), the Household Production Model (HPM) and consumer preferences for own health and health care (Chapter 2) Key applied concepts related to the cost side of CBA including shadow pricing as well as a useful reference guide to key costing sources for economic evaluation were then provided (Chapters and 4) Chapter described the many parallels between environmental valuation and health valuation and the uses of CBA methods in both fields outlining the importance of strong economic conceptual frameworks This comparison then set the scene for the subsequent chapters on measuring and valuing benefits for CBA To this end, Chapters 6–8 explored the methodology of stated preference willingness to pay (WTP) methods in health care with the use of applied examples (including downloadable exercises) as well as provision of clear methodological guidance Chapter then outlined the use of revealed preference methods for valuing non-market and unpriced goods An applied example of the travel cost method (as commonly used in environmental economics) in the area of mammographic screening was provided and this concluded with a formal CBA of this preventive programme Recent years have seen a surge in the number of stated preference discrete choice experiments (SPDCEs) being carried out in health care hence Chapters 10–12 were dedicated to outlining the experimental design issues of this topic as well as how to estimate welfare using these techniques Chapter 12 provided a practical guide to reporting and presenting SPDCE results within CBA 260 THE RELEVANCE OF COST–BENEFIT ANALYSIS IN HEALTH CARE: CONCLUDING COMMENTS This handbook has endeavored to provide a compilation of evidence in the areas of benefit assessment and costing specifically for use within a CBA framework in health care, in doing so this book hopefully provides some coherent guidance on applied methods of CBA in health care The handbook has benefited from contributions from a number of emerging literatures most notably in the areas of costing methodology, WTP, and SPDCE research as well as other disciplines including environmental economics, accountancy, and marketing One observation from these areas is the increasing reliance on statistical and econometric developments Whilst these developments have aided the accuracy of measures, these advances have been developed independently of one another and as a consequence little attention has been paid to the science of CBA as an entity (1) The aim of this handbook was to attempt to rectify this somewhat and not only pull these developments together in a coherent fashion but to identify clear links between them with a view to providing some up-to-date guidance for carrying out applied CBA in health care As outlined, Chapter described a number of parallels between environmental valuation and health valuation and the uses of valuation in CBA in environmental and health fields The parallels are not surprising since both areas deal with decisions involving public goods, quasi-public goods, or publically provided goods that benefit from economic evaluation methods Arrow and colleagues (2) recognized these similarities and argued for improved use of CBA and valuation in policy and management What is perhaps surprising, however, is the somewhat divergent paths the two areas have taken – environmental economics following a more traditional welfare-economics orientation and health economics taking a ‘cost-effectiveness’ path While there are clearly institutional reasons for the divergence, it is believed that both applications of economics and statistical analysis would benefit from a stronger economic conceptual framework and higher analytical standards in pursuit of good CBA practice In terms of research, there has been considerable effort in health economics to assess the extent to which findings in environmental economics apply to health care cases Many of the same principles apply The literatures would benefit, however, from collectively addressing problems in understanding revealed and stated choice behaviour, and identifying tools that can help in assessing tradeoffs There are several areas where crossovers or hybridization can occur, including risk valuation, evaluation of public programmes and methodological, econometric, and experimental-design tool development Many advances in environmental economics occurred as a result of institutional arrangements that arose largely outside of the discipline such as Reagan’s executive order and the Exxon Valdez incident Recent debate in the USA over a greater public role in health care may or may not provide similar opportunities for exploring alternative valuation approaches In any case, methodological advances in health care evaluation will require that health economists provide robust theoretical arguments from within the discipline of economics for adopting economic methods and techniques In addition to this, a further skill required of health economists will be translating the theoretical core of such methods into ‘applied’ methodology for use in the complex health care setting As Arrow et al (2) state ‘Because society has limited resources to spend on regulation, benefit–cost analysis can help illuminate the trade-offs involved REFERENCES in making different kinds of social investments In this regard, it seems almost irresponsible to not conduct such analyses, because they can inform decisions about how scarce resources can be put to the greatest social good’ References McIntosh, E., Donaldson, C., and Ryan, M 1999 Recent advances in the methods of cost-benefit analysis in healthcare: Matching the art to the science Pharmacoeconomics 15: 357–367 Arrow, K.J., Cropper, M.L., Eads, G.C., Hahn, R.W., Lave, L.B., Noll, R.G., et al 1996 Is there a role for benefit-cost analysis in environmental, health and safety regulation? Science 272: 221–222 261 This page intentionally left blank Index ability to pay 120 abortion services 171 absolute frequency 99 access costs 161, 170, 171, 173, 175–7, 181 mammographic screening 177 travel cost model 162–70 accounting price 40 activity-based costing 57 ad hoc designs 200–1 additive separability aggregation 113–14 allocated costs see overhead costs allocation of resources alternative-specific tasks 199 altruism 33–4, 83 paternalistic 83 ambulance service 50 anchoring effect 107 annuitization 61–2, 63 ANOVA test 122 attribute overlap 205 availability 225 average cost 60 average variance 91 Bayesian methods 90, 196 benefit assessment 119–38, 211–27 benefit latency 84 benefit measures, choice of 7–9 benefit–cost analysis 81 benefits transfer 11, 90, 249–51 bid values 131–2 bidding game 103 binary choice 186, 187 attributes of 196–8 C-optimal designs 195 D-optimal designs 195–6, 203 experimental design 193–6 bootstrapping 149–50, 237 bottom-up costing 57 Box–Cox model 189, 192 British Household Panel Survey 49 C-optimal designs 195 Cauchy distribution 193 CBA see cost-benefit analysis Centre for Time Use Research 48 cervical screening 226 Chi-squared test 122 choice 190–3 closed-ended, single-bound 191 choice sets 218–19 miscarriage management 240 clinical trials see randomized controlled trials closed-ended data 131–3 bid values and questionnaire distribution 131–2 regression analysis 132 willingness to pay estimation 132–3 yea-saying 132 closed-ended question 104–5 with follow-up question 105 commodities 21–4 commodity value of time 166 compensated demand curve 8–9 compensating variation 7, 8, 24, 26, 30, 100–1, 215 expected 215 conditional utility function consultation room costs 50 Consumer Expenditure Survey 111 consumer surplus 7, 25, 42, 171 content analysis 122 content validity 152 contingent valuation 97–114 choice of values 101 elicitation format 102–6 closed ended with follow-up question 105 closed ended/dichotomous choice/discrete question 104–5 iterative bidding 103 marginal approach 105–6 open-ended question 102 payment scale/card 104 embedding effect 109 equivalent and compensating variation 100–1 history of 97–8 instrumentation technique 102 overall survey design 111–13 payment vehicle 99 preference formation 109–11 question order 108–9 response rate 121–2 risk communication 98–9 sampling and aggregation 113–14 scenario description 98–101 strategic bias 108 value cues 107 anchoring effect 107 range bias 107 ‘warm-glow’ feeling 109 264 INDEX cost discounting 61–3 cost transfer 250 cost types 60 cost–benefit analysis 10, 13, 81, 134–5 definition of cost–benefit plane 235–6 cost-effectiveness analysis 10, 13, 79 cost–utility analysis 10, 13 costing 55–75 home visiting programmes 68–74 methodology 60–1 overhead costs 64–6 productivity costs 66–7 uncertainty in 64 credence goods 33 Current Population Survey 111 D-error 91 D-optimal designs 195–6, 203 Davis, Robert 80 Delphi method 152 demand functions 23 Hicksian 23–4, 25, 26 Marshallian 7–8, 23, 25, 26 willingness to pay 129–30 demanders 246 Diagnosis Related Groups 58 dichotomous choice 104–5 direct utility function 188 direct valuation of health care 31–3 discount factor 62 discounting 61–3 discrete choice experiments 185, 186–7 alternative-specific 199 derivation of welfare measures from 214–18 design of 213–14 genetic 199 multinomial alternatives 198–200 stated preference see SPDCEs variance-scale confounds 223–4 discrete question 104–5 distance decay studies 171 doctors, shadow price of 50 donations 50 double counting 83 econometric analysis 90 economic evaluation 10–11 health care 231–2 economic questions 121 elicitation format 102–6, 140 closed ended with follow-up question 105 closed ended/dichotomous choice/discrete question 104–5 iterative bidding 103–4 marginal approach 105–6 open-ended question 102 payment scale/card 104 SPDCEs 245–6 embedding effect 109 environmental economics 79–92 application to health economics 84–5 equality of opportunity 67 equivalent annual cost 63 equivalent variation 7, 8, 24, 100–1 ex ante perspective 100–1 ex post perspective 100–1 experience goods 32 experimental design 185–208 ad hoc 200–1 attribute overlap 205 D-optimal 203 