Longevity Bias in Cost-Effectiveness Analysis
- Presenter:
Chair: Willard Manning; Discussant: TBA Tue June 6, 2006 8:00-9:30 Room 225
The stated goal of medical CEA is to maximize health outcomes for a given amount of resources allocated to health care (Weinstein and Stanson 1977). The rationale for this goal seems to be that, for the overall optimality of health care resource allocation (which includes not only the allocation of a given health care budget but also the determination of the size of the budget), maximum health benefits must be achieved under any chosen health care budget. This characterization of the goal of medical CEA is so widely accepted that in many unresolved debates regarding the theoretical foundation and appropriate execution of CEA, both sides of the debate claim to abide by this goal.
Using a utility specification consistent with the QALY (quality-adjusted life-year) measure of health outcomes, we study both the “fixed budget problem” and the “optimal budget size problem” in medical resource allocation. The fixed budget problem is about how a given health budget should be allocated between improving longevity and improving health-related quality of life. The logically subsequent optimal budget size problem is about whether or not further increase in the size of health budget is welfare enhancing.
We compare two approaches to the fixed budget problem: the health gain approach that maximizes the QALY measure for a given budget and the total gain approach that maximizes the total utility for a given budget. The health gain approach implements the stated goal of CEA but it is the total gain approach that is consistent with welfare maximization. We show that the health gain approach or CEA results in a longevity bias: the CEA-based division of a given total medical expenditure between extending life and improving health gives the former a larger share than is called for by welfare maximization.
After discussing the fixed budget problem, we then study the optimal budget size problem and relate it to the issue of indirect costs of medical interventions (e.g., Garber and Phelps 1997 and Meltzer 1997). Under either approach (the incorrect health gain approach or the correct total gain approach) to the fixed budget problem, the fixed budget phase of resource allocation generates a QALY function with the size of the health budget as its argument. When considering whether to expand the health budget, one must compare the QALY gains with the consumption losses from such an expansion. We will show that regardless of the approach adopted in the fixed budget phase, the criterion for evaluating an expansion in the health budget is characterized by a cost-effectiveness ratio that includes, in its numerator, not only the direct health care costs, but also the indirect consumption costs and earnings from longer life. This means that appropriately accounting for indirect costs in the evaluation of new interventions (increases in the medical budget) alone cannot correct the longevity bias resulting from the maximization of QALYs under a given medical budget.
