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Estimating CE Ratios under Second-order Uncertainty

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  • Aaron A. Stinnett
  • A. David Paltiel

Abstract

Two methods have been presented for estimating cost-effectiveness ratios under con ditions of second-order (model) uncertainty: one method estimates a mean ratio of cost to effect (the "mean ratio" approach), and the other estimates a ratio of mean cost to mean effect (the "ratio of means" approach). However, the question of which estimate is theoretically correct has not been formally addressed. The authors show that the "ratio of means" approach follows directly from the theoretical foundations of cost-effectiveness analysis, has attractive internal consistency properties, and is con sistent with a simple vector algebra approach to the problem. In contrast, the "mean ratio" approach has not been shown to follow from first principles, is internally incon sistent, and can prescribe economically inefficient choices. It is concluded that the "ratio of means" procedure should be preferred unless persuasive arguments are pre sented to the contrary. Key words: cost-effectiveness analysis; mean ratio; ratio of means; second-order uncertainty. (Med Decis Making 1997;17:483-489)

Suggested Citation

  • Aaron A. Stinnett & A. David Paltiel, 1997. "Estimating CE Ratios under Second-order Uncertainty," Medical Decision Making, , vol. 17(4), pages 483-489, October.
    • Handle: RePEc:sae:medema:v:17:y:1997:i:4:p:483-489
    DOI: 10.1177/0272989X9701700414
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    References listed on IDEAS

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    1. Stinnett, Aaron A. & Paltiel, A. David, 1996. "Mathematical programming for the efficient allocation of health care resources," Journal of Health Economics, Elsevier, vol. 15(5), pages 641-653, October.
    2. David Meltzer, 1997. "Accounting for Future Costs in Medical Cost-Effectiveness Analysis," NBER Working Papers 5946, National Bureau of Economic Research, Inc.
    3. Meltzer, David, 1997. "Accounting for future costs in medical cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 33-64, February.
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    6. M D Stevenson & J E Brazier & N W Calvert & M Lloyd-Jones & J E Oakley & J A Kanis, 2005. "Description of an individual patient methodology for calculating the cost-effectiveness of treatments for osteoporosis in women," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 56(2), pages 214-221, February.
    7. Jeffrey S. Hoch & Andrew H. Briggs & Andrew R. Willan, 2002. "Something old, something new, something borrowed, something blue: a framework for the marriage of health econometrics and cost‐effectiveness analysis," Health Economics, John Wiley & Sons, Ltd., vol. 11(5), pages 415-430, July.
    8. Meltzer, David, 2001. "Addressing uncertainty in medical cost-effectiveness analysis: Implications of expected utility maximization for methods to perform sensitivity analysis and the use of cost-effectiveness analysis to s," Journal of Health Economics, Elsevier, vol. 20(1), pages 109-129, January.
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    10. Craig, Benjamin M. & Oppe, Mark, 2010. "From a different angle: A novel approach to health valuation," Social Science & Medicine, Elsevier, vol. 70(2), pages 169-174, January.
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