Health Economics & Policy
3rd Edition
James W. Henderson
Chapter 4, Part 2
Modeling in Economic Evaluation
Challenges
Availability of quality data
 Gold standard – clinical trials

– Shortcoming – too short to capture long-term
costs and consequences
– Solution – modeling of epidemiological history
of disease and treatment
Approaches to Modeling
Decision trees
 Markov models
 Markov decision models

Decision Trees
E1/C1
E2/C2
E3/C3
E4/C4
Decision node
Chance node
Terminal node
Comparing Two Treatment
Options
Mortality rate
Life expectancy for survivors
Initial treatment cost
Follow up costs, year 1
Annual follow up costs, all
subsequent years
Treatment A
5%
20 years
$50,000
$20,000
$2,000
Treatment B
10%
10 years
$20,000
$10,000
$2,000
Comparing Two Treatment
Options
Treatment
Expected Cost
Expected
Benefit
Incremental
Cost
Incremental
Benefit
ICER
B
A
$63,200
$105,100
9 years
19 years
$41,900
10 years
$4,190
Markov Models
Markov node
Transition node
Terminal node
Markov Decision Model