Cost Analysis in Social Work Research:

How cost analysis can inform social work

research and increase likelihood that EBP’s will be implemented by public human service

agencies

January 22, 2009

Charles A. Smith, PhD

2005 Graduate of UMB SSW

Montgomery County HHSData Analysis & Evaluation

Montgomery County HHSPlanning & Identification of EBP’s

Director Ahluwalia and Service Chief’s paying rapt attention to Dr. Smith’s exposition on cost utility analysis

Born Again Economist

ADAM SMITH

CLASSICAL ECONOMICS THEORY

Born Again Economist

AMOS TVERSKY

BEHAVIORAL ECONOMICS THEORY

OUTLINE

• What is economic evaluation

• Why is it important

• Major economic concepts

• Types of economic evaluations

• Methodological Issues

DEFINITION

“comparative analysis of alternative courses in terms of both their costs and consequences” (Drummond et al., 1997, p. 8)

Core concept: Efficiency

So What: Part I

“value of cost-effectiveness is as a framework that helps social-work evaluators to cover all the bases and to make inevitably subjective judgments as explicit as possible” (Schreiner et al., 2006, p. 36)

So What: Part II

• Role of SW Research– Production of knowledge to guide practice– Implementation of that knowledge

• Barriers to implementation– Knowledge not matching needs of consumers

(i.e., Practitioner/researcher divide)

Knowledge Production

Rosen et al., 1999

• Descriptive (36%)

• Explanatory (49%)

• Control/Intervention (15%)

Knowledge Consumption

“person-in-environment” of policy makers

1. Constraint– Demand > Supply– Work > Time

2. Trade-offs and comparisons– Nothing exists in isolation– Decisions often non-rational (i.e.., political)

Knowledge Void

Cost related information

• Amount of resources ($, time)

• Amount of benefit (with duration)

• Costs and benefits relative to other options

Cost analysis < 1% of SW research

Primer on Economic Concepts

• Constraints

• Opportunity costs

• Loss aversion

• Choices under conflict

• Marginal utilities

• Dosage

CONSTRAINTS

Constraint Constraint Constraint

Constraint Constraint Constraint

Constraint Constraint Constraint

Constraint Constraint Constraint

USA political system rebels against reality of constraints, but they do exist and they do influence policy decisions

Opportunity Cost

• Technical definition: Next best use

• Applied definition: Nothing is free!

Loss Aversion

• Prospect Theory (Behavioral Economics)– “loss” and not “risk” is key issue

– “Endowment Effect”• Losing A is 2x as painful as gaining A• Status quo bias• Sunk cost fallacy

Choices Under Conflict

• Relative not absolute position critical

• Too many options = decision paralysis

• Bad option bias’ toward closest parallel option

• Examples:• Study with choice over salary• Money buying happiness

Marginal Utilities

• Definition: return on each additional input

• Non-linear– Increasing marginal utilities

• Therapeutic dosage• Economies of scale

– Decreasing marginal utilities• Diminishing returns• Toxicity

Dosage

• Inputs & outcomes occur in gradients

• Holy Grail = minimum effective dosage– Ethical issue of horizontal equity given

constrained resources

• Limitation: EBP and sledgehammer effect

Types of Economic Evaluations

• Cost Benefit Analysis (CBA)

• Cost Utility Analysis (CUA)

• Cost Effectiveness Analysis (CEA)

• Cost Minimization Analysis (CMA)

Choice of analysis depends on the question being asked

Is It Worth Doing at All?

• CBA– Is Net Present Value (NPV) > 0– Limitation: monetarization of latent constructs

• CUA– Quality Adjusted Life Year (QALY) as benefit– Is QALY < threshold (e.g., $50K)

Which of Several to Pick

• Assumes allocation decision already made

• CEA– Relative effectiveness of 2+ interventions

along 1+ comparable outcomes– Incremental Cost Effectiveness Ratio (ICER)

• CMA– If outcomes identical, then minimize cost

How to Become an Economist• Classic texts (Drummond et al., 1997, Gold et al., 1996, Haddix et al., 2003)

• Collaborations (e.g., Kevin Frick)

• Articles and conferences (e.g., Pharmoeconomics )

Primer: Methodological Issues

• Formula

• “Rule of reason”

• Perspective– Discounting– Societal vs. Program

• Data sources

• Sensitivity analysis

• Interpretation

Formula

Costs

Benefits

• Direct + Indirect• Expenditures - Savings• Outcomes - Unintended consequences

• Essentially an accounting exercise … but …

Rule of Reason

“validity rests on whether its assumptions are reasonable in light of the needs and purposes of the decision maker and, importantly, in light of whether, after close examination, its implications make sense” (Gold et al., 1996, p. 152)

Perspective

• Discounting & Time Horizon– Future dollars (and benefits) have lower utility– What is appropriate discount rate?– Ethical issue: value of future generations

• Societal vs. Program– Whose costs and whose benefits?– Programs tend to care only about their own $– Gold et al., recommend computing both

Data Sources

• Data can be collected in specific study or estimated based on prior studies– “rule of reason”– cost modeling vs. micro-costing

• Implementation costs (i.e., real world)

• Constant dollar calculations

Sensitivity Analysis

– “varying key model parameters to evaluate their impact on model outcomes” (Haddix et al., 2003, p. 114)

– “interpretation of a sensitivity analysis is essentially arbitrary because there is no guidelines or standards as to what degree of variation results in acceptable evidence that the analysis is robust” (Drummond et al., 1997, p. 250)

COST

EFFECT+

+

-

-

Intervention more costly & more effective (tricky)

Intervention less costly & more effective = dominates (easy decision: YES)

Intervention more costly & less effective (easy decision: NO)

Intervention less costly & less effective (tricky)

Adapted from Drummond et al., 1997, Box 4.2, p. 40

IIV

III II

EXAMPLE

Zahzle’s handy-dandy stochastic probabilistic sensitivity generator

Example: Methodological Issues

• Learning from our mistakes

• Smith & Frick, 2008– Benefits: EQ5D may not produce valid

indicator of QALY for aged population (i.e., anticipated vs. experienced utility),

– Costs: dosage of both interventions so high that it may have distorted findings,

– Interpretation: $50K QALY threshold debatable