CMA/Cost Determination

Question 1

Costs + Economic Evaluation

Answer 1

• Should be current estimates

- Also used for estimates of future years: inflation NOT considered

Question 2

Historical Cost Information - Standardized

Answer 2

• As economy increases, monetary value tends to decrease
• To insure valuations are consistent, historical costs are adjusted to current costs
• Costs collects >1 year prior to the current time need to be adjusted to the current value
• CPI used to estimate inflation rate: published by Bureau of Labor and Statistics

Question 3

Retrospective Costs - Standardized

Answer 3

• Use Annual Average Index
• Compare CPI for two years and get a ratio
• Current year cost = Past Year Cost * (1 + Ratio)

Question 4

Alternative Method

Answer 4

• Uses annual rate of inflation
• Average annual inflation rate~=2.88%
• Current year costs = Past Year Cost * (1+Average Inflation Rate)^(# of years)

Question 5

Historical Adjustment Formula

Answer 5

• Convert historical costs into present value
• Present value = Historical Costs * (1+r)^(# of years after estimated year)
• r: Discounted rate

Question 6

Future Estimated Costs - Discounting

Answer 6

• Time preference: humans tend to place decreased value on future event compared to near/present events
• Opportunity cost: forego using resources for other ventures
• Catastrophic Risk (future uncertainty)
• Discount rate time preference placed on future expenditures
• Discounting is NOT the same as inflation, all costs should be in real terms prior to discounting
• For medication/health: 3% discount rate is the most cost-effective
• Cost estimates >1 year should be discounted

Question 7

Discounting Formula

Answer 7

• Convert future costs to present value
• Present Value = Future Cost * [1/(1+r)^# years after intial year]
• Discount Factor: [1/(1+r)^# years after intial year]

Question 8

Cost Determination

Answer 8

• Disease timeline helps identify resources
• Prior: lost work days, less productivity, travel
• During: rent, salary, diagnosis, supplies, treatment, monitoring, intangible costs
• After: adverse effects

Question 9

Identifying Cost

Answer 9

• Impact inventory: look at event pathway of your model
• Identify and break down all costs that lead to the overall cost of each event
• Identifying small costs will insure that no costs are are missed, even if not used in the actual analysis

Question 10

Perspective + Costs

Answer 10

• Health Care Sector: payer amount and maybe out-of-pocket costs
• Societal: ALL costs

Question 11

Micro-costing

Answer 11

• Most precise method
• Identified, measures, and values each resource used and adds them together
• Best used by organizations as opposed to insurers

Question 12

Gross Costing

Answer 12

• Average cost
• Used directly observed cost information
• Data can be obtained from single data source; less time consuming but isn’t always available and can miss some costs
• EX: average cost for ED allergic reaction visit, etc.

Question 13

Direct Medical Cost: Pharmacy Products (8)

Answer 13

1. AAC
2. AWP
3. WAC Price
4. AMP
5. ASP
6. NADAC
7. FSS
8. 340B Drug Discount Program

Question 14

AAC

Answer 14

• Actual Acquisition Cost

- Paid by pharmacy to wholesaler or direct pirchaser

Question 15

AWP

Answer 15

• Average Wholesale Price
• Redbook
• Estimated of price paid by retail pharmacies to wholesale distributors
• Doesn’t represent TRUE cost to pharmacy

Question 16

WAC Price

Answer 16

• Wholesaler Acquisition Costs
• Estimate of manufacturer’s “sticker” or “list price” to wholesalers
• Doesn’t include discounts on rebates
• Not TRUE cost to wholesaler

Question 17

AMP

Answer 17

• Average Manufacturer Price
• Price manufacturers charge wholesalers or pharmacies after discounts
• More precise estimation of what pharmacies actually pay
• Provided by certain manufacturers

Question 18

ASP

Answer 18

• Average Sales Price
• Weighted average sales price for all purchasers
• Net of price adjustments
• Used as basis for reimbursement

Question 19

NADAC

Answer 19

• National Average Drug Acquisition Cost
• Monthly survey of outpatient drug acquisition for retail pharmacies
• Used as reference for state Medicaid plans, only published for Medicaid

Question 20

FSS

Answer 20

• Federal Supply Schedule

- list price paid by VA and IHS for medications

Question 21

340B Drug Discount Program

Answer 21

-Drug pricing program that requires drug manufacturers to provide outpatient drugs at significantly reduced prices to eligible healthcare organizations and covered entities

Question 22

Direct Medical Costs - Rx Recommendations

Answer 22

• Use most recent FSS prices
• Use WAC to adjust for discount, estimate industry-wide discount ~27%
• If WAC and FSS are not available, search and use average of investor analysts’ launch price
• If not available, use a drug with similar characteristics and class’s average price as a placeholder
• If all not available or doesn’t exist, conduct analysis using threshold prices only with no base case price

Question 23

Direct Medical Costs - Medical Services

Answer 23

• If available and suited to research question - use gross cost data
• If not available, use micro-costing by identifying and quantifying all relevant resources consumed and place monetary value on all of them
• May be diagnosis based

Question 24

Diagnosis Codes

Answer 24

• ICD: International Classification for Disease, comprehensive list of every disease and subtype (broad)
• DRG: Diagnosis Related Groups, inpatient classification scheme to incorporate case mix; groups require similar resources (more specific)

Question 25

Medical Data

Answer 25

• Medical Expenditures Panel Survey (MEPS)
• Collected by U.S. AHRQ
• Set of large-scale surveys of individuals, families, providers, and employers
• Useful for assessing overall cost of are for patients (including out of pocket costs)

Question 26

Direct Medical Cost - Inpatient Care

Answer 26

• Cost per DRG or average for given ICD group - most widely used
• Other methods include cost per diem, cost per diem for specific diagnoses, and micro-costing

Question 27

MEDPAR

Answer 27

• Overseem by CMR
• Medicare payments listed by DRGs
• Include Medicare reimbursements, total charges, and covered charged

Question 28

HCUP

Answer 28

• Collected by AHRQ
• Hospital data (in and out) and ED units
• Longitudinal HC delivery and patient outcomes data at national, regional, state, and community levels

Question 29

Hospital Charges

Answer 29

• Charges - amount that hospital bills patient or payer, NOT what hospital is paid for care
• Subject to market forces in private insurance schemes
• Can be used as costs in national insurance countries
• Medicare data can be used to calculate cost-to-charge ratio to estimate cost to insurance company and patients

Question 30

Hospital Costs - CMS

Answer 30

• Cost-to-Charge Ratio = Medicare Reimbursements/Covered Charges
• Cost: CtC Ratio * Charges
• CtC Ratio can be DRG and ICD code specific

Question 31

Hospital Costs - All Payers

Answer 31

• HCUP uses information for costs for ALL payers to calculate cost/charge ratios that are used to estimate mean costs
• DRGs specific only

Question 32

CMA

Answer 32

• Cost Minimization Analysis
• Measures and compares intervention/treatment delivery costs when outcomes are assumed to be equivalent
• Hypothesis: one is cost-saving
• Focuses on cost difference since outcomes are assumed/found to be the same

Question 33

CMA Assumptions

Answer 33

• Benefits/Negatives are the same

- NOT “cost-effective” study

Question 34

CMA Applications

Answer 34

• Comparing AB rated generics

- Costs of receiving same medication in different settings (home v.s. hospital)

Question 35

CMA Limitations

Answer 35

• Types of applications or interventions may be limited
• Validity is contingent upon assumption of equivalent benefits/outcomes
• Cannot be used when there are important differences in the alternatives
• Tendency for inappropriate use