The Generalized Risk-Adjusted Cost-Effectiveness (GRACE) Model for Measuring the Value of Gains in Health: An Exact Formulation

Abstract The generalized risk-adjusted cost-effectiveness (GRACE) analysis method modifies standard (CEA), the primary currently used worldwide to value health improvements arising from healthcare interventions. Generalizing CEA, GRACE allows for decreasing or even increasing returns health. Previous presentations of have relied extensively on Taylor Series expansion methods specify key model parameters, including those that properly adjust illness severity and preexisting disability, consequences uncertain treatment outcomes, marginal rate substitution between life expectancy health-related quality life. Standard CEA cannot account these sources cost in its valuation medical treatments. However, calculations measures based are approximations, which may be poorly behaved some contexts. This paper provides a new approach implementing GRACE, using exact utility functions instead approximations. While any proper function will suffice, we illustrate with three well-known functions: constant relative risk aversion (CRRA) utility; hyperbolic absolute (HARA) utility, CRRA is special case; expo-power (EP) (CARA) case. then extends two-period multiperiod models. We discuss estimate parameters HARA EP two different types data, one discrete choice experiments other “happiness economics” methods. conclude reflections how this might affect benefit-cost studies