Business 392 COST-BENEFIT ANALYSIS IN HEALTH CARE. The emphasis will be on insights into the art of practical application.

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1 Graduate School of Business Professor Enthoven STANFORD UNIVERSITY Spring 1984 Business 392 COST-BENEFIT ANALYSIS IN HEALTH CARE COURSE OBJECIIVES 1. To show how principles of economic analysis can be applied to program decision-making in health care. 2. To study how cost-benefit analysis can be done when the "output" is difficult or impossible to measure. The emphasis will be on insights into the art of practical application. The course is intended both for students interested in management in health care, public or private, and for public management students interested in program analysis in general. COURSE SCHEDULE AND ASSIGNMENTS 1. INTRODUCTION AND OVERVIEW Robert N. Grosse, "Problems of Resource Allocation in Health," in Public Expenditures and Policy Analysis, (syllabus, 14 p.) Office of Technology Assessment: The Implications of Cost-Effectiveness Analysis of Medical Technology, Chapters 1-4. (reserve, 78 pp.) This recent document is quite repetitive, but it does provide a useful status report on the state and uses of the art of benefit-cost and cost-effectiveness analysis. Suggested readings: For those who did not take B.309 and need a review, Professor Enthoven's Notes "Economic Analysis of Public Expenditures" are included in the syllabus (32 pp.). For those lacking background in health economics, Victor Fuchs, Who Shall Live? (on reserve, 151 pp.). 2. CRITERIA, UNCERTAINTY C.J. Hitch and R.N. McKean, "The Criterion Problem," Chapter 9 in Economics of Defense in the Nuclear Age (syllabus, 12 pp.).

2 L. Merewitz and S.H. Sosnick, The Budget's New Clothes, Markham Publ., Chicago 1973, pp (syllabus, 9 pp.). R. Brian Haynes, David L. Sackett, et.al., "Increased Absenteeism from Work After Detection and Labeling of Hypertensive Patients," New England Journal of Medicine, Vol. 299, 1978 (syllabus, 4 pp.). 3. VALUING THE OUTPUT, I: HUMAN CAPITAL AND WILLINGNESS-TO-PAY T.C. Schelling, "The Life You Save May Be Your Own," in S.B. Chase, ed., Problems in Public Expenditure Analysis, Brookings, Washington, 1968 (syllabus, 34 pp.). E. J. Mishan, "Evaluation of Life and Limb," Journal of Political Economy, July-August 1971, (syllabus, 18 pp.). J. S. Landefeld and Eugene P. Seskin, "The Economic Value of Life: Linking Theory to Practice," AJPH June 1982; and Editorial by Dorothy Rice and Thomas Hodgson; (syllabus, 13 p.) 4. VALUING THE OUTPUT, II: QUALITY-ADJUSTED LIFE-YEARS (QUALYs) AND PATIENT PREFERENCES IN DIAGNOSIS AND TREATMENT Robert M. Kaplan and James W. Bush, "Health-Related Quality of Life Measurement for Evaluation Research and Policy Analysis," Health Psychology, 1982, 1 (1) (syllabus, 16 p.). Also Kaplan, Bush, et.al Table 1: Function Levels Table 2: Symptom/Problem Complexes R. Zeckhauser and D. Shephard, "Where Now For Saving Lives?" Law and Contemporary Problems, Autumn 1976 (syllabus, 13 pp.). Barbara J. McNeil, "Fallacy of the Five-Year Survival in Lung Cancer," New England Journal of Medicine, 299, December 21, 1978 (syllabus, 5 pp.) Barbara J. McNeil, et.al., "On the Elicitation of Preferences for Alternative Therapies," New England Journal of Medicine, 306, May 27,1982 (syllabus, 14 pp.). 5. BEDSIDE BAYES