economic welfare measures 187–90 elimination of dominated/infeasible alternatives 205–6 estimation of main and interaction effects 202–3 full-factorial 201–2 level-balance 205 multinomial alternatives 198–9 orthogonal main effects plans 202 orthogonality 205 prior information 204 random 203–4 single binary choice 193–8 utility balance 206 willingness to pay estimates 190–3 externalities 41–2 Exxon Valdez 80, 85, 92, 260 face-to-face interviews 102, 142 faecal occult blood testing 119 Fieller’s theorem 237, 348 Fisher Information Matrix 196 Fisher’s exact test 122 fixed cost 60 flexible sigmoidoscopy 119 fractional factorial design 185 friction cost method 66 full-factorial designs 201–2 gamma distribution 238 generic tasks 199–200 giffen goods 26 gross costing 58 Grossman model 20 habituation effects 249–51 health as commodity 21–4 improvement and welfare benefits 25 valuation of 24–5, 28 health care changing price of 26–7 economic valuation 231–2 formal 49 shadow pricing 45–8 valuation of 26–7, 30–3 by output 30–1 direct 31–3 INDEX health care attributes 185, 244–5 Health Care Resource Groups 59 health economics 79–92 application of environmental economics to 84–5 health focused altruism 34 health policy economic welfare measures 187–90 willingness to pay estimations 185–208 health status 14, 19, 21, 25, 28, 121, 154, 238, 239, 246 valuation of time 168–9 healthy years equivalents (HYEs) 13 hedonic wage studies 87 Hicks, John Hicksian demand functions 7, 23–4, 25, 26, 29, 163–4, 188, 245 home visiting programmes 68–74 hospital beds 50 Hotelling, Harold 162 Household Production Model 13, 14, 19–35, 259 extensions to 29–30 joint production 29–30 morbidity as commodity output 28 mortality as commodity output 28 non-constant returns to scale 29–30 output and welfare 27–8 single period 21–4 valuation of time 169–70 Household Satellite Account 48–50 human capital 66 imperfect knowledge 42 income definition of 188 effects on analysis 246–7 incremental cost-effectiveness ratios 61, 234 indirect costs 66–7 informal care additional costs 46 shadow pricing 45–8 value of 47, 49 instrumentation technique 102 intellectual property rights 44 interdependence 83 interviewer bias 102 iterative bidding 103, 134 willingness to pay estimation 134 joint production 29–30 Kaldor, Nicholas Kuhfeld, Warren 91 Kuhn–Tucker models 90 labour, shadow pricing 50–1 labour market constraints 167–8 land, opportunity cost 50 level balance 205 logistic regression 125–9 macro-level costing 58 mail surveys 102 Mäler, Karl-Göran 80 mammographic screening 165 access costs 177 cost–benefit analysis 178–80 empirical application 177–8 equation 176–7 mobile 180 probit model 179 random utility model 174–6 travel cost model 171, 173–4, 178, 179 variables used 177–8 marginal approach 105–6 marginal cost 29, 60 marginal rate of substitution 237 marginal social costs 41 marginal utility 175 of income 175, 190, 193, 215, 247 of money 47, 166, 169, 179, 215 marginal value of time 166 marginal willingness to pay 215 market cost method 47 market distortions causes of 41–4 correction of 44 market failure 9–10 Markov modelling 250 Marshallian demand functions 7–8, 23, 25, 26 medical costs, mammographic screening 177, 178 micro-costing 57–8 miscarriage management, MIST trial 240–4, 256 mixed logit model 213 monopoly 43–4 monopsony 50 Monte Carlo simulation methods 238 morbidity 28 mortality 28 multi-site travel cost model 164 multinomial alternatives 198–200 multinomial logit model 212–13 multinomial probit model 213 multiple alternative models 247 National Institute for Health and Clinical Excellence see NICE National Oceanic and Atmospheric Administration (NOAA) panel 11, 12 National Schedule of Reference costs 59 natural resource damage assessment 15, 80, 85 nested logit model 213 net social benefit 113 net-benefit acceptability curve 237 NICE, reference cases 60–1 non-paternalistic altruism 34 non-satiation non-use values 33 normative economics 265 266 INDEX oligopoly 43 open-ended question 102 opportunity cost 46–7 opt-out options 245–6 original level of utility orthogonal main effects plans 202, 218 orthogonality 205 overhead costs 64–6 Pareto-improving criteria 5–6 payment scale/card 104 payment vehicle 99, 246–7 perfect markets 40 Pharmaceutical Price Regulation Scheme 42–3 positive economics positive time preference 62 potential Pareto-improvement criterion preference formation 109–11 preferences 6, 32 reference-dependent 247–8 willingness to pay 130–1 present value 62 price control 42–3 price weights 56–7 prior information 204 private goods, public provision of 81 probabilistic sensitivity analysis 64, 238 probability 99 process utility 29, 162 production indivisibility 29 production possibility frontier productivity costs 66–7 public goods 43, 81–2 public-health programmes 88–91 calibration and triangulation 89–90 econometric analysis 90 experimental design 90–1 quality adjusted life years (QALYs) 13, 20, 28, 84, 87, 232 question order 108–9 questionnaires, distribution of 131–2 random