Abstract
The generalized risk-adjusted cost-effectiveness (GRACE) model generalizes conventional cost-effectiveness analysis (CEA) by introducing diminishing returns to Health-Related Quality of Life (QoL). This changes CEA practice in three ways: (1) Willingness to pay (WTP) increases exponentially with untreated illness severity or pre-existing permanent disability, and WTP ends up lower for mild diseases but higher for severe diseases compared with conventional CEA; (2) Average treatment effectiveness should be adjusted for uncertainty in outcomes; and (3) The marginal rate of substitution between life expectancy and QoL varies with health state. Implementing GRACE requires new parameters describing risk preferences over QoL, the marginal rate of substitution between life expectancy (LE) and QoL, and the variance and skewness of treatment outcomes distributions. In this paper, we provide: (1) a generalized WTP threshold incorporating the possibility of permanent disability; (2) a simpler method to estimate the tradeoff rate between QoL and LE, eliminating the need to carry out treatment-by-treatment estimates; (3) a more-general method to adjust WTP for illness severity that permits non-constant relative risk-aversion in QoL; (4) a new approach to estimating risk-preferences over QoL, leveraging established empirical methods from “happiness” economics; and (5) a step-by-step guide for practitioners wishing to implement multi-period GRACE analyses.
Highlights
Lakdawalla and Phelps developed a generalized risk-adjusted cost-effectiveness (GRACE) framework [1, 2] that nests the traditional cost-effectiveness analysis (CEA) framework [3] as a special case
Exceptions unique to GRACE include the elasticity of quality of life (QoL) utility ( H), the disease-severity ratio (R), the certainty-equivalence ratio ( ), and the marginal rate of substitution between life expectancy (LE)
Instead of requiring “excellent” period zero health, we assume instead that period zero health is H0d = H0(1 − d∗), where 0 ≤ d∗ < 1 is the percentage of QoL lost to permanent disability, as defined in Box 1.3 The earlier LP model and traditional CEA study the special case where d∗ = 0
Summary
Lakdawalla and Phelps (hereafter, LP) developed a generalized risk-adjusted cost-effectiveness (GRACE) framework [1, 2] that nests the traditional cost-effectiveness analysis (CEA) framework [3] as a special case. We widen the range of risk preferences accommodated by the GRACE framework We incorporate these findings into a step-by-step guide for practitioners seeking to conduct GRACE studies in both static and dynamic cost-effectiveness value assessments, extending the original static framework [1]. To develop these new ideas, we first summarize the original GRACE model [1, 2], and present our first four contributions in Sect. Section “Guide to using the GRACE method” provides a “handbook” for practitioners that clarifies specific implementation steps for using GRACE in a multiperiod setting
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