How can economics help evaluate the effectiveness of intensive PTSD treatment?
How can economics help evaluate the effectiveness of intensive PTSD treatment?
Mental health challenges impose significant costs on individuals, families, and governments, with the Productivity Commission (2020) estimating an annual cost of $70 billion in 2018-19 (Productivity Commission (2020), Mental Health, Report no. 95, Canberra). Veterans are disproportionately affected, with higher rates of anxiety, post-traumatic stress disorder (PTSD), and suicide risk. In 2010, approximately 8.3 per cent of Australian Defence Force (ADF) members were estimated to suffer from PTSD annually, and between 2020-2023, the Department of Veterans’ Affairs allocated $230 million per year to mental health support.
In an era of finite resources and rising healthcare demand, systematically evaluating health interventions is essential. Policymakers must maximise health outcomes within budgetary constraints, relying on robust economic appraisal tools. Among the most widely used methodologies are Cost-Effectiveness Analysis (CEA), Cost-Benefit Analysis (CBA), and the Quality-Adjusted Life Year (QALY) metric, each offering a distinct lens through which to assess the value of healthcare initiatives.
Cost-Effectiveness Analysis (CEA): Value for health outcomes
Cost-Effectiveness Analysis (CEA) is a widely used method for evaluating health interventions by comparing costs with outcomes measured in natural health units, such as life years gained or QALYs, rather than monetary terms. This avoids the ethical complexities of assigning dollar values to health outcomes (Gray, A. M., Clarke, P. M., Wolstenholme, J. L., & Wordsworth, S. (2011), Applied methods of cost-effectiveness analysis in healthcare. Oxford University Press).
CEA identifies which intervention offers better value for money when comparing treatments with similar goals. Results are expressed as an Incremental Cost-Effectiveness Ratio (ICER), which indicates the additional cost per unit of health benefit. For example, if an intervention costs $4,000 per QALY gained and the threshold is $50,000, it’s considered cost-effective. The threshold reflects the maximum amount society, or a health system, is typically willing to pay for one additional QALY.
While CEA is practical and ethically sound, it has limitations. For instance, it may overlook broader societal benefits, equity concerns, and non-health outcomes. This is especially true for interventions that have substantial effects on people other than the patient, such as employers, carers and society more broadly. Therefore, it should be part of a broader decision-making framework that includes social and ethical considerations.
Cost-Benefit Analysis (CBA): A holistic economic lens
Cost-Benefit Analysis (CBA) is an economic evaluation method that compares the costs and benefits of interventions, both of which are expressed in monetary terms. Unlike CEA, which focuses on health-specific outcomes, CBA enables decision-makers to assess whether benefits to society as a whole outweigh costs using metrics like Net Present Value and Benefit-Cost Ratio (McIntosh, E., Clarke, P., Frew, E., & Louviere, J. (2010), Applied methods of cost-benefit analysis in healthcare. Oxford University Press).
CBA is especially useful for cross-sector comparisons, incorporating both health and broader societal benefits such as productivity gains and improved quality of life. It relies on valuation techniques like Willingness-to-Pay (WTP), Contingent Valuation, and Discrete Choice Experiments, typically adopting a societal perspective.
For example, a vaccination program might be evaluated by considering healthcare savings, reduced productivity loss, and public willingness to pay for reduced disease risk. While CBA offers a comprehensive framework, it faces challenges in monetising health outcomes, ethical concerns, and potential oversight of non-economic factors. Policymakers should utilise CBA in conjunction with other methods and qualitative insights to facilitate balanced decision-making.
Quality-Adjusted Life Years (QALYs): The unified health metric
Both CEA and CBA encounter challenges in measuring QALYs, particularly when applied to health interventions. For CBAs, specifically, the primary hurdle lies in determining the monetary value to ascribe to a gain in QALYs.
A QALY is defined as one year of life lived in optimal health, serving as a standardised measure that integrates both longevity and health-related quality of life. This integration enables transparent comparisons across various healthcare interventions.
For example, a patient living for 5 years with a utility score of 0.7 would effectively gain 3.5 QALYs (5 × 0.7). QALYs are instrumental in assessing the value of healthcare interventions by encompassing both the quality and quantity of life. However, their use also presents ethical, methodological, and practical challenges, fostering ongoing debate among experts.
Monetising QALYs
One approach to monetising QALYs involves using the Value of a Statistical Life (VSL) and the Value of a Statistical Life Year (VSLY). VSL reflects society’s willingness to pay to reduce mortality risks, often based on analysis of the relationship between salary and mortality risk in labour market data or surveys. Dividing VSL by remaining life expectancy provides an approximate value for one year of life, which can be used to monetise a QALY, adjusted for quality of life.
In Australia, the Office of Impact Analysis (OIA) estimates the VSL at $5.7 million AUD and the VSLY at $245,000 AUD (2024 dollars). A QALY representing a full year in perfect health would thus be valued at around $245,000 AUD, while partial health improvements would be valued proportionally lower. In contrast, health economists often put a value of $50,000 or three times the value of Gross Domestic Product per capita to a QALY.
While this ‘top-down’ approach is used in policy settings, such as evaluating preventive health measures, it remains conceptually crude and ethically debated. Health economists generally prefer WTP studies that directly value health states. Where VSLY is applied, sensitivity analysis is recommended to account for uncertainties.
Case study: Cost Benefit Analysis of Intensive Trauma Treatment provided by the Intensive Trauma Treatment Centre
The Intensive Trauma Treatment Centre ITTC) offers a novel, evidence-based program combining EMDR 2.0 and Prolonged Imaginal Exposure Therapy in a four-day intensive format. Compared to standard treatments, ITTC’s model shows promising outcomes, including higher success rates and lower dropout rates.
To secure ongoing funding, ITTC needed to demonstrate the full value of its program. While a CEA could estimate the cost per QALY gained compared to other treatment methods, it wouldn’t capture broader social benefits like improved productivity or reduced carer burden. Therefore, a CBA was necessary to monetise both costs and outcomes, providing a more comprehensive basis for policy decisions.
Defining scenarios and economic analysis
We identified the types of costs and benefits of the ITTC treatment model compared to a standard method. The estimated costs and benefits are highlighted below, noting it was not possible to quantify and monetise all identified costs and benefits. For example, benefits from a reduction in the cost of medication use and costs to society concerning crime and legal issues, domestic violence, and substance use, costs to the government, such as veteran compensation, sickness allowance and carer allowance, were not included in the analysis.
The analysis included a hypothetical scenario of treating 1,000 veterans with PTSD through the ITTC treatment model per year over twenty years. This treatment has a higher cost compared to the status quo method, which we assumed as Trauma Focussed Cognitive Behavioural Therapy (TF-CBT). However, the ITTC treatment model yields a higher proportion of patients with resolved symptoms, resulting in cost savings for the healthcare system and society, as well as an increased number of veterans experiencing an improved quality of life.
While not all benefits could be quantified, most were reported as cost savings to veterans with PTSD, their caregivers, and other stakeholders, resulting in improved quality of life, productivity improvements, reduced caregiver burden, and lower healthcare costs. In addition, the ITTC treatment model was expected to reduce the incidence of suicide among veterans.
We calculated the following main types of benefits/cost savings:
- Benefits to veterans from increased quality of life, an intangible benefit derived from QALY and VSLY
- Benefits to veterans from increased ability to engage in unpaid work (volunteering)
- Cost savings from the avoided cost of suicide
- Cost savings to carers from lower carer burden
- Cost savings to society due to avoided healthcare costs
- Cost savings to society from decreased loss of productivity (less absenteeism and presenteeism).
Key findings
- The CBA showed strong results, with a benefit-cost ratio of 11.3, meaning every $1 invested returns $11.30 in community benefits
- This outcome was driven by a QALY value of $251,241, based on the OIA’s VSLY estimate (2025 Dollars)
- Even when assuming lower QALY values ($50,000 and 3× GDP per capita), the benefit-cost ratio remained above one
- Unlike CEA, which focuses on health outcomes, the CBA also captured broader societal benefits - including productivity gains, reduced carer burden, and avoided healthcare and suicide-related costs
- Overall, the CBA supported the ITTC model as a cost-effective and strategic solution for treating veterans with PTSD.
How can BDO help?
Our economics team comprises individuals who understand public health systems and health projects, are experienced in stakeholder engagement in public health, and have the expertise to recommend and develop appropriate economic assessment methods.
We are well-versed in cost-benefit analysis, cost-effectiveness analysis, economic impact analysis, cost-of-illness studies, and qualitative benefit assessment.
We can help you with your feasibility assessment, business case preparation, and program evaluation. Contact us to discuss your next project.
