April 2, 2021

Risk-adjusted Cost-effectiveness Analysis

 Health Technology Assessment With Diminishing Returns to Health: The Generalized Risk-Adjusted Cost-Effectiveness (GRACE) Approach

Cost-effectiveness analysis (CEA) is widely used to evaluate new medical technologies—for example, by the UK’s National Institute for Health and Care Excellence or by the Institute for Clinical and Economic Review. Standard methods calculate the average increase in treatment cost per average quality-adjusted life-year (QALY) gained, also known as the incremental cost-effectiveness ratio (ICER). 

Researchers have raised concern that traditional CEA discriminates against the severely ill or disabled.5,6 The U.S. Affordable Care Act forbids using CEA that discriminates against persons with disabilities, both by the Patient-Centered Outcomes Research Institute and in determining Medicare coverage and reimbursement. To address this concern, the Institute for Clinical and Economic Review now calculates the equal value of life-years gained in parallel with standard CEA analyses,7 and other departures from CEA have been proposed as ad hoc ways to repair this problem.6

These exceptions, exclusions, and prohibitions call for deeper examination of CEA’s theoretical foundations. In a new analysis, we develop a generalization of standard CEA methods that resolves many of these issues.

This is precisely what I call it risk-adjusted cost-effectiveness.