Deck 3: Cost-Benefit and Cost-Effectiveness Analysis

Question 1

A cost effectiveness study evaluates whether or not the benefits from inserting a drug eluting coronary stent add enough years of life expectancy to justify the cost; a cost-benefit study evaluates whether a drug eluting coronary stent, a beta blocker drug or cardiac bypass surgery might provide the most additional years of life expectancy per dollar spent.

Answer 1

False

Question 2

Choices based on marginal, rather than average, benefits and costs will tend to overproduce medical services.

Answer 2

False

Question 3

Cost-benefit analysis of a childhood immunization program is straight-forward analysis because the costs of the drugs are well known and the benefits to individual children are easy to calculate.

Answer 3

False

Question 4

Cost-effectiveness analysis is a limiting case of the general cost-benefit analysis.

Question 5

In the hypothetical example that follows, patients coming into a clinic with disease symptoms are classified as having varying degrees of severity, from Stage 0 to Stage 4. Stage 4 represents the most severe symptoms; Stage 0 includes those with symptoms only but not the disease. The available treatment is expected to benefit those groups differently, and add extra years of life to each person as shown in the Gain (each person) row in the table. Please answer questions 5 through 7.
? $\begin{array}{|l|l|l|l|l|l|l|}\hline & \text {Stage 4 }& \text {Stage 3} & \text { Stage 2} & \text {Stage 1 }& \text {Stage 0 }& \quad\\\hline \text { Gain (each person) }& 45 & 30 & 4 & 1 & 0 & \\\hline \text {Number of persons coming to clinic }& 4 & 4 & 12 & 20 & 60 & \\\hline\end{array}$


-Marginal analysis shows that more than 80% of the total gains are realized by treating only the sickest patients, Stage 4 and Stage 3 patients.

Question 6

In the hypothetical example that follows, patients coming into a clinic with disease symptoms are classified as having varying degrees of severity, from Stage 0 to Stage 4. Stage 4 represents the most severe symptoms; Stage 0 includes those with symptoms only but not the disease. The available treatment is expected to benefit those groups differently, and add extra years of life to each person as shown in the Gain (each person) row in the table. Please answer questions 5 through 7.
? $\begin{array}{|l|l|l|l|l|l|l|}\hline & \text {Stage 4 }& \text {Stage 3} & \text { Stage 2} & \text {Stage 1 }& \text {Stage 0 }& \quad\\\hline \text { Gain (each person) }& 45 & 30 & 4 & 1 & 0 & \\\hline \text {Number of persons coming to clinic }& 4 & 4 & 12 & 20 & 60 & \\\hline\end{array}$


-Assuming that the clinic treats first those patients who are sickest and stand to benefit most, the total benefits obtained by treating more and more patients can be displayed graphically, where the total benefits line eventually flattens out. This is often called "flat of the curve" medicine.

Question 7

In the hypothetical example that follows, patients coming into a clinic with disease symptoms are classified as having varying degrees of severity, from Stage 0 to Stage 4. Stage 4 represents the most severe symptoms; Stage 0 includes those with symptoms only but not the disease. The available treatment is expected to benefit those groups differently, and add extra years of life to each person as shown in the Gain (each person) row in the table. Please answer questions 5 through 7.
? $\begin{array}{|l|l|l|l|l|l|l|}\hline & \text {Stage 4 }& \text {Stage 3} & \text { Stage 2} & \text {Stage 1 }& \text {Stage 0 }& \quad\\\hline \text { Gain (each person) }& 45 & 30 & 4 & 1 & 0 & \\\hline \text {Number of persons coming to clinic }& 4 & 4 & 12 & 20 & 60 & \\\hline\end{array}$


-"Flat of the curve" medicine means that if patients with Stage 0 disease symptoms are treated, the marginal benefits of the treatment are less than the marginal cost of treating symptoms.

Question 8

Physicians generally focus on tradeoffs. Health care economists focus on maximizing benefits to society as a whole.

Question 9

The estimate of the value of benefits expected from a treatment depends on the viewpoint of the party benefitting from that treatment.

Question 10

Many useful medical technologies become wasteful when they are expanded to include low-risk individuals.

Question 11

A problem with Cost-Benefit Analysis is that

A) scientists observe people's behavior to calculate how much individuals are willing to pay for a particular treatment.
B) opportunity cost is measured as the value of the next best alternative foregone.
C) the perspective of the one benefitting from the medical service must be included.
D) sometimes subtle distinctions in the alternatives considered as opportunity costs may overstate the benefits of a treatment.
E) the use of expected values employs the statistical law of large numbers and this is not acceptable for individual decision making analysis.

