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Teaching QALYs to Beginners and to Non-Beginners

Teaching QALYs to Beginners and to Non-Beginners. Allen C. Goodman Wayne State University iHEA/ECHE meetings Dublin Ireland July 2014. There is Lots of Content. Quality of Life Efficiency Equity. Ed and Harry. 30. At age 10, Harry and Ed both have certain levels of health, 10 each.

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Teaching QALYs to Beginners and to Non-Beginners

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  1. Teaching QALYs to Beginners and to Non-Beginners Allen C. Goodman Wayne State University iHEA/ECHE meetings Dublin Ireland July 2014

  2. There is Lots of Content • Quality of Life • Efficiency • Equity

  3. Ed and Harry 30 • At age 10, Harry and Ed both have certain levels of health, 10 each. • Assume that Ed (easy) can gain health at a lower incremental cost than Harry (hard). Hence, a given level of expenditures will give Ed 20 incremental points but would give Harry only 10. • Suppose half of the people are like Ed and half are like Harry. Ed 10 10 20 Harry

  4. Harry and Ed 30 • What if we think that Harry and Ed should have the same QALYs? Draw 45 degree line. 45o Ed SH = SE 8 • What if we think that Harry and Ed should get the same inputs? 10 • Why? 10 20 Harry

  5. What’s the most cost-effective place? Highest mean! 30 Mean = (20+0)/2 = 10 • Thought experiment. Most cost effective place is where we get the highest mean score. Why? 45o SE+SH= max Ed SE+SH=20 Mean = (8+8)/2 = 8 • We can draw a line with a slope of –1. This line gives us places with equal totals. Start with S = SE + SH = 10. SE+SH=10 10 Mean = (0+10)/2 = 5 10 20 Harry

  6. What do we want? E Mean. 30 D 45o SE+SH= max D' E' Ed C' C B B' A' A 10 10 20 Harry Std. Dev.

  7. What do we want? L3 L2 Mean. L1 • Utility Functions • Leveler – Will only accept lower mean along with lower SD. • Why? D' E' C' B' A' • Utility Functions • Elitist – Will accept lower mean with higher SD. • Why? Std. Dev.

  8. What do we want? Mean. E3 • Utility Functions • Leveler – Will only accept lower mean along with lower SD. • Why? D' C' E2 B' A' E1 • Utility Functions • Elitist – Will accept lower mean with higher SD. • Why? Std. Dev.

  9. What do we want? Mean. E3 • So, it’s not altogether clear that we always want to raise the mean. • The levelers here, want to push up the lower end, and this lowers the SD. • Means fewer special programs. D' C' E2 B' A' E1 Std. Dev.

  10. Let’s Think more About Calculations • We don’t live in a 2-person world. • We don’t live in a world where everyone has linear or logarithmic functions. • Most of these are not analytically tractable.

  11. Let’s look at 3 people • Alex  QA = RA0.6 • Betty  QB = 1.75RB0.5 • Charisse Qc = 2.5Rc0.4 • Total Resources = 100 • We want the most cost effective place. Maximize total output.

  12. Cost-Effectiveness? • Equalize marginal products • Exercise – We want to keep MP equal • Slide line up and down, subject to where sum of inputs = 100.

  13. Or … Equal inputs • Equalize marginal products • Exercise – We want to keep MP equal • Slide line up and down, subject to where sum of inputs = 100. Equal MPs

  14. For more advanced students, we can calculate • What are the steps? • Use an initial allocation – 1/3 each will work • Compare MP • Take resources from the lower MP to the higher MP • Look at Worksheet • It’s fun to change parameters

  15. What if we want equal output? • What are the steps? • Use an initial allocation – 1/3 each will work • Compare Outputs • Take resources from the higher output to the lower output • Look at Worksheet • Again, it’s fun to change parameters

  16. Equal Output per Person? Equal inputs Equal Outputs

  17. Things to Look For • You can also maximize utility. It’s easy to program, but too much to do right here, right now. • Cost-effective does NOT mean everyone gets same amount. • Everyone getting same amount does not maximize output OR utility.

  18. Extensions • EXCEL has a “Solver” function. • It will take motivated students a couple of hours to get comfortable with it. • It works fine, but it takes away the “fun” or learning. • Still, after they’ve figured out the principles, there’s nothing wrong with using it.

  19. Take Away • We often set up first order conditions but do not solve because a lot of seemingly simple problems are not analytically tractable, especially when N > 2. • We preach about marginal conditions, but don’t really show students how to solve. • We talk about Equity v. Efficiency, but again, we don’t give good examples. • Everyone has EXCEL – let’s use it.

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