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A guide to extending and implementing generalized risk-adjusted cost-effectiveness (GRACE).

Darius N Lakdawalla1,2, Charles E Phelps3,4

  • 1School of Pharmacy, Sol Price School of Public Policy, The Leonard D. Schaeffer Center for Health Policy and Economics, University of Southern California, Los Angeles, CA, USA. dlakdawa@usc.edu.

The European Journal of Health Economics : HEPAC : Health Economics in Prevention and Care
|September 8, 2021
PubMed
Summary
This summary is machine-generated.

The generalized risk-adjusted cost-effectiveness (GRACE) model refines cost-effectiveness analysis (CEA) by incorporating diminishing returns to Health-Related Quality of Life (QoL). This approach adjusts willingness to pay (WTP) for illness severity and uncertainty, offering a more nuanced economic evaluation of healthcare interventions.

Keywords:
Cost-effectiveness analysisHealth insuranceLife expectancyPublic health insuranceQuality of life

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Area of Science:

  • Health Economics
  • Decision Science
  • Public Health Policy

Background:

  • Conventional cost-effectiveness analysis (CEA) assumes linear returns to Health-Related Quality of Life (QoL).
  • This simplification may not accurately reflect societal preferences for health gains, particularly across varying illness severities.
  • Existing CEA models lack robust methods for incorporating risk preferences and uncertainty in treatment outcomes.

Purpose of the Study:

  • To introduce and detail the Generalized Risk-Adjusted Cost-Effectiveness (GRACE) model.
  • To provide practical methods for implementing GRACE, including generalized willingness to pay (WTP) thresholds and estimation of trade-offs between life expectancy (LE) and QoL.
  • To offer a framework for adjusting WTP for illness severity and risk preferences over QoL.

Main Methods:

  • Development of a generalized WTP threshold accounting for permanent disability.
  • Introduction of a simplified method for estimating the marginal rate of substitution between LE and QoL.
  • Application of empirical methods from happiness economics to estimate risk preferences over QoL.
  • Proposal of a method to adjust WTP for illness severity with non-constant relative risk-aversion.
  • Provision of a step-by-step guide for multi-period GRACE analyses.

Main Results:

  • The GRACE model demonstrates that WTP increases exponentially with illness severity or disability, leading to higher WTP for severe conditions compared to mild ones.
  • A more generalized method for adjusting WTP for illness severity is presented, allowing for non-constant risk aversion.
  • The study offers a novel approach to estimating risk preferences over QoL, enhancing the accuracy of economic evaluations.
  • New parameters are identified as crucial for implementing GRACE, including risk preferences, marginal rate of substitution, and outcome distribution characteristics.

Conclusions:

  • The GRACE model provides a more sophisticated and accurate framework for cost-effectiveness analysis by incorporating diminishing returns to QoL and risk preferences.
  • Implementation of GRACE offers a more nuanced approach to healthcare resource allocation, particularly for interventions targeting diseases of varying severity.
  • The proposed methods simplify the estimation of key parameters, facilitating broader adoption of advanced economic evaluation techniques in practice.