3. Splattergoit (a fictional condition from Harry Potter) is a severe infection caused by ingesting certain fungi. Two alternative treatments have recently been proposed. You are tasked with performing a cost-utility analysis on these treatments to compare the new alternatives to the current treatment.
Note: A cost-utility analysis is very similar to a cost-effectiveness analysis. The main difference is that expected benefits are calculated in QALYs and not life expectancy.
Current Treatment New Treatment A New Treatment B
Mortality Rate 10% 3% 6%
Life Expectancy for Survivors 20 Years 25 Years 30 Years
Expected Survivor Quality of Life 0.7 QALYs 0.9 QALYs 0.7 QALYs
Initial Treatment Cost $5,000 $20,000 $10,000
Follow-up Costs, Year 1 $1,000 $8,000 $5,000
Follow-up Costs, Subsequent Years $1,000 $3,000 $1,500
(a) Using a 3% discount rate, what are the total costs for the survivors of each option? For decedents (assuming sudden death with treatment)? Assume the initial treatment occurs now and the follow up costs occur at the end of each year. You should have had this in finance, but present value = future value/(1+r)^n. r is the discount rate. n is the time period.
(b) What are the expected costs from each option?
(c) Calculate the expected QALY's resulting from each option. Remember the mortality rate.
(d) Calculate the two ICER's in terms of $/QALYs gained.