# QALY and Cost with Markov Model

Let's define a situation of a cohort of 100,000 people. There are four states this cohort goes thru. "Well", "Recurrence", "Dead" and "Dying by disease". We are interested to find out the expected cost and expected QALY of this cohort. The transition probability of these four states are defined as

The Life year gained for state Well and Recurrence is 1. The cost of staying in Well is 350$. The cost for staying in recurrence is 3190$. The cost of dying by disease is 1400$. There is no cost associated with the dead state.

Let's find out the life expectancy of this cohort. Also, let's find out the expected cost of this cohort. Start the Rational Will or SpiceLogic Decision Tree software and choose the Markov Chance node as the root node.

Now, as you learned from the getting started page of Markov modeling, create the four states by clicking this fly-over menu item.

After creating the four states and editing the state names, the diagram should look like this. Remember to set the state "Well" as the initial state, and "Dead" as the absorbing state.

Also, set the Markov Settings by clicking this fly-over menu of the Markov Chance Node.

Set the setting window as shown below.

### Setting Payoff

Now is the time to set the Payoff of the states. We will use Cost-Effectiveness type payoff. Just select the "Well" node and click the Payoff fly-over menu button as shown below.

Once you click that button for the first time, you will be asked if you want regular multi-criteria analysis or Cost-Effectiveness analysis. Choose the Cost-Effectiveness Analysis button.

Now select the "Cost" tab header and check the box as shown below.

Click Proceed. You will be taken back to the Decision Tree and the Payoff editor for the Well state will be open for you. Set the cost of Well as 350$ and Life-Year as 1. Same way, set the state cost-effectiveness of Recurrence as 1 life year, and 3190$ cost. For the state Dying by disease, set life year 0 and cost 1400$. For Dead, no cost and no effectiveness needed to be set.

### Analyzing result

Now, open the Markov Analyzer panel.

The Life Expectancy and Expected cost of this cohort can be viewed as a tooltip of the Markov Chance Node as shown below.

And you can view all the charts from various perspectives of this Markov model.