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Valuing health for regulatory cost-effectiveness analysis / Wilhelmine

Miller, Lisa A. Robinson, and Robert S. Lawrence, editors ; Committee
to Evaluate Measures of Health Benefits for Environmental, Health,
and Safety Regulation, Board on Health Care Services.
p. ; cm.
Includes bibliographical references and index.
ISBN 0-309-10077-1 (casebound book)
1. Medical care—Cost effectiveness—Research—Methodology. 2. Cost
effectiveness. I. Miller, Wilhelmine. II. Robinson, Lisa A.
III. Lawrence, Robert S., 1938- . IV. Institute of Medicine (U.S.).
Committee to Evaluate Measures of Health Benefits for Environmental,
Health, and Safety Regulation.
[DNLM: 1. Cost-Benefit Analysis—methods—United States. 2. Health
Policy—economics—United States. 3. United States Government Agencies
—United States. WA 540 AA1 V215 2006]
RA410.5.V35 2006
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COMMITTEE TO EVALUATE MEASURES OF HEALTH BENEFITS
FOR ENVIRONMENTAL, HEALTH, AND SAFETY REGULATION
ROBERT S. LAWRENCE (Chair), Associate Dean for Professional
Practice and Programs and Edyth Schoenrich Professor of Preventive
Medicine, Bloomberg School of Public Health, Johns Hopkins
University, Baltimore, Maryland
HENRY A. ANDERSON, Chief Medical Officer, Environmental and
Occupational Disease Epidemiologist, Wisconsin Division of Public
Health, Madison
RICHARD T. BURNETT, Senior Research Scientist, Healthy
Environments and Consumer Safety Branch, Health Canada, Ottawa,
Ontario, Canada
CARL F. CRANOR, Professor of Philosophy, University of California,
Riverside
MAUREEN L. CROPPER, Professor, University of Maryland, and Lead
Economist, The World Bank, Washington, DC
NORMAN DANIELS, Professor of Ethics and Population Health,
Harvard School of Public Health, Boston, Massachusetts
DENNIS G. FRYBACK, Professor of Population Health Sciences and
Industrial Engineering, Department of Population Health Sciences,
University of Wisconsin, Madison
ALAN M. GARBER, Staff Physician, Veterans Affairs Palo Alto Health
Care System; Henry J. Kaiser, Jr. Professor and Professor of
Medicine, Director, Center for Health Policy, and Director, Center
for Primary Care and Outcomes Research, Stanford University,
Stanford, California
MARTHE R. GOLD, Arthur C. Logan Professor and Chair, Department
of Community Health and Social Medicine, City University of New
York Medical School, New York
JAMES K. HAMMITT, Professor of Economics and Decision Sciences
and Director, Harvard Center for Risk Analysis, Harvard University,
Boston, Massachusetts
LISA I. IEZZONI, Professor of Medicine, Harvard Medical School, and
Co-Director of Research, Division of General Medicine and Primary
Care, Beth Israel Deaconess Medical Center, Boston, Massachusetts
PETER D. JACOBSON, Professor of Health Law and Policy and
Director, Center for Law, Ethics, and Health, University of Michigan
School of Public Health, Ann Arbor
EMMETT KEELER, Senior Mathematician and Professor of Health
Economics, RAND, Santa Monica, California
WILLARD G. MANNING, Professor, Harris School of Public Policy
Studies, The University of Chicago, Chicago, Illinois

v
CHARLES POOLE,* Associate Professor, Department of Epidemiology,
University of North Carolina School of Public Health, Chapel Hill
DAVID A. SCHKADE, Jerome Katzin Professor, Rady School of
Management, University of California, San Diego

ADVISERS TO THE COMMITTEE

ALAN KRUPNICK, Senior Fellow and Director, Quality of the
Environment, Resources for the Future, Washington, DC
JUDITH L. WAGNER, Scholar-in-Residence, Institute of Medicine,
Washington, DC
MILTON C. WEINSTEIN, Henry J. Kaiser Professor of Health Policy
and Management, Harvard School of Public Health and Center for
Risk Analysis, Boston, Massachusetts