designs 203–4 random effects probit 241 random parameter model 213 random utility maximization 191–2, 198 random utility model 164, 211, 212–13 mammographic screening 174–6 randomized controlled trials 57 using data from 239–44 range bias 107 reference prices 110 reference-dependent preferences 247–8 regression analysis 124–9 closed-ended data 132 non-response 125–7 replacement costs method 47 resource allocation resource use identification of 56–7 measurement 57–8 resource valuation 59–60 resources, competition for 82–3 response rate 121–2 revealed preference 9, 11, 185, 213 revealed preference methods 1, 2, 89 risk, change in 24 risk communication 98–9 absolute frequency 99 probability 99 risk valuation 86–8 sample size calculations 222–3 sampling 113–14 Sawtooth Software 91 scarce resources 82–3 scarcity value of time 166 scenario analysis 64 Scottish Health Service Costs Book 59 SDCEs, preferences, response rate and comprehension 219 sensitivity analysis 64 sequential design 196 shadow price numeraire 45 shadow pricing 29, 31, 39–51 definition of 40–1 health care 45–8 informal care 45–50 labour 50–1 limitations and cautions 51 single-site travel cost model 163–4 social welfare function social welfare optimum 34 socio-demographic questions 121 SPDCEs 2, 4, 15, 31, 55, 68, 211, 214, 218–19, 232–3 accounting for uncertainty 237–9 checklist 257–8 clinical trial data 239–40 development of explicit CBA framework 234–7 estimation and validity 219 experimental design and choice sets 218–19 measurement issues 244–7 elicitation format 245–6 health care attributes 244–5 participation decision 246 payment vehicle and income effects 246–7 optimal design 222 practical challenges to use 233 reference-dependent preferences 247–8 sample size calculations 222–3 state of the art 219–21 time frame and habituation effects 249–51 spinal surgery, cost–benefit analysis 139–60 correlation analysis 148 costing 143–4 INDEX costs of surgery 148–9 elicitation format 140 limitations of study 154 net benefits 149–53 sample and setting 140–3 willingness to accept 144–8 willingness to pay 142, 144–8 prediction of 148 standard gamble method 28 state of the world models 246–7 stated preference discrete choice experiments see SPDCEs stated-preference studies 10, 11, 88, 89, 190, 211, 231–58 experimental design 90–1 status quo option 216, 219, 248 strategic bias 108 Street, Deborah 91 survey response probability distribution 191 Taylor’s series expansion 237 telephone interviews 102 theory of preferences 6–7 threshold analysis 64 tick box responses 120 time commodity value 166 marginal value of 166 opportunity cost 47 scarcity value 166 valuation of 45–50, 165–70 time cost studies 45–50 time costs 45–7, 48–50 mammographic screening 178 time frame 249–51 time inputs, unpaid 46 time preference 61 positive 62 top-down costing 58 total cost 60 travel cost model 162–70 health care 164–5 health care applications 171–3 historical development 162 mammographic screening 171, 173–4, 178, 179 methodological issues 165–70 multi-site 164 single-site 163–4 travel cost studies 161–81 travel costs 171 mammographic screening 178 travel distance 170 UK Office for National Statistics 48 UK Personal Social Services Research Unit 59 uncertainty 84 accounting for 237–9 unpaid time inputs 46 unpaid work 48–50 utility balance 206 utility maximization valuation of time 45–50, 165–70 health status 168–9 Household Production Model 169–70 labour market constraints 167–8 value clarification 111 value cues 107 anchoring effect 107 range bias 107 value of information 162 Value of Statistical Illness Profiles 84 value of statistical life 86–8 value of statistical life-year 87 variable cost 60 variance-scale confounds 223–4 visual analogue scales 28 voluntary services 50 warm-glow effect 109 welfare definition of 4–5 Household Production Model 27–8 welfare assessment 211–27 welfare benefits of reduced price of health care 26–7 welfare change welfare economics 3–9 welfare loss 7, 97, 100, 112, 149, 153, 172, 173 willingness to accept 5, 24, 97, 100–1 willingness to pay 5, 10, 11–13, 24, 82, 97, 100–1, 259 choice 190–3 closed-ended data 132–3 demand functions 129–30 estimation of 185–208 iterative bidding 134 miscarriage management 242–3 positive values 127 prediction of 148 preferences 130–1 quantatitive analysis 122–9 reasons for 122, 123 single binary choice model 186, 187, 193–6 willingness to pay distribution 191 267 ... pricing in health care cost benefit analyses 39 Emma McIntosh Costing methodology for applied cost benefit analysis in health care 55 Emma McIntosh Valuation and cost benefit analysis in health. .. Louviere Applied Methods of Cost- Effectiveness Analysis in Health Care Alastair M Gray, Philip M Clarke, Jane Wolstenholme, and Sarah Wordsworth Applied Methods of Cost Benefit Analysis in Health Care. .. Adamowicz Benefit assessment for cost benefit analysis studies in health care using contingent valuation methods 97 Emma J Frew Benefit assessment for cost benefit analysis studies in health care: