Cost Analysis in Social Work Research:

1. 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

2. 2005 Graduate of UMB SSW

3. Montgomery County HHSData Analysis & Evaluation

4. 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

5. Born Again Economist ADAM SMITH CLASSICAL ECONOMICS THEORY

6. Born Again Economist AMOS TVERSKY BEHAVIORAL ECONOMICS THEORY

7. OUTLINE • What is economic evaluation • Why is it important • Major economic concepts • Types of economic evaluations • Methodological Issues

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

9. 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)

10. 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)

11. Knowledge Production Rosen et al., 1999 • Descriptive (36%) • Explanatory (49%) • Control/Intervention (15%)

12. Knowledge Consumption “person-in-environment” of policy makers • Constraint • Demand > Supply • Work > Time • Trade-offs and comparisons • Nothing exists in isolation • Decisions often non-rational (i.e.., political)

13. 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

14. Primer on Economic Concepts • Constraints • Opportunity costs • Loss aversion • Choices under conflict • Marginal utilities • Dosage

15. 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

16. Opportunity Cost • Technical definition: Next best use • Applied definition: Nothing is free!

17. 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

18. 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

19. Marginal Utilities • Definition: return on each additional input • Non-linear • Increasing marginal utilities • Therapeutic dosage • Economies of scale • Decreasing marginal utilities • Diminishing returns • Toxicity

20. Dosage • Inputs & outcomes occur in gradients • Holy Grail = minimum effective dosage • Ethical issue of horizontal equity given constrained resources • Limitation: EBP and sledgehammer effect

21. 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

22. 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)

23. 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

24. 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)

25. Primer: Methodological Issues • Formula • “Rule of reason” • Perspective • Discounting • Societal vs. Program • Data sources • Sensitivity analysis • Interpretation

26. Formula Costs Benefits • Direct + Indirect • Expenditures - Savings • Outcomes - Unintended consequences • Essentially an accounting exercise … but …

27. 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)

28. 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

29. 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

30. 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)

31. COST + Intervention more costly & less effective (easy decision: NO) Intervention more costly & more effective (tricky) IV I - + EFFECT III II Intervention less costly & less effective (tricky) Intervention less costly & more effective = dominates (easy decision: YES) - Adapted from Drummond et al., 1997, Box 4.2, p. 40

32. EXAMPLE

33. Zahzle’s handy-dandy stochastic probabilistic sensitivity generator

34. 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