IHP 620 Module 7 Cost-Effectiveness Paper Example

Paying to Prevent Diabetes: A Cost-Effectiveness Analysis for Granite Peak's Employee Plan

[Student Name]

Southern New Hampshire University

IHP 620: Economic Principles of Healthcare

Module Seven Paper

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

Paying to Prevent Diabetes: A Cost-Effectiveness Analysis for Granite Peak's Employee Plan

Claims and screening data show that about 2,600 adults in Granite Peak's employee plan have prediabetes, meaning blood sugar above normal but below the diabetes threshold. A lifestyle program modeled on the national Diabetes Prevention Program, with a year of group coaching on diet, activity and modest weight loss, would cost about $500 per participant. The benefits committee asks whether funding 400 places is a good use of plan money. This paper answers using cost-effectiveness analysis.

What Cost-Effectiveness Analysis Does

Cost-effectiveness analysis compares the added cost of an intervention with the added health it produces, usually expressed as an incremental cost-effectiveness ratio: the difference in costs divided by the difference in health outcomes. Outcomes can be natural units, such as cases prevented, or quality-adjusted life years, which combine length and quality of life into a single measure. A lower ratio means better value. An intervention that both improves health and saves money is described as dominant.

Choosing a Perspective

Sanders et al. (2016), writing on behalf of a second national expert panel convened to update U.S. methods, recommended that analyses present results from both a health care sector perspective and a societal perspective, and that they include an inventory of effects, such as productivity and caregiving, that may fall outside health budgets. They also stressed transparent assumptions and sensitivity analysis. An employer plan has a narrower perspective still: it bears program costs and captures savings only while members remain enrolled. This paper presents the plan's view first and then the broader view.

Inputs and Assumptions

Four hundred employees would enroll at $500 each, a total of $200,000. Without the program, plan data suggest about 20% of members with prediabetes develop diabetes within three years. Real-world lifestyle programs typically achieve smaller effects than the original trial, so the base case assumes a 30% relative reduction. Plan data show members with diabetes cost about $7,500 more per year than similar members without it. Annual turnover means about 80% of participants, on average, would remain in the plan over three years.

Cost per Case Prevented

Without the program, 20% of 400 participants, or 80 people, would develop diabetes in three years. With a 30% reduction, 56 would, so 24 cases are prevented. Dividing the $200,000 program cost by 24 gives a cost of about $8,333 per case prevented over three years.

Return to the Plan

Cases prevented would not all have begun on day one; on average, each prevented case avoids about a year and a half of diabetes within the three-year window. At $7,500 a year, that is about $11,250 per case, or $270,000 for 24 cases. Adjusting for the 80% of participants who stay enrolled, the plan would capture about $216,000, slightly more than the $200,000 cost. Within three years, the program roughly breaks even for the plan.

Table 1. Three-Year Plan Results Under Different Assumptions

Note. Composite estimates; savings adjusted for 80% average retention.

What the Sensitivity Analysis Shows

The result is sensitive to two inputs: the program's effect and its price. If the program achieves only half the base-case effect, or costs $800 per participant, the plan loses about $100,000 over three years. If it performs as well as better real-world programs, it returns more than 60% above its cost. The committee should therefore choose a program with published outcomes and negotiate pay-for-results terms, where part of the fee depends on participants' weight loss.

Comparing Alternatives

Cost-effectiveness is always relative to an alternative. The base comparison here is doing nothing, but the committee could also consider cheaper options. A digital-only program costs about $250 per participant but has lower completion rates, and plan-funded metformin for high-risk members costs little but is less effective in most groups and adds medication side effects. If a digital program achieved a 20% relative reduction, it would prevent 16 cases for $100,000, about $6,250 per case, a lower cost per case than the base program but with fewer total cases prevented. The committee might therefore offer both formats, reserving in-person coaching for members at highest risk.

The Longer View

A three-year plan horizon understates the value of prevention, because most benefits of avoiding diabetes, fewer heart attacks, kidney failures and amputations, arrive over decades. Herman et al. (2005) modeled the lifetime costs and effects of the Diabetes Prevention Program interventions and found that, from a health system perspective, the lifestyle intervention cost about $1,100 per quality-adjusted life year gained compared with placebo, and metformin about $31,300, both regarded as good value. The lifestyle intervention was even more favorable when delivered at lower cost in group settings.

What Counts as Good Value?

Neumann et al. (2014) traced where the familiar $50,000 benchmark came from and argued that it has persisted without strong justification. They suggested that thresholds of $100,000 or $150,000 per quality-adjusted life year are more consistent with current incomes and spending, while emphasizing that any single threshold is a convention rather than a rule. By any of these benchmarks, a lifestyle program costing a few thousand dollars or less per quality-adjusted life year is highly cost-effective.

Equity and Mission

Prediabetes is more common among the system's lower-wage employees, and diabetes costs employees time, income and health, not just the plan money. Offering the program on paid time, in the evenings as well as days and in Spanish would make it accessible to those most at risk. For a health system, preventing disease among its own staff is also consistent with its public mission.

Limitations

Plan-specific figures are estimates, retention may differ among participants, and the program's real-world effect is uncertain. The analysis does not count productivity gains, which would favor the program further, and uses a simple average for the timing of prevented cases.

Conclusion

From the plan's three-year perspective, a diabetes prevention program for 400 employees roughly breaks even, with results sensitive to effectiveness and price. From a lifetime health system perspective, the evidence shows it to be very good value. Granite Peak should fund the program, choose a provider with proven outcomes and tie part of the payment to results.

References

Herman, W. H., Hoerger, T. J., Brandle, M., Hicks, K., Sorensen, S., Zhang, P., Hamman, R. F., Ackermann, R. T., Engelgau, M. M., & Ratner, R. E. (2005). The cost-effectiveness of lifestyle modification or metformin in preventing type 2 diabetes in adults with impaired glucose tolerance. Annals of Internal Medicine, 142(5), 323-332. https://doi.org/10.7326/0003-4819-142-5-200503010-00007

Neumann, P. J., Cohen, J. T., & Weinstein, M. C. (2014). Updating cost-effectiveness: The curious resilience of the $50,000-per-QALY threshold. New England Journal of Medicine, 371(9), 796-797. https://doi.org/10.1056/NEJMp1405158

Sanders, G. D., Neumann, P. J., Basu, A., Brock, D. W., Feeny, D., Krahn, M., Kuntz, K. M., Meltzer, D. O., Owens, D. K., Prosser, L. A., Salomon, J. A., Sculpher, M. J., Trikalinos, T. A., Russell, L. B., Siegel, J. E., & Ganiats, T. G. (2016). Recommendations for conduct, methodological practices, and reporting of cost-effectiveness analyses: Second Panel on Cost-Effectiveness in Health and Medicine. JAMA, 316(10), 1093-1103. https://doi.org/10.1001/jama.2016.12195