IOM Staff
Wilhelmine Miller, Project Director
Ryan L. Palugod, Research Assistant

Principal Consultant
Lisa A. Robinson, Independent Consultant

*Served from March 2004 to June 2005.

vi
 Reviewers

This report has been reviewed in draft form by individuals chosen for
their diverse perspectives and technical expertise, in accordance with proce-
dures approved by the National Research Council’s (NRC’s) Report Review
Committee. The purpose of this independent review is to provide candid
and critical comments that will assist the institution in making its published
report as sound as possible and to ensure that the report meets institutional
standards for objectivity, evidence, and responsiveness to the study charge.
The review comments and draft manuscript remain confidential to protect
the integrity of the deliberative process. We wish to thank the following
individuals for their review of this report:
ELENA ANDRESEN, Professor of Epidemiology, University of Florida,
College of Public Health and Health Professions, and Research
Health Scientist, North Florida/South Georgia VA Medical Center,
Gainesville
DAVID A. ASCH, Eilers Professor of Health Care Management
and Economics, Executive Director, Leonard Davis Institute of
Health Economics, The Wharton School, University of Pennsylva-
nia, Philadelphia
TRUDY A. CAMERON, Professor of Economics, University of
Oregon, Eugene
LELAND B. DECK, Senior Economist, U.S. Environmental Protection
Agency (retired) and Vice President, Abt Associates (retired), Rock-
ville, Maryland

vii
viii REVIEWERS

AMY D. KYLE, Research Scientist and Lecturer, Environmental Health

Sciences Division, School of Public Health, University of California,
Berkeley
JOSEPHINE MAUSKOPF, Global Director, Health Economics, RTI-
International, Research Triangle Park, North Carolina
THOMAS O. MCGARITY, Professor, University of Texas School of
Law, Austin
RICHARD D. MORGENSTERN, Senior Fellow, Resources for the
Future, Inc., Washington, DC
CHARLES E. PHELPS, Provost, University of Rochester, Rochester,
New York
MICHAEL STOTO, Senior Statistical Scientist and Associate Director
for Public Health, Center for Domestic and International Health Se-
curity, The RAND Corporation, Arlington, Virginia
CASS SUNSTEIN, Karl N. Llewellyn Distinguished Service Professor
of Jurisprudence, School of Law, The University of Chicago, Chi-
cago, Illinois
PETER UBEL, Associate Professor of Internal Medicine, Director, Pro-
gram for Improving Health Care Decisions, and Staff Physician, Ann
Arbor Veterans Affairs Medical Center, University of Michigan, Ann
Arbor
ROBERT WACHBROIT, Professor of Philosophy, Maryland School
of Public Policy, University of Maryland, College Park
JONATHAN B. WIENER, Professor of Law, Environmental Policy,
and Public Policy Studies, Duke University, and Founding Director,
Center for Environmental Solutions, Durham, North Carolina

Although the reviewers listed above have provided many constructive

comments and suggestions, they were not asked to endorse the conclusions
or recommendations nor did they see the final draft of the report before its
release. The review of this report was overseen by John C. Bailar III, Profes-
sor Emeritus, The University of Chicago, and Louise B. Russell, Research
Professor, Institute for Health, Health Care Policy and Aging Research,
Rutgers, The State University of New Jersey. Appointed by the NRC and
Institute of Medicine, they were responsible for making certain that an
independent examination of this report was carried out in accordance with
institutional procedures and that all review comments were carefully con-
sidered. Responsibility for the final content of this report rests entirely with
the authoring committee and the institution.
 Preface

