Chapter 7
Cost Effectiveness  TOP

Introduction

The CARE Act requires that services be provided in a manner that is coordinated, cost effective, and ensures that Title I funds are the payer of last resort for HIV/AIDS services. A belief in the cost effectiveness of community-based, ambulatory HIV/AIDS services is at the core of the CARE Act. 

The underlying assumption is that CARE Act services reduce hospitalizations for persons living with HIV disease (PLWH) and are more cost effective than inpatient care. An important responsibility for CARE Act entities is to provide programs that make a difference in the most cost efficient manner.

Legislative Background  TOP

Section 2602(b)(4)(C) of the CARE Act requires Title I planning councils to "establish priorities for the allocation of funds within the eligible area, including how best to meet each such priority and additional factors that a grantee should consider in allocating funds under a grant" based on factors that include:

"(ii) demonstrated (or probable) cost effectiveness and outcome effectiveness of proposed strategies and interventions, to the extent that data are reasonably available…."

Section 2603(b)(1) requires that supplemental grants be based on applications that, among other factors, "(D) demonstrates the ability of the area to utilize such supplemental financial resources in a manner that is immediately responsive and cost effective…."

Section 2673 (a) directs the Federal Agency for Healthcare Research and Quality to "establish a program to enable independent research to be conducted by individuals and organizations with appropriate expertise in the fields of health, health policy, and economics (particularly health care economics) to develop" several reports, including:

"(1) a comparative assessment of the impact and cost-effectiveness of major models for organizing and delivering HIV-related health care, mental health care, early intervention, and support services, that shall include a report concerning patient outcomes, satisfaction, perceived quality of care, and total cumulative cost, and a review of the appropriateness of such models for the delivery of health and support services to infants, children, women, and families with HIV disease…."

HAB/DSS Expectations  TOP

Title I grantees should be able to compare the relative costs of providing a specific service among different providers. This necessitates having service standards, service units, and unit costs for  each service. Quality of service is also a factor in determining cost effectiveness and needs to be considered both in selecting providers and in monitoring Quality Management programs.

Planning councils need cost-effectiveness data to determine how to prioritize services and allocate funds. This is closely tied to outcomes evaluation in that services with better outcomes may be more costly but nonetheless more cost effective when outcomes are considered. Also important to consider is the way services are provided. For example, bus passes may be cheaper but not as effective in assuring access and maintenance in care as taxi vouchers.

Addressing Cost Effectiveness  TOP

Defining Cost Effectiveness

Cost effectiveness includes two interrelated dimensions: outcomes and costs. CARE Act programs should accomplish positive results (be effective) and do so at a reasonable cost (be cost effective). Cost-effective programs do not necessarily lead to cost savings, although they do provide good value for the money. Cost effectiveness can be described in several ways:

• A service or program is considered cost effective when the unit cost is reasonable and acceptable relative to the benefits and outcomes received. 
  

• A service may be considered cost effective if it can be provided less expensively than other similar services, but provides an equal or better outcome. For example, a case management program that is cheaper to operate than other case management programs and serves clients as well or better would be considered cost effective.
  

• A service is cost effective if it provides an additional benefit worth the additional cost. For example, a case management system that costs more than other systems but is able to document that its results are superior is cost effective.

Uses of Cost-Effectiveness Evaluation

Cost-effectiveness approaches may be used to evaluate any service, activity, or process, so long as it is possible to measure outcomes and determine costs. Cost-effectiveness methods can be used to evaluate:

• Individual providers

• Categories of service, such as case management or primary care

• The entire network of services provided through the EMA’s continuum of care, and

• Grantee systems and procedures.

Challenges of Cost-Effectiveness Evaluation

Among the greatest challenges of cost-effectiveness evaluation are the following:

• Determining outcomes can be complicated.
  

• Outcome measures that can serve as indicators or standards of care are still in the development stage in many eligible metropolitan areas (EMAs).
  

