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Cost-identification analysis
Cost-identification analysis simply asks the question, 'What is the cost?' By calculating the cost of having a particular type of treatment, or the medical services used to treat a disease once it occurs, the cost of alternative ways of providing care (i.e., with or without new wound care treatments) can be determined. Cost-identification analysis is sometimes referred to as 'cost-minimization analysis' because it is usually used to identify the lowest cost of different available diagnostic or therapeutic strategies. Cost-identification analysis assumes that the outcomes of the strategies are considered equivalent, so the goal is to find the least expensive way of achieving the outcome.
As useful as cost-identification analysis may be in determining the cost of medical care or the financial burden of disease, it is lacking in that it does not evaluate what these expenditures bring in terms of gains in health outcomes. Thus, cost-identification analysis can guide medical practice only if a service has both lower cost, and better or equal outcomes than its alternative.

Cost-effectiveness analysis
Cost-effectiveness analysis, on the other hand, incorporates both cost and effect.10 It measures the net cost of providing a service (expenditures minus savings) as well as the outcomes obtained. Outcomes are reported in a single unit of measurement (e.g., quality-adjusted life-years). The advantage of cost-effectiveness analysis is that it considers the possibility of improved outcomes in exchange for the use of more resources.
Quality-adjusted life-years include a length of time component (e.g., one year) and a quality of life component (i.e., utility).¹¹ For example, one quality-adjusted life-year for an individual in perfect health (with a utility = 1.0) for one year (QALY=1) is considered equivalent to two years in a health state with utility = 0.5 (QALY=1). Quality adjusted life years gained is depicted in Figure 1, with a hypothetical intervention that improves survival and quality of life.

Figure 1. Quality adjusted life years gained.
With the evaluation of any new wound care product for clinical use, two questions must be answered. First, is the therapy effective in improving clinically meaningful outcomes? If the answer is yes, the second question is: are those improved outcomes or extra benefits worth whatever extra costs they entail? Four possibilities exist:

Figure 2.
Very importantly, no medical intervention can be considered 'cost-effective' in isolation but must be compared with the standard of care. Decisions based on cost-effectiveness are always relative to the alternative choices, which may include non-medical expenditures (e.g., education).

Cost-benefit analysis
Cost-benefit analysis, the third level of economic assessment of clinical practice, forces an explicit decision about whether the cost is worth the benefit by measuring both in dollar terms. Because translating value of health care (e.g., less pain and suffering a patient might experience) is tricky, cost-benefit studies are done less often.

PERSPECTIVE OF ANALYSIS

Costs, outcomes, and benefits can be analyzed from different points of view - the patient, the provider, the payer, or society as a whole. The cost of a medical service (e.g., an advanced wound care product) to the payer (e.g., an insurance company in the United States) equals the percentage of charges actually paid by the payer. However, the relevant cost to the patient is the out of pocket expense (not covered by insurance) plus other costs (e.g., loss of time at work) incurred due to having to take time off to get the test. The cost of advanced wound care products from society's point of view is the total cost of all the different components of society, or the result of society having given up the opportunity to use those resources for some other purpose. For researchers, costs are usually assessed from a societal perspective.

TYPES OF COSTS

Direct costs are expenditures for medical or non-medical products and services. The types of direct medical costs that are usually included are those of hospitalization, drugs, physician's fees, laboratory tests, radiological procedures, rehabilitation, durable medical equipment, and long-term care. Substantial portions of direct costs are for nonmedical services (e.g., transportation and lodging if a patient has to travel to obtain the genetic test).
Indirect costs are those that occur because of loss of life or livelihood and may result from morbidity or mortality. Indirect morbidity costs may occur because of being absent from work, because of a decreased earning ability when working, or because of long-term disability that necessitates a change in type of work.
Intangible costs represent another category of costs and, like indirect costs, are difficult to measure. These are the costs of pain, suffering, grief, and the other non-financial outcomes of disease and medical care.

DISCOUNTING - A COST TODAY IS NOT EQUIVALENT TO A COST IN THE FUTURE

Even after inflation has been taken into account, a cost or an outcome today is not equivalent in value to the same cost or outcome in the future. Since people prefer to have something today instead of having it in the future, a future value must be discounted (typically at 3-7% per year) to the present. For chronic wound care treatments, time costs may be relevant as the length of treatment increases.