Valuing Health for Regulatory Cost-Effectiveness Analysis responds to

several important analytical and policy challenges. These include how to
estimate the health-related effects of regulatory interventions to reduce
environmental, health, and safety risks; how to conduct informative cost-
effectiveness analyses (CEAs) of such interventions prospectively; and how
to use the results of CEAs and of other kinds of economic analyses in public
policy decisions about regulating risks to human health and safety. In 2003
John D. Graham, the Administrator of the Office of Information and Regu-
latory Affairs in the Office of Management and Budget, asked the Institute
of Medicine (IOM) to convene an expert consensus committee to address
these questions. A consortium of federal regulatory and health policy of-
fices and agencies supported this effort financially and, equally essentially,
with information and analytic expertise generously provided to the study
committee throughout the project.
This report of the Committee to Evaluate Measures of Health Benefits
for Environmental, Health, and Safety Regulation is the latest in a series by
the IOM and the National Research Council (NRC) of The National Acad-
emies that have addressed risk assessment and communication; economic
evaluation of environmental, health, and safety risks; and measurement of
population health. These precursor reports include the NRC reports Risk
Assessment in the Federal Government: Managing the Process (1983);
Improving Risk Communication (1989); Valuing Health Risks, Costs, and
Benefits for Environmental Decision Making: Report of a Conference
(1990); and Estimating the Public Health Benefits of Proposed Air Pollu-

ix
x PREFACE

tion Regulations (2002); and the IOM report Summarizing Population

Health: Directions for the Development and Application of Popula-
tion Metrics (1998). We build on the insights of these earlier efforts and
cover new ground in this latest work, which offers guidance on the appli-
cation of summary health measures to the economic analysis of regula-
tions. This report takes as its primary audience regulatory analysts and
public-sector decision makers. We have tried to make the text accessible
for lay readers also, to help promote public understanding of important
governmental functions and processes.
The work of the Committee to Evaluate Measures of Health Benefits
has involved multidisciplinary collaborations of a breadth unusual even for
IOM committees, which frequently draw on members with diverse exper-
tise. Representing capability in environmental and population health sci-
ences, economics, ethics, law, statistics, and medicine, the Committee
worked together over 20 months to develop a sound and feasible approach
to incorporating CEA with health-related effectiveness measures into regu-
latory impact analyses. Committee members, advisers, IOM staff and con-
sultants, and federal agency experts learned together, through undertaking
three case studies, the challenges and possibilities for regulatory CEA.
As chair, I have been most impressed by the intellectual openness and
generosity of all of the committee in our work together to address an
essentially practical problem of public policy. When conflicting convictions
and preferences grounded in members’ particular disciplines emerged, all
made a great effort to see beyond the questions of theory and the ideal to
constructive and feasible proposals and methods for analysts and decision
makers. The steady hand on the tiller of Wilhelmine Miller, study director,
allowed the committee to navigate successfully the many challenging cur-
rents of our deliberations, and for this we are all indebted to her. This
report is the result of an especially productive collaboration.

Robert S. Lawrence, M.D.

Chair
December 2005
 Acknowledgments

Valuing Health for Regulatory Cost-Effectiveness Analysis reflects the

contributions of many people. The Committee would like to acknowledge
and thank those who so generously participated in the development of
this report.
First, we would like to thank the federal sponsors of this project who
supported and guided the project, including John Graham, Administrator,
Office of Information and Regulatory Affairs (OIRA) in the Office of Man-
agement and Budget; John Morrall, III, OIRA; and project officers Joanna
Siegel, Agency for Healthcare Research and Quality (AHRQ), and Phaedra
Corso, Centers for Disease Control and Prevention (CDC). Financial sup-
port was provided by the Environmental Protection Agency (EPA), several
agencies and offices of the Department of Health and Human Services and
the Department of Transportation, the Consumer Product Safety Commis-
sion (CPSC), and the Department of Agriculture.
The Committee’s deliberations were informed by presentations and
discussions held November 30 and December 1, 2004, at public workshop
and meeting sessions. The following experts and scholars made presenta-
tions and continued to share advice and expertise with the Committee and
project staff over many months: John Brazier, University of Sheffield; Dan
Brock, Harvard University; David Feeny, University of Alberta; Peter
Franks, University of California–Davis; Amiram Gafni, McMaster Univer-
sity; Daniel Hausman, University of Wisconsin; Robert Kaplan, University
of California–Los Angeles; Paul Kind, University of York; Ellen MacKenzie,
Johns Hopkins University; Erik Nord, Norwegian Institute of Public Health;