3 Required Readings: John M. Harris, Jr., M.D., "The Hazards of Bedside Bayes," JAMA, Dec. 4, 1981, plus correspondence. (syllabus, 5 pp.). John A. Swets, et.al., "Assessment of Diagnostic Technologies," Science, Vol. 205, August 1979 (syllabus, 6 p.). Alain Enthoven, "Bayes at the Bedside." 6. EVALUATING EFFICACY, I: BROAD ISSUES SURROUNDING RANDOMIZED CONTROLLED TRIALS Required Readings: Gilbert, Light & Mosteller, "Assessing Social Innovations: An Empirical Base for Policy," in Benefit-Cost and Policy Analysis, 1974, Aldine Annual (syllabus 27 page excerpt). The complete article is on reserve in Jackson Library. Office of Technology Assessment, "Factors Affecting the Impact of RCTs on Medical Practice" and excerpts from "The Impacts of Clinical Trials on Medical Practice," in The Impact of Randomized Clinical Trials on Health Policy and Medical Practice, August, 1983 (syllabus, 32 pp.). Suggested reading: Alan Gittelsohn, "Assessing the Adequacy of Medical Technology Data Bases," in Medical Technology: Research Priorities, Proceedings of an Urban Institute Conference, West Palm Beach, Florida, December 1978; Judith L. Wagner, ed., 25 pp. (Full proceedings on reserve). 7. EVALUATING EFFICACY, II: INTELLIGENT CONSUMER'S GUIDE TO RANDOMIZED CONTROLLED TRIALS Byron Wm. Brown and Myles Hollander, Statistics, A Biomedical Introduction (syllabus, 23 pp.). Jennie A. Freiman, Thomas C. Chalmers, et.al., "The Importance of Beta, The Type II Error and Sample Size in the Design and Interpretation of the Randomized Control Trial," New England Journal of Medicine, Vol. 299, No. 13, September 28, 1978 (syllabus, 5 pp.).

4 Rebecca Der Simonian, Frederick Mosteller, et.al., "Reporting on Methods in Clinical Trials," New England Journal of Medicine 1982; 306: , June 3, 1982, (syllabus, 8 pp.). 8. CLINICAL POLICIES AND ANALYSIS OF THEM David M. Eddy, "Clinical Policies and the Quality of Clinical Practice," unpublished manuscript, (syllabus 50 pp.). 9. ASSESSMENT OF SURGICAL INNOVATION; CABG CASE STUDY Suggested readings: J.P. Bunker, et.al., "Surgical Innovation and Its Evaluation," Science, May 26, 1978 (syllabus, 5 pp.). "Case 8: Surgery for Coronary Artery Disease," Assessing; the Efficacy and Safety of Medical Technologies, OTA, September 1978 (syllabus, 3 pp.) Marvin L. Murphy, et.al., "Treatment of Chronic Stable Angina: A Preliminary Report of Survival Data of the Randomized Veterans Administration Cooperative Studv," New England Journal of Medicine, September 22, 1977, Vol. 297, No. 12 (syllabus, 5 pp.). Eugene Braunwald, M.D., "Coronary-Artery Surgery at the Crossroads," New England Journal of Medicine, September 22, 1977 (svllabus, 2 pp.). Letters to the Editor and Editorial on CABG, New England Journal of Medicine, December 29, 1977 (syllabus, 8 pp.). Judith Randal, "Coronary Artery Bypass Surgery," The Hastings Center Report, February 1982 (syllabus, 5 pp.). Eugene Braunwald, M.D., "Effects of Coronary Artery Bypass Grafting on Survival," New England Journal of Medicine, November 10, (syllabus 3 pp.). 10. FINDING MARGINAL COST Required reading:

5 Lipscomb, Raskin and Eichenholz, "The Use of Marginal Cost Estimates in Hospital Cost-Containment Policy," in Hospital Cost Containment, PRODIST, New York, 1978 (syllabus, 24 pp.) S.A. Finkler, "The Distinction Between Cost and Charges," Annual of Internal Medicine. 1982: (syllabus, 7 pp.). A. Enthoven et al. Notes on Cost Finding in Hospitals and Health Care Institutions. (To be supplied later). 11. KAISER-PERMANENTE CASE STUDY Stockton feasibility study to be supplied in April by Leslie Mancini. 12. HEART SURGERY COST EFFECTIVENESS H.S. Luft, J.P. Bunker, and A.C. Enthoven, "Should Operations Be Regionalized? The Empirical Relation Between Surgical Volume and Mortality," New England Journal of Medicine, Decemher 1979, (syllabus, 6 pp.). Steven A. Finkler, "Cost-Effectiveness of Regionalization: The Heart Surgery Example," Inquiry, Fall 1979 (syllabus, 7 pp.). William Schwartz and Paul Joskow, "Duplicated Hospital Facilities: How Much Can We Save by Consolidating Them?" New England Journal of Medicine, December 18, 1980 (syllabus, 8 pp.). Alain Enthoven, "Comment--Duplicated Hospital Facilities: How Much Can We Save By Consolidating Them?" (syllabus, 5 pp.). 13. CASE CLASSIFICATION AND SEVERITY OF ILLNESS Required Readings: Susan Horn, "Measuring Severity of Illness: Comparisons Across Institutions," American Journal of Public Health, January, 1983 (syllabus, 6 p.). Susan Horn, et.al., "Measuring Severity of Illness: Homogeneous Case Mix Groups," Medical Care, January, 1983 (syllabus, 12 p.). Susan Horn, "Does Severity of Illness Make a Difference in Prospective Payment,"

6 Healthcare Financial Management, May, 1983 (syllabus, 4 pp.). 14. IMMUNIZATION Steven Schoenbaum, Barbara McNeil, et.al., "The Swine-Influenza Decision,@ New England Journal of Medicine, 295, September 30, 1976 (syllabus, 6 pp.). Jeffrey P. Koplan, Stephen C. Schoenbaum, et.al., "Pertussis Vaccine--An Analysis of Benefits, Risks and Costs," New England Journal of Medicine, 301, October 25, 1979 (syllabus, 6 pp.). Jane Willems, et.al., "Cost Effectiveness of Vaccination Against Pneumococcal Pneumonia," New England Journal of Medicine, 303, September 4, 1980 (syllabus, 6 pp.). Suggested reading: Stephen C. Schoenbaum, James N. Hyde, et.al., "Benefit-Cost Analysis of Rubella Vaccination Policy," New England Journal of Medicine, 294, February 5, 1976 (syllabus, 5 pp.). 15. ESTIMATING PROBABILITY OF DISEASE Required reading: Harold C. Sox, Jr., M.D., David Hickam, M.D., Kelly M. Skeff, M.D., '.A Discriminant Rule For Estimating The Probability of Coronary-Artery Disease From The Clinical History," (syllabus 30 pp.). 16. SCREENING FOR CANCER I Stuart O. Schweitzer, "Cost Effectiveness of Early Detection of Disease," (syllabus 10 pp.) David M. Eddy, "Pitfalls and Biases in Evaluating Screening-Technologies," in McNeil and Cravalho, Critical Issues in Medical Technology, (syllabus 13 pp.) ACS Guidelines for the Cancer-related Checkup (syllabus, 22 pp.).

7 17. EVALUATING NEW DIAGNOSTIC TECHNOLOGY: THE CT EXAMPLE Required Readings: Office of Technology Assessment, Policy Implications of the CT Scanner (syllabus, 23 pp. --Skim for general introduction to technology and policy issues.) H.L. Abrams and B.J. McNeil, "Medical Implications of Computed Tomography," New England Journal of Medicine, 298, 1978 (syllabus, 12 pp.). Barbara J. McNeil, "Pitfalls in and Requirements for Evaluations of Diagnostic Technologies," in Medical Technology: Research Priorities, Proceedings of an Urban Institute Conference, West Palm Beach, Florida, December 1978, (syllabus, 20 pp.). 18. SUMMARY AND CONCLUSIONS Milton C. Weinstein and William Stason, "Foundations of Cost-Effectiveness Analysis for Health and Medical Practices," New England Journal of Medicine, March 31, 1977, Vol. 296 (syllabus, 6 pp.). Thomas W. Moloney and David E. Rogers, "Medical Technology A Different View of the Contentious Debate Over Costs," New England Journal of Medicine, Vol. 301, December 1979 (syllabus, 6 pp.).