Health Economics
Insufficient money to satisfy our health demands
Davide Casalvolone
May 2011
1
What is Health Economics?
• The study of how scarce resources are allocated among alternative uses
in healthcare provision, including the study of how healthcare and healthrelated services, their costs and benefits, and health itself are distributed in
society.
• The comparative analysis of alternate treatments in terms of COSTS and
CONSEQUENCES ( can be more than one alternative).
• Pharmaco-economics = specific to drugs.
Drug
Costs A
A
Consequences A
B
Consequences B
CHOICE
Costs B
Comparator
Healthcare programme decisions
• 1. Can it work? – trials (Efficacy)
• 2. Does it work? – real world ( Effectiveness)
• 3. Is it accessible? ( Availability)
• 4. Is it efficient? ( Economic evaluation)
Are All New Therapies Value For Money?
Not Always
• Scientific advancement usually ensures that the new therapy
is more clinically advanced that the older one - even if the
difference is ‘marginal’
•Require detailed clinical and economic modeling to have a good
chance of making the right health care funding decision for
particular therapy to ensure equitable access
Cost Effectiveness in Grocery Shopping
• I have R50 in my wallet.
• I have already bought eggs, milk, bread = R30
• I still need cornflakes and have a choice between
brand A ( R2 /100g) or brand B (R3 /100g)
• I also want change for the newspaper!
• Which cornflakes should I buy?
Are you a good shopper?
•
•
•
•
•
Cannot make a sensible decision without information on the
total cost and total content of Brand A and Brand B.
Brand A comes in 1kg packs. Brand B comes in 500g.
Choosing cheapest brand A means : (R2 *10) + 30 = R50.
Leaving no change for the newspaper!
Choosing brand B means : (R3 *5) + 30 = R45. I have
enough change to fulfil my needs!
Alternatively I may decide to forego the newspaper and just
getter a bigger box of cornflakes!
It’s all about OPPORTUNITY COSTS! Consider the
value of benefits forgone by allocating resource
to an alternative.
When is a Health Economics Evaluation
required?
Decrease Neutral Increase
Cost impact
Effectiveness of new technology
Improved
outcome
Similar
outcome
Poorer
outcome
Requires
further
analysis
Reject
Reject
Accept
?
Reject
Accept
Accept
?
Is the increased benefit worth the increased cost?
Why do we need Health Economics?
Responsibilities
• Support high quality care ~ including promoting medical advances
• Care that is affordable and sustainable ( individual or societal perspective)
• To ensure the continued existence of a viable healthcare sector
• Systematic analysis identifies relevant alternatives ( choices)
• The most efficient use of monies available! Value for money.
Challenges
• Better informed public & healthcare providers
• Resources are scarce
• High market-entry costs for new treatments
• Regulatory environments
Biotechnology :The future with a price tag
Generic Name
Brands
®
Companies
Indications
Sales $ billion
2006 2007 2008
Etanercept
Enbrel
Amgen, Wyeth
Takeda
RA, JRA, Ps, PsA,
AS
4.4
5.2
7.66
Infliximab
Remicade
RA, UC, CD, Ps,
PsA, AS
4.