xi
xii ACKNOWLEDGMENTS

Joshua Salomon, Harvard University; Elizabeth Vigdor, Duke University;

and David Wasserman, University of Maryland. Edward Sondik, Director,
National Center for Health Statistics, Dave Moriarty, CDC, William
Lawrence, AHRQ, and S. “Chris” Haffer, Centers for Medicare and Med-
icaid Services, provided information on federal data collection and statisti-
cal policy and fielded many questions over the course of the project. Reed
Johnson, Research Triangle Institute, also presented his research to the
Committee at its first meeting in May 2004. Susan Stewart, National Bu-
reau of Economic Research, made her research on statistically inferred
health indexes available to the Committee.
Federal agency staff supported this project in several important ways.
Randall Lutter, Food and Drug Administration (FDA), Albert McGartland,
EPA, and Lawrence Blincoe, National Highway Traffic Safety Administra-
tion (NHTSA), introduced current agency practices in presentations at the
Committee’s May 2004 meeting. Numerous agency staff participated in
subsequent interviews supporting the Committee’s commissioned paper on
current practices (Robinson, 2004). A full list of participants is provided in
that paper; however, we would particularly like to thank the following
individuals for setting up the interviews and reviewing the draft materials:
James DeMocker, Bryan Hubbell, Lyn Luben, and Nathalie Simon, EPA;
Clark Nardinelli and Richard Williams, FDA; Clare Narrod, Ronald
Meekof, and Charles Williams, Department of Agriculture; Robert Burt
and Deborah Aiken, Occupational Safety and Health Administration;
Robert Stone, Mine Safety and Health Administration; Lawrence Blincoe
and James Simons, NHTSA; Charles Rombro, Federal Motor Carriers
Safety Administration; and Gregory Rodgers, CPSC. Without their enthusi-
astic and extensive support, this report and its evidentiary basis would not
exist; the Committee is extremely grateful for their assistance.
The three case studies undertaken by the Committee involved many of
the agency staff already mentioned as well as many others. A synopsis of
the case studies, included as Appendix A to this report, acknowledges all
of the participants; the Committee would especially like to thank the
following individuals. The case studies would not have been possible with-
out extended consultations with and help from those involved in the origi-
nal agency regulatory analyses, particularly Bryan Hubbell, EPA; Clark
Nardinelli, FDA; and Lawrence Blincoe and James Simons, NHTSA. Sev-
eral CDC staff provided important assistance in developing and imple-
menting the approaches used to assess health-related quality of life impacts
in each case study. Anne Haddix, Office of the Director, CDC, offered
CDC’s staff expertise in planning and conducting the case studies. Phaedra
Corso, Center for Injury Prevention, CDC, deserves special recognition for
initiating the first case study (of the NHTSA child restraints regulation),
which provided the basic framework for the subsequent studies and was an
ACKNOWLEDGMENTS xiii

important learning experience for the Committee. Sajal Chattopadhyay,

Xiangming Fang, Tursynbek Nurmagambetov, Seymour Williams, and
Darwin LaBarthe, all of CDC, devoted considerable time and effort to the
case studies. Committee consultants Carmen Brauer and Peter Neumann,
Harvard School of Public Health, Janel Hanmer, University of Wisconsin,
Robert Black, Independent Consultant, Bryce Mason, RAND, and Patrick
Sullivan, University of Colorado Health Sciences Center, made indispens-
able contributions to the case study analyses. William Lawrence, AHRQ,
provided data and advice throughout the project.
We were especially fortunate to have three experts serve as advisers and
sounding boards throughout the course of the study. Alan Krupnick, Judith
Wagner, and Milton Weinstein helped design and critique the case studies,
proposed lines of investigation and analysis for the report, and reviewed
many drafts of Committee materials; their participation has enriched our
work immeasurably. S. Matthew Liao, Greenwall Fellow in Bioethics and
Health Policy, Johns Hopkins University, assisted in the development of the
Committee’s discussion of the ethical implications of economic analysis in
regulatory policy during his internship at the Institute of Medicine (IOM),
and Andrew Wolman, George Washington University Law School, pro-
vided pro bono legal research. Lisa A. Robinson served as principal consult-
ant to the Committee over the course of our study, bringing great expertise,
energy, and intelligence to the project. We are indebted to her for contribu-
tions that extended well beyond the formal consultancy. Ryan Palugod
expertly provided research assistance and general support to the Commit-
tee, consultants, and IOM staff.
This study was directed by Wilhelmine Miller, senior program officer
of the Board on Health Care Services, which provided overall guidance and
support to the study committee.
 Contents