Question 12

A kidney cancer drug delays cancer progression for six months, with no known side effects. An estimated treatment cost is $54,000. What is the cost per Quality Adjusted Life Year (QALY)?

A) $54,000.
B) $27,000.
C) $13,500.
D) $108,000.
E) $67,500.

Question 13

One of the weak points in the Jones-Lee Approach to estimating Value of Life is that

A) scientists really cannot make an acceptable estimate of the risk of death.
B) the value of time for a group of individuals varies enormously, and the Jones-Lee Approach makes no provision for this.
C) the mean value of time used in the calculation for a group of individuals demeans the value of those who do not work, such as the elderly, children or those in institutions.
D) selection bias. The method only measures the actions of those who undertake a risky action.
E) even for life itself, people will buy less as the price increases.

Question 14

The primary costs to be accounted for in health care projects include all of the following except:

A) Medical care, follow-up and administration.
B) Treatment damages (side effects).
C) Reductions in future medical costs.
D) Time and pain of patient and family.
E) Provider time and inconvenience.

Question 15

It has been observed that some people are willing to accept a more dangerous job for a higher salary. If a study estimates that for each .01% increase in risk of death, an additional $360 in annual salary was observed, the estimated value of life is

A) $36 million.
B) $3.6 million.
C) $360,000.
D) $ 36,000.
E) $ 3,600.

Question 16

Consider a hypothetical example in which a patient has a condition in which she can expect to live only 2 more years on medications, with her quality of life reduced to 50% during those 2 years. With successful surgery as an alternative, she can expect instead to live 3 years with a better quality of life, 90%. Surgical mortality rate is 1% and the surgery is successful half the time. Using a 5% time discount rate, a student in health economics class correctly sets up the analysis.
?

-If the patient decides to have the surgery (compared to the baseline option of taking medications instead), the quality adjusted life expectancy (number of QALYs) after accounting for both probability of success and surgical mortality is

A) 2.58.
B) 1.77.
C) 0.98.
D) 0.79.
E) 0.48.

Question 17

Consider a hypothetical example in which a patient has a condition in which she can expect to live only 2 more years on medications, with her quality of life reduced to 50% during those 2 years. With successful surgery as an alternative, she can expect instead to live 3 years with a better quality of life, 90%. Surgical mortality rate is 1% and the surgery is successful half the time. Using a 5% time discount rate, a student in health economics class correctly sets up the analysis.
?

-If the patient decides to have the surgery, the net gain in discounted QALYs with surgery (compared to the baseline option of taking medications instead) is

A) 2.58.
B) 1.77.
C) 0.98.
D) 0.79
E) 0.48.

Question 18

Consider a hypothetical example in which a patient has a condition in which she can expect to live only 2 more years on medications, with her quality of life reduced to 50% during those 2 years. With successful surgery as an alternative, she can expect instead to live 3 years with a better quality of life, 90%. Surgical mortality rate is 1% and the surgery is successful half the time. Using a 5% time discount rate, a student in health economics class correctly sets up the analysis.
?

-If the surgery costs $20,000, the cost per QALY gained is

A) $20,000.
B) less than $20,000.
C) more than $20,000, but less than $25,000.
D) more than $25,000, but less than $30,000.
E) $12,470.

Question 19

Consider a hypothetical example in which a patient has a condition in which she can expect to live only 2 more years on medications, with her quality of life reduced to 50% during those 2 years. With successful surgery as an alternative, she can expect instead to live 3 years with a better quality of life, 90%. Surgical mortality rate is 1% and the surgery is successful half the time. Using a 5% time discount rate, a student in health economics class correctly sets up the analysis.
?

-If you calculate the cost per QALY using a discount rate of 3%,

A) you will get a higher cost per QALY.
B) you will get a lower cost per QALY.
C) you will get the same cost per QALY.
D) it will cost less to perform the operation.
E) it will cost more to perform the operation.

Question 20

A U.S. emergency relief agency is considering sending a team of experts to another country to treat a severely contagious disease outbreak. Each team member is paid $10,000 for this one-week-long job. The agency estimates effectiveness as follows:
? $\begin{array}{|l|l|}\hline \text { Number of Team Members }& \text { Number of Deaths }\\\hline 0 & 1,000 \\\hline 5 & 400 \\\hline 10 & 150 \\\hline 15 & 30 \\\hline 20 & 30 \\\hline\end{array}$

-If the Agency is considering sending a team of 15 members vs. a team of 10 members, how many additional lives would the larger team be able to save?

