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Abstract A developing emphasis of health care reforms has been creating organisations with responsibilities for strategic commissioning of services for defined populations. Such organisations must set priorities in aiming to meet their populations’ needs subject to a budget constraint. This requires estimates of the health benefits and costs of different interventions for their populations. Thispaper outlines a framework that does this and shows how this requires modelling to produce estimates in a way that is transparent to commissioners, of requisite complexity to produce sound estimates for priority setting using routinely available data. The example illustrated in this paper is an intervention that would improve glucose control in the

English population with type 1 diabetes. Ittakes many years for a change in glucose management to deliver maximum benefits; hence the intervention is not good value-for-money in the short run. We aim to give a more strategic view of the costs and benefits modelling costs and benefits in a steady-state model which suggests that the intervention is good value-for-money in the long run. Keywords Resource allocation . Population health . DALYs .QALYs . Commissioning . Strategic purchasing . Type 1 diabetes . Microvascular complications . Intensive glucose control

M. Airoldi (*) Operational Research Group, Department of Management, LSE, Houghton street, London WC2A 2AE, UK e-mail: G. Bevan : A. Morton Operational Research Group, Department of Management, LSE, London, UK G. Bevan e-mail: A.Morton e-mail: M. Oliveira Centre of Management Studies, Instituto Superior Técnico, Technical University of Lisbon, Lisbon, Portugal e-mail: J. Smith Isle of Wight NHS Primary Care Trust, Isle of Wight, UK e-mail:

1 Introduction Cost-effectiveness analysis (CEA) and disease modelling have grown apace in the hope ofinforming policy formation, however many authors have questioned their actual contribution to the development and implementation of policies [1–5]. This paper develops a framework for CEA and cost-effectiveness analysis to provide information for organisations responsible for strategic commissioning of health services for defined populations and illustrates its use by modelling intensive glucose controlin type 1 diabetes in England. Strategic commissioners (or purchasers) have emerged in reforms of health care, which are required to assess needs of populations, determine the optimal way of meeting these needs, and accordingly contract with providers of different services. This is currently the task of Primary Care Trusts (PCTs) in the National Health Service (NHS) in England [6] and Local HealthIntegration Networks (LHINs) in Ontario [7]. The second section of this paper outlines the framework we have developed to


Health Care Manage Sci (2008) 11:89–110

help strategic commissioners set priorities. The third section illustrates how this framework was used in modelling type 1 diabetes. The final section discusses the results and implications of our framework for diseasemodelling.

2 Framework of analysis The mainstream evaluation framework in economic evaluation for priority setting is that of Quality-Adjusted Life Years ([8, 9]; see [10, 11] for a review of proposed, albeit less widespread alternatives). A Quality-Adjusted Life Year (QALY) is a year weighted for quality of life, with a weight of one for perfect health and zero for death. QALYs are used to comparealternative interventions and to prioritize cost-effective interventions for funding. The cost-effectiveness of an intervention is measured by the ratio between its added value in terms of health benefits and its incremental cost compared to an alternative, the “incremental costeffectiveness ratio” or simply “cost/QALY”. Interventions with a lower cost/QALY represent better value for money...
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