EXECUTIVE SUMMARY 1

1 INTRODUCTION 15
The Charge to the Committee, 16
The Role of Economic Analysis in Regulatory
Development, 19
Benefit–Cost and Cost-Effectiveness Analysis, 26
Organization of the Report, 40

2 CHARACTERISTICS OF MAJOR REGULATIONS AND

CURRENT ANALYTIC PRACTICES 41
Types of Risk Regulations, 41
Current Practices for Regulatory Analysis, 50
Summary, 65

3 MEASURES AND STRATEGIES FOR OBTAINING HEALTH

BENEFIT VALUES FOR REGULATORY ANALYSIS 67
Criteria for Selecting HALY Metrics for Regulatory CEA, 68
Single-Dimension Measures of Health-Related Outcomes, 72
Health-Adjusted Life Years, 73
Sources of Health State Values for Regulatory Analysis, 92
Research and Development of Metrics and Valuation
Methodologies, 123
Summary and Conclusions, 125

xv
xvi CONTENTS

4 BEYOND RATIOS: ETHICAL AND NONQUANTIFIABLE

ASPECTS OF REGULATORY DECISIONS 130
Ethical Assumptions in QALY-Based CEA, 132
Ethical and Other Implications of Risks and of
Interventions to Address Risks, 140
Distributional Concerns about Risks and Regulatory
Interventions, 144
Improving Regulatory Decision Making, 155
Conclusions, 157

5 RECOMMENDATIONS FOR REGULATORY

COST-EFFECTIVENESS ANALYSIS 159
Recommendations, 161
Summary, 188

APPENDIXES
A Summary of Case Studies 193
B Health Indexes 245
The Quality of Well-Being Scale, 245
The Health Utilities Index Mark 2, 247
The Health Utilities Index Mark 3, 249
The EuroQoL-5D, 252
The SF-6D, 253
The Functional Capacity Index, 254
C OMB Circular A-4 258
D Acronyms and Glossary 316
E Biographical Sketches 326

REFERENCES 335

INDEX 351
 Executive Summary

Regulating risks to human health and safety is an essential responsibil-

ity of government. At the federal level, agencies issue a wide range of
regulations to protect human health and safety in areas that include im-
proving air and water quality and safeguarding the food supply; reducing
the risk of injury on the job, in transportation, and from consumer prod-
ucts; and minimizing exposures to toxic chemicals. Such regulations can
substantially improve health and safety and typically impose costs, which
may be considerable, to do so.
To ensure that these regulations address hazards to human life and
health responsibly, fairly, and efficiently, policy makers and the general
public need accurate and reliable information on the likely impacts of
government actions. For economically significant rules, agencies are re-
quired to present an economic analysis—in the form of a benefit–cost analy-
sis (BCA)—of the national impacts of alternative regulatory strategies and
to assess the distribution of the impacts across different segments of society.
These BCAs, which involve the monetary valuation of the impacts, are
convenient because the index used to aggregate diverse types of improve-
ments—to health and to ecosystems, for example—is money, the same unit
in which costs are expressed. Such analyses help to inform analysts, deci-
sion makers, and the public at large about the benefits and costs of alterna-
tive interventions.
In 2003, the U.S. Office of Management and Budget (OMB) issued new
guidance that requires agencies to supplement BCA with cost-effectiveness