A SENSITIVITY ANALYIS IS ALSO REQUIRED

Sensitivity analyses are necessary to evaluate the impact of changing key variables.¹² The ranges of estimates for each parameter usually encompass the ranges reported in the clinical trials or the published literature. Probabilistic sensitivity analysis is particularly helpful in considering uncertainties in all probabilities, utilities, and costs simultaneously.¹³

CONCLUSION

Economic evaluation is a useful conceptual framework to support evidence-based healthcare. Nevertheless, the actual use of economic evaluations in actual decision-making process is unclear. This may be in part due to data interpretation issues including comparison of the clinical trial population to the patients under consideration for treatment with the therapy, translation of the costs reported to the costs relevant to the perspective of the decision-maker, and translation of the clinical outcome measures to outcomes relevant to the length of treatment being proposed by the practitioner.

References

1. Bello Y, Phillips T. Recent Advances in Wound Healing. JAMA. 2000; 283: 716-718.
2. Genpzekow GD, Pollack SV, Kloth L, Stubbs HA. Improved healing of pressure ulcer using demnapulse, a new electrical stimulant devide. Wounds 1991; 3:5: 158-70.
3. Philbeck TE, Whittington KT, Millsap MH, Briones RB, Wight DG, Schroeder WJ. The clinical and cost effectiveness of externally applied negative pressure wound therapy in the treatment of wounds in home healthcare Medicare patients. J Ostomy Wound Man. 1999; 45: 41-50.
4. Cherry GW, Wilson J. The treatment of ambulatory venous ulcer patients with warming therapy. J Ostomy Wound Man. 1999; 45(9): 65-70.
5. Santilli SM, Valusek PA, Robinson C. Use of a non-contact radiant heat bandage for the treatment of chronic venous stasis ulcers. Adv Wound Care 1999; 12: 89-93.
6. Ferrell BA, Keeler E, Siu AL, Ahn AH, Osterweil D. Cost-effectiveness of low-air-loss beds for treatment of pressure ulcers. J Gerontol A Biol Sci Med Sci 1995; 50A: M141-6.
7. Xakellis G, Chrischillis E. Hydrocolloid versus saline gauze dressings in treating pressure ulcers: a cost-effectiveness analysis. Arch Phys Med Rehabil 1992; 73: 463-9.
8. Phillips TJ. New skin for old: developments in biological skin substitutes. Arch Dermatol. 1998; 134: 344-349.
9. Rees RS, Robson MC, Smiell JM, Perry BH. and the Pres-sure Ulcer Study Group. Becaplermin gel in the treatment of pressure ulcers. Wound Rep Reg. 1999; 7: 141-147.
10. Weinstein MC, Stason WB. Foundations of cost-effectiveness analysis for health and medical practices. NEJM. 296: 716-721, 1977.
11. Tengs TO, Wallace A. One thousand health-related quality-of-life estimates. Med Care 2000; 38(6): 583-637.
12. Mullahy J, Manning W. Valuing health care: costs, benefits, and effectiveness of pharmaceuticals and other medical technologies. In: Sloan FA, ed. Statistical Issues in Cost-Effectiveness Analyses. New York, NY: Cambridge University Press; 1995: 149-184.
13. Doubilet P, Begg C, Weinstein M, Braun P, McNeil B. Probabilitic senstivity analysis using Monte-Carlo simulation. Med Dec Making 1985; 5: 157-77.

Alex Macario, MD, MBA
Assistant Professor of Anesthesia
& Health Policy and Research,
Department of Anesthesia,
Stanford University,
School of Medicine, Stanford,
California 94305-5640, USA
Tel: 650 723 6411
Fax: 650 725 8544
E-mail: amaca@stanford.edu

From 20 August 2001 to 15 June 2002, work address:
Tecnicas Avanzandas de Investigacion en Servicios de Salud (TAISS), C/Cambrils 41-2, 28034 Madrid, Spain
Tel: +34 91 7310380, Fax: +34 91 7302893
(E-mail as above)