A) 600
B) 250
C) 150
D) 120
E) 30

Question 21

A U.S. emergency relief agency is considering sending a team of experts to another country to treat a severely contagious disease outbreak. Each team member is paid $10,000 for this one-week-long job. The agency estimates effectiveness as follows:
? $\begin{array}{|l|l|}\hline \text { Number of Team Members }& \text { Number of Deaths }\\\hline 0 & 1,000 \\\hline 5 & 400 \\\hline 10 & 150 \\\hline 15 & 30 \\\hline 20 & 30 \\\hline\end{array}$

-If the Agency is considering sending a team of 15 members vs. a team of 10 members, what will be the additional cost of sending the larger team?

A) $0
B) $50,000
C) $100,000
D) $150,000
E) $200,000

Question 22

A U.S. emergency relief agency is considering sending a team of experts to another country to treat a severely contagious disease outbreak. Each team member is paid $10,000 for this one-week-long job. The agency estimates effectiveness as follows:
? $\begin{array}{|l|l|}\hline \text { Number of Team Members }& \text { Number of Deaths }\\\hline 0 & 1,000 \\\hline 5 & 400 \\\hline 10 & 150 \\\hline 15 & 30 \\\hline 20 & 30 \\\hline\end{array}$

-If the Agency is considering sending a team of 15 members vs. a team of 10 members, what will be the marginal cost per each marginal life saved by the larger team?

A) $83
B) $118
C) $155
D) $200
E) $417

Question 23

A U.S. emergency relief agency is considering sending a team of experts to another country to treat a severely contagious disease outbreak. Each team member is paid $10,000 for this one-week-long job. The agency estimates effectiveness as follows:
? $\begin{array}{|l|l|}\hline \text { Number of Team Members }& \text { Number of Deaths }\\\hline 0 & 1,000 \\\hline 5 & 400 \\\hline 10 & 150 \\\hline 15 & 30 \\\hline 20 & 30 \\\hline\end{array}$

-Which decision rule is relevant for the decision making in this project?

A) Comparing marginal costs to average costs.
B) Comparing marginal benefits to average benefits.
C) Comparing marginal costs and marginal benefits.
D) Comparing average costs and average benefits.
E) Comparing total costs and total benefits.

Question 24

A U.S. emergency relief agency is considering sending a team of experts to another country to treat a severely contagious disease outbreak. Each team member is paid $10,000 for this one-week-long job. The agency estimates effectiveness as follows:
? $\begin{array}{|l|l|}\hline \text { Number of Team Members }& \text { Number of Deaths }\\\hline 0 & 1,000 \\\hline 5 & 400 \\\hline 10 & 150 \\\hline 15 & 30 \\\hline 20 & 30 \\\hline\end{array}$

-If saving a life is valued at $100,000, what is the optimal number of people the agency should send?

A) 0.
B) 5.
C) 10.
D) 15.
E) 20.

Question 25

A U.S. emergency relief agency is considering sending a team of experts to another country to treat a severely contagious disease outbreak. Each team member is paid $10,000 for this one-week-long job. The agency estimates effectiveness as follows:
? $\begin{array}{|l|l|}\hline \text { Number of Team Members }& \text { Number of Deaths }\\\hline 0 & 1,000 \\\hline 5 & 400 \\\hline 10 & 150 \\\hline 15 & 30 \\\hline 20 & 30 \\\hline\end{array}$

-Diminishing marginal returns sets in with

A) the team of size 5.
B) the team of size 10.
C) the team of size 15.
D) the team of size 20.
E) does not occur.

Question 26

Explain why the concept of "expected value of a medical treatment" makes more sense when applied to a large group of people rather than when an individual patient makes a decision.

Question 27

Suppose the state government passes a law that sets a minimum size for physical rehabilitation facility (presumably in order to gain economies of scale). If you were asked to do a cost-effectiveness analysis of the proposal, what alternatives would you consider? Which costs would be important to consider? Why?

Question 28

Please explain why the decisions on the margin are generally more hotly debated in developed countries like the U.S. rather than in less developed countries like Tanzania. Consider how treatment decisions would vary for an infant suffering from a stomach virus in U.S. compared with Tanzania.

Question 29

If a quality of life value of 1.00 QALY is the perfect health reference state, explain what a quality of life adjustment factor of 0.50 per year over 10 years means if one undergoes kidney transplant. What factors may survey respondents be asked to consider when estimating such a value?

Question 30

Consider the following hypothetical situation. A common infant vaccine which prevents polio costs pennies to produce and the country has had almost 100% vaccination rates; however, recently, the vaccine has been linked to another life threatening disease, ABC-itis. Outbreaks of polio are now found in small pockets around the country due to decreases in the vaccination rate. Discuss the cost benefit analysis involved in providing free vaccinations at pre-schools, daycare facilities and elementary schools around the nation. Consider the perspective of patients, providers, payers, government, and society.