1
2 VALUING HEALTH

analysis (CEA) for economically significant health and safety regulations

(OMB, 2003a). In CEA, the result is a ratio of monetary costs to a non-
monetary benefit measure, which can range from single-dimension mea-
sures, such as deaths averted, cases of illness or injury avoided, or tons of
pollution reduced, to integrated measures such as health-adjusted life years
(HALYs), which combine different types of health impacts in a single num-
ber. The single-dimension measures have the advantage of being relatively
straightforward, but are of limited usefulness when more than one type of
benefit is of interest. To address this problem, integrated measures that
reflect both life expectancy and health-related quality of life (HRQL) tradi-
tionally have been developed and used in medical and public health studies.
Such estimates are available for many more types of health effects than are
estimates of the monetary measures used in BCA.
This report of the Institute of Medicine’s (IOM’s) Committee to Evalu-
ate Measures of Health Benefits for Environmental, Health, and Safety
Regulation provides recommendations and guidance regarding the mea-
surement of health and safety improvements using CEA. In response to a
request from OMB, the Committee investigated alternative approaches for
assessing health-related impacts in CEA by reviewing current federal agency
practices; commissioning supporting research; reviewing the available lit-
erature; and completing three case studies of agency rulemakings.
Based on its investigations, the Committee concludes that CEA pro-
vides useful information for the development of regulatory policies. At the
same time, CEA (like BCA) poses significant challenges in this context.
Some of these challenges are practical, relating to the time and cost of doing
such analyses, while others relate to the strengths and limitations of the
available data on the nature of the risk reductions and the measurement of
their value.
The magnitude of the impacts of major health and safety regulations
argues for careful attention to the development of high-quality, unbiased
analyses that include thorough documentation of their limitations. The
Committee’s recommendations, both for selecting measures to value health
outcomes in regulatory CEA and for supplementing these measures with
other information, aim to ensure that the analytic results are accurate and
reliable, and useful to a variety of audiences. After describing the charge to
the Committee, this summary provides an overview of the key concepts and
conclusions of this report and presents the Committee’s recommendations.

The Charge to the Committee

A consortium of federal sponsors charged the IOM Committee to iden-
tify current and proposed measures of health benefits for use in regulatory
EXECUTIVE SUMMARY 3

CEA, describe and evaluate these measures, recommend a subset of mea-

sures for use by federal regulatory agencies, and identify areas of research
needed to enhance the use of such measures in regulatory analysis.
Specifically, the Committee was asked to:

• Describe current practices among federal agencies for evaluating

the costs and benefits of regulatory actions.
• Review measures for aggregating health improvements currently
used in CEA, including specific instruments and assessment techniques for
developing composite measures that combine consideration of longevity
and HRQL.
• Develop criteria for choosing among measures potentially useful in
the evaluation of health outcomes in regulatory CEA.
• Assess the various health benefit measures in terms of their data
requirements, feasibility of application, theoretical validity, appropriate-
ness for special populations (children, ethnic minorities), and ethical
implications.
• Recommend measures appropriate for federal agency use in evalu-
ating health outcomes in regulatory CEA, given the Committee’s criteria.
• Construct CEA case studies, using information from published
BCAs, to illustrate the application of alternative health benefit measures in
CEA and to compare the CEAs and BCAs.
• Discuss criteria for identifying regulations for which CEA will be
informative.
• Recommend research that would improve the measurement of
health benefits for regulatory CEAs.

Regulatory Development and Economic Analysis

Federal agencies are directed by Executive Order 12866 and other
authorities to estimate and report the expected benefits of proposed major
regulations in conjunction with their estimated costs (EOP, 1993). The
current guidance for these analyses is provided in OMB Circular A-4, which
addresses the use of both BCA and CEA to assess the effects of economi-
cally significant health and safety regulations (OMB, 2003a). The resulting
analyses are considered, along with other factors, in determining whether
to regulate a particular hazard and to select among regulatory strategies
that differ in stringency or types of requirements. Researchers examining
regulatory priorities also use the results of these analyses to compare the
effectiveness of different types of interventions, for example, to compare
the cost per life saved across investments in diverse areas such as reducing
air pollution, increasing traffic safety, and applying new medical treatments.
4 VALUING HEALTH