• Calculating unit costs (costs per service unit) or per-client costs is time consuming and often difficult. Most community-based providers do not budget by service unit or client, nor do they record expenses on this basis.
  

• The larger the unit of assessment, the more complicated the process. It is challenging but least complicated to assess the cost effectiveness of a single provider, more difficult to determine the cost effectiveness of an entire service category, and considerably more challenging to determine the cost effectiveness of the EMA’s entire continuum of care.

Despite these challenges, approaches to cost-effectiveness evaluation are being developed and improved by many EMAs. Materials are available from HRSA/HAB to calculate the unit costs of HIV/ AIDS services, and many EMAs and grantees have developed unit-cost determination procedures.

Measurement of service outcomes is greatly facilitated by the development of standards of care and indicators addressing expected or desired service results.

Steps in Evaluating Cost Effectiveness

A typical approach for evaluating the cost effectiveness of services using standards of care includes the following steps:

1. Define and describe the service to be assessed

2. Agree on the standards of care or benchmarks related to service outcomes

3. Determine the unit or per-client costs of these services

4. Determine the outcomes of the service

5. Describe the cost effectiveness of the service in terms of a ratio of cost to attain a specific outcome (e.g., it costs an average of $846 in case management funds to ensure that a client has obtained access to specified core services)

6. Compare and analyze the cost effectiveness of several services using these ratios, or compare the service with stated benchmarks or standards of care, and

7. Revise the priorities, allocations and comprehensive plan to reflect the results of the cost-effectiveness evaluation, if appropriate.

Unit Cost Determination

Unit cost is the cost to produce or deliver one unit or product or service. Unit costs have many uses. They can provide the basis for cost comparisons across services, providers, or geographic areas, and provide a benchmark for performance measurement. They are the basis for contract payment where reimbursement is based on units of service delivered. Unit costs are also an essential component of cost-effectiveness analysis. However, unit-cost data are descriptive information; used alone, they do not measure efficiency, effectiveness, quality, or content of services. They cannot easily be compared across agencies unless standards have been developed and implemented, since if more than one provider delivers the same categories of service, the intensity of service, model of care, and quality of care may be different. 

Analysis of trends in unit costs within a single agency can provide management insights. An increase in costs over time may signal an increase in resource costs, a decline in productivity, or a change in the content or quality of the service provided. Changes in unit costs flag these situations, but do not explain what is occurring. It is sometimes valuable to review the cost per client—rather than the unit cost—for a particular service. Viewed as a unit cost, counseling may cost an acceptable $50 an hour, but if the typical client requires 100 hours of counseling, the cost per client would be an unacceptable $5,000. For planning bodies allocating CARE Act funds, cost per client may be a more useful data source than unit costs.

There are five basic steps to determining unit costs:

1. Define the exact units of service

2. Count the total number of units in a given time period

3. Determine all the direct and indirect costs of producing the units of service

4. Add these components of full cost for the same time period, and

5. Divide the full cost by the total number of service units to arrive at the average unit cost during a particular time period.

For a more comprehensive discussion on determining average unit costs refer to the references provided.

Technical assistance through HAB’s Technical Assistance Contract is available for developing standards of care, unit costs, data collection systems, and outcome effectiveness procedures—all of which are the building blocks for evaluating cost effectiveness.  HAB has also developed several manuals and guides to aid in cost-effectiveness evaluation.

REFERENCES  TOP

Health Resources and Services Administration (HRSA), HIV/ AIDS Bureau (HAB). Determining the Unit Cost of Services: A Guide for Estimating the Cost of Services Funded by the Ryan White CARE Act of 1990. Rockville, MD: U.S. Department of Health and Human Services, 1993.

HRSA, HAB. Tools and Strategies to Assure the Cost and Outcome Effectiveness of CARE Act Services. Rockville, MD: U.S. Department of Health and Human Services, August 1997.