Question

Economic Evaluation problem:

1. The following information has been gathered on the costs and effectiveness of the two treatments, A and B. In this problem, costs and consequences are not discounted.

	Treatment A	Treatment B
Mortality rate	2%	5%
Life expectancy for survivors	20 years	10 years
Initial treatment cost	$10,000	$3,000
Follow up costs, year 1	$5,000	$1,000
Annual follow up costs, all subsequent years	$1,000	$500

1. What is the total cost for the survivors receiving treatment A?
2. What is the total cost for survivors receiving treatment B?
3. What is the expected cost for those patients receiving treatment A?
4. The expected cost of Treatment B?
5. Calculate the incremental cost and incremental benefit of the treatment alternatives.
6. What is the ICER?
7. How does cost-benefit analysis differ from cost-effectiveness analysis?

Answer 1

Answer

a) The total cost for a survivor taking treatment A is computed as the sum of the following:-

(1) Initial treatment costs in Year 0;

(2) Follow-up costs in Year 1; and

(3) Total costs of follow up from Year 2 till Year 20

Now, basis the information provided in the Table given in the question, it follows that (1) Initial treatment cost in Year 0 = $10,000; (2) Follow-up costs in Year 1 = $ 5,000 and (3) Total follow-up costs from Year 2 till Year 20 = $ 19,000 which is computed by multiplying the Annual follow up cost of $1,000 incurred each year by 19 which is the number of years from Year 2 till Year 20

Thus, the total cost for a survivor taking treatment A = $10,000 + $ 5,000 + $ 19,000 =$34,000

Hence, the answer to Question 1. i.e. the total cost for survivors receiving treatment A is $34,000.

However, for those patients who cannot survive i.e. those 2% of the patients who die early, the total cost is equivalent to the initial treatment cost of treatment A which is $10,000.

b)Answer

The total cost for a survivor taking treatment B is computed as the sum of the following:-

(1) Initial treatment costs in Year 0;

(2) Follow-up costs in Year 1; and  

(3) Total costs of follow up from Year 2 till Year 10

Now, basis the information provided in the Table given in the question, it follows that (1) Initial treatment cost in Year 0 = $3,000; (2) Follow-up costs in Year 1 = $ 1,000 and (3) Total follow-up costs from Year 2 till Year 20 = $ 4,500 which is computed by multiplying the Annual follow up cost of $500 incurred each year by 9 which is the number of years from Year 2 till Year 10

Thus, the total cost for a survivor taking treatment B = $3,000 + $ 1,000 + $ 4,500 =$8,500

Hence, the answer to Question 2. i.e. the total cost for survivors receiving treatment B is $8,500.

However, for those patients receiving treatment B who cannot survive i.e. those 5% of the patients who die early, the total cost is equivalent to the initial treatment cost of Treament B which is $3,000.

c)Answer

The mortality rate of the patients receiving treatment A is 2% whereas the mortality rate of the patients receiving treatment B is 5%.

This implies that the 98% of the patients receiving treatment A survive. Similarly, 95% of the patients receiving treatment B survive,

The expected cost for those patients receiving treatment A = (Mortality rate)* (Total Cost of treatment A for patients who don't survive i.e. who die early) + (% of survivors receiving treatment A) *(Total Cost of treatment A for survivors receiving treatment A).

Now, basis the information provided in the Table given in the question, it follows that Mortality rate for patient receiving Treatment A is 2%. The total cost of treatment A for patients who don't survive i.e. who die early as computed in Answer to Question 1 above is $10,000. Furthermore, the total cost for the survivors receiving treatment A as computed in Answer to Question No.1 above is $ 34,000.

Thus, the expected cost for the patients receiving treatment A = (2%* $10,000) + (98%*$34,000) = $33,520

Similarly, the expected cost for those patients receiving treatment B= (Mortality rate)* (Total cost of treatment B for patients who don't survive i.e. who die early) + (% of survivors receiving treatment B) *(Total cost of treatment B for survivors receiving treatment B).

Now, basis the information provided in the Table given in the question, it follows that Mortality rate for patient receiving Treatment B is 5%. The total cost of treatment B for patients who don't survive i.e. who die early as computed in Answer to Question 2 above is $3,000. Furthermore, the total cost for the survivors receiving treatment B as computed in Answer to Question No.2 above is $ 8,500.

Thus, the expected cost for the patients receiving treatment B = (5%* $3,000) + (95%*$8,500) = $8,225

Hence, the answer to this Question 3 i.e. the expected cost for those patients receiving treatment A is $33,520 and the expected cost for those patients receiving treatment B is $8,225.

e)Answer

The incremental cost of the treatment alternatives is computed as difference between the expected cost for those patients receiving treatment A and the expected cost for those patients receiving treatment B i.e. $33,520 - $8,225 = $25,295

The benefit of treatment A is computed by multiplying the life expectancy of the survivors receiving treatment A and % of survivors receiving treatment A . Similarly, the benefit of treatment B is computed by multiplying the life expectancy of the survivors receiving treatment B and % of survivors receiving treatment B.

Basis the information provided in the table given in the Question, the Life expectancy of the survivors receiving treatment A is 20 years. The % of survivors receiving treatment A is 98%. Thus, the benefit of treatment A = 20* 0.98 which comes out to 19.6

SImilarly, basis the information provided in the table given in the Question, the Life expectancy of the survivors receiving treatment B is 10 years. The % of survivors receiving treatment A is 95%. Thus, the benefit of treatment A = 10* 0.95 which comes out to 9.5.

The incremental benefit of the treatment alternatives is computed as difference between the benefit of receiving treatment A and the benefit of receiving treatment B i.e. 19.6- 9.5 which comes out to be 10.1.

Hence, the answer to this Question 4 i.e. the incremental cost and incremental benefit of the treatment alternatives are $25,295 and 10.1.

f)Answer

The ICER is computed as the ratio of incremental costs and incremental benefits of the treatment alternatives i,e, ICER is computed by the dividing the incremental costs and incremental benefits of the treatment alternatives as computed above i.e. ICER = 25295/10.1 which comes out to be 2,504 (rounded figure).

Hence, the answer to this Question 5 i.e. the ICER is 2,504.

g)Answer

In the cost-benefit analysis, the value of the benefits are expressed in monetary terms i.e. there is a quantification of the benefits and costs in monetary terms. In the Cost effectiveness analysis, the benefits are not measured in monetary terms but they are measured in terms of the effectiveness of the outcomes.