The starting point for assessing the costs of a proposed regulatory

activity is identical for BCA and CEA; they use the same conceptual frame-
work and estimation practices. On the benefits side, both BCA and CEA
begin with a risk assessment, which involves estimating the change in the
likelihood of illness, injury, or death associated with each regulatory option
in comparison to a “without regulation” baseline. Regulations often result
in small changes in individual risk, which become substantial when aggre-
gated across all of those who are potentially affected. Most major regula-
tions require the assessment of a variety of different health risks. For ex-
ample, air pollution regulations reduce the incidence of several types of
acute and chronic cardiovascular and respiratory conditions as well as
associated mortality. In addition, some health and safety regulations pro-
vide nonhealth benefits, such as preserving natural resources.
BCA is based on estimates of the monetary value of all risk reductions
and other impacts. CEA, in contrast, uses nonmonetary effectiveness mea-
sures. When a regulation reduces the risks of different kinds of illness or
injury, or of both fatal and nonfatal effects, analysts may use effectiveness
measures that reflect impacts on both HRQL and longevity. These compos-
ite measures, referred to as HALYs or (more specifically) quality-adjusted
life years (QALYs), convert different types of health effects to an integrated
unit so that regulatory costs can be compared to a single measure of health-
related effectiveness.
Federal agencies have had substantial leeway in determining their spe-
cific approach to economic analysis. This flexibility is needed due to gaps
and variability in the underlying research base as well as the substantial
variation in the types of impacts associated with different regulations. Such
analyses must often be conducted within tight time frames and with limited
staff and budgetary resources (Robinson, 2004). The rulemaking schedule
usually does not allow time for new valuation research; analysts generally
rely on preexisting studies, analytic methods, and/or quantitative models.
Some agencies have undertaken long-term efforts to develop approaches
applicable across many of their regulations.
Agencies have made substantial progress in implementing the 2003
OMB guidance requiring CEA and have completed HALY-based analyses.
Some of these analyses use expert judgment to apply one of the available
generic HRQL measurement tools (described later in this summary). Others
use HRQL estimates from existing studies of similar health endpoints; this
practice is often referred to as benefits transfer. Agencies are also con-
ducting new valuation research to a limited extent. Because some agencies
have used monetized HALY estimates in their regulatory analyses for many
years, they are using the same approaches to develop effectiveness mea-
sures for CEA.
EXECUTIVE SUMMARY 5

Health-Related Effectiveness Measures

While CEA based on integrated measures of effectiveness is just begin-
ning to be more widely applied to regulatory decision making, HALYs and
other mortality-based indicators have long been used to evaluate effective-
ness in health care policy.1 Early analyses focused on the number of pre-
ventable deaths averted; now such analyses also routinely calculate years of
life saved. The life-years approach provides more weight to averting deaths
among persons who otherwise would have longer remaining life expectan-
cies; an intervention that prevents deaths among children will generally lead
to larger estimates of life years gained than an intervention that prevents
deaths among adults.
In recent years, measures have been developed to capture the effects of
illness and injury on individual well-being prior to death. These impacts are
usually represented with indexed estimates of HRQL, using a scale an-
chored by death (0) and perfect or optimal health (1.0). Adverse health
effects associated with illness and injury can then be arrayed along this scale.
The extent to which HRQL impacts are more or less important than
changes in longevity depends on the nature of both the risk and the inter-
vention. While the challenge of calculating composite measures is often
attributed to the difficulty of valuing the changes in morbidity, changes in
longevity may more significantly affect the results. The Committee’s own
investigations suggest that the importance of mortality relative to HRQL
effects varies substantially among regulatory interventions. Regardless, both
mortality and HRQL impacts such as illness and disability are of interest to
decision makers.
HALYs address this interest by melding descriptive information about
health status and longevity. QALYs are the most extensively developed and
widely used HALY measure. As a measure of health, a QALY is a relatively
simple building block that can be applied at both individual and popula-
tion levels.
HALY or QALY estimates for various scenarios are normally con-
structed in three steps:

• Describe or characterize health states or disease conditions and

estimate their expected duration.
• Value the health states in comparison to other health states.
• Multiply the values for different health states by estimates of the
duration in each state.

1See Gold et al. (1996b) for recommendations for best practices in CEA for health and
medicine.
6 VALUING HEALTH

When used in policy or regulatory analysis, the resulting values can then be
multiplied by the number of averted cases of each type to determine the
total impact.
For these estimates to be meaningful and useful, the characterization
and valuation of the health states of interest should be part of a consistent
set of estimates. Researchers may either survey a sample of individuals
directly to elicit values for the health states of concern or use one of several
available generic HRQL indexes, which are preference-weighted health state
classification systems. The EuroQol-5D, Health Utilities Index, Quality of
Well-Being Scale, and the SF-6D are among the most common such instru-
ments. Generic indexes provide established values (based on surveys of
general or community populations) for different states of health described
in terms of the impacts of an overall condition on aspects of functioning
and experience such as mobility, self-care, and pain. Once the charac-
teristics of the health state of interest are matched to the functional and
experiential domains used in the specific index, an HRQL index value can
be calculated based on the results of the instrument’s underlying valua-
tion survey.
Regardless of whether the index used is generic or specially designed
for a particular study, the index values for health states derived from valu-
ation surveys are based on information about individuals’ relative prefer-
ences for different states of health. The three most commonly used elicita-
tion techniques involve asking survey respondents to do the following:

• Trade off the time spent in different health states,

• Consider the trade-off between perfect health and the risks of dif-
ferent adverse health effects (standard gamble methods), or
• Locate different health states on a visual scale.

A fourth, less developed, elicitation approach that attempts to address

societal values (rather than the respondent’s preferences for own health) is
the person trade-off method. This approach asks respondents to make
choices between different health improvements for distinct groups of people.
Each of these methods for establishing health state index values has
strengths and weaknesses. All of them consider only relative preferences for
different health states (not preferences for health compared to other aspects
of welfare) and generally assume that the value elicited for a particular
health state is the same regardless of its duration.
When estimating HALYs for regulatory assessments, analysts may
choose to use existing research or to conduct new primary research. In
either case, the research may apply one of the generic indexes or be based
on index values estimated specifically for the particular study. If a generic
index is used, the research may rely on either patients or experts to describe
EXECUTIVE SUMMARY 7

or characterize the health states of interest using the index’s classification

scheme. (In either case, however, the values attached to the health states
characterized should represent those of the population affected by the policy
or regulation.)
Related decisions will depend on the nature of the health effects under
consideration, as well as on the quality and suitability of available research.
Judging the adequacy of a given approach for a particular regulatory appli-
cation requires considering the match between the risks and population
assessed in the study and the effects of the regulatory intervention.

Criteria for Selecting Integrated Measures

of Health Impacts for Regulatory Analysis
The Committee developed the following criteria for applying HALYs in
regulatory analysis.

• First, the measure should be applicable to the range of health states

and conditions considered in regulatory analysis.
• Second, the measure should be sensitive or responsive to change,
and not exhibit floor or ceiling effects within the range of measured values.
• Third, values for health states should be derived from a sample of
adequate size that is representative of the population affected by the costs
and benefits of the regulatory intervention.
• Fourth, the measure should be acceptable to users and to the pub-
lic, including those involved or interested in the regulatory development
process.
• Fifth, the measure should be practical in the regulatory context and
as inexpensive to use as is compatible with other objectives.

No single QALY instrument or estimation strategy is clearly superior to

others on all of these criteria. Analysts and decision makers must exercise
judgment in selecting an approach for a particular regulatory analysis. The
Committee concludes that health-related CEA is both feasible and informa-
tive in the analysis of any regulation for which health benefits have been
estimated.

Ethically Informed Decisions

Both BCA and CEA focus on the efficient allocation of economic re-
sources. Implicit in each approach are value judgments regarding the ap-
propriate weighting of different types of effects. It is important that the
users of BCA and CEA understand these ethical assumptions and consider
their implications when making decisions. For CEA, ethical considerations