Generalized Risk-Adjusted Cost-Effectiveness (GRACE): Ensuring Patient-Centered Outcomes in Healthcare Decision Making


Cost-effectiveness analysis (CEA) is widely used to assess health technology but embeds an assumption at odds with most economic analysis and that conflicts with established understanding of people’s preference patterns. It assumes that health produces happiness with no diminishing returns, in conflict with both standard economic thinking and normal human intuition. Our Generalized Risk-Adjusted Cost-Effectiveness (GRACE) analysis allows diminishing returns to health and aligns CEA with the rest of the health economics literature. This simple change has far-reaching implications for the practice of CEA. In GRACE, optimal cost-effectiveness thresholds are systematically higher for more severe diseases and lower for milder ones than when using standard CEA. We provide formulae for estimating how these thresholds vary with health-related quality of life (QoL) in the sick state. Finally, we provide a coherent way to combine improvements in QoL and life expectancy when people have diminishing returns to QoL. This new approach obviates the need for increasingly prevalent and ad hoc exceptions to CEA for end-of-life care, rare disease, and very severe disease (eg, cancer). Our methods also show that the value of improving QoL for people with disabilities is greater than for comparable people without disabilities, while also incorporating a key patient-preference perspective that QoL gains are more highly valued than life-year extensions for the sickest or most-disabled people. The GRACE model ensures—more than any known system to measure value in healthcare—that patients’ preferences, particularly the quintessential measure of untreated health status, reliably and consistently enter value measures used at both population and individual decision making. This analysis complements and adds to our previous analyses demonstrating how best to incorporate uncertain health benefits into value analyses.

The full study can be viewed at Value & Outcomes Spotlight.

Lakdawalla, D. N., & Phelps, C. E. (2021, September). Generalized risk-adjusted cost-effectiveness (GRACE): Ensuring patient-centered outcomes in healthcare decision making. Value & Outcomes Spotlight

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