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The UCLA Seminar on Pharmaceutical Economics and Policy: "The Generalized Risk-Adjusted Cost-Effectiveness (GRACE) Model: How Diminishing Returns to Health Changes Everything"

The UCLA Seminar on Pharmaceutical Economics and Policy: "The Generalized Risk-Adjusted Cost-Effectiveness (GRACE) Model: How Diminishing Returns to Health Changes Everything"

Date 
Thursday, December 1, 2022 - 4:00pm to 6:00pm
Location 
UCLA Campus, Lecture Hall CHS 23-105 Los Angeles , CA
California US
Featuring 
Professor Charles E. Phelps, University of Rochester
Event Contact 



Standard Cost Effectiveness Analysis (CEA) assumes that utility is linear in health, a restrictive assumption that is out of step with most health economics analyses. GRACE introduces diminishing returns to health-related quality of life, and in so doing, reverses many standard CEA conclusions. GRACE shows that treating disabled people has higher (not lower) value than treating otherwise-similar non-disabled people. It demonstrates that willingness to pay (WTP) for health gains rises exponentially with illness severity. It shows that standard CEA places too much value on treating low-severity illnesses, and not enough value on treating high-severity illnesses. Further, it demonstrates that uncertainty in treatment outcomes matters when people have diminishing returns to health, since that also creates risk aversion in health outcomes. Quantifying all of these changes requires only that new estimates of risk preference in health are estimated properly. Two methods to estimate these key parameters will be discussed. Once those risk-preference parameters are known, all remaining data to carry out GRACE analyses are readily available from standard clinical studies. No longer can CEA practitioners say "…a QALY is a QALY is a QALY…". GRACE shows why this standard mantra is wrong, and why standard CEA needs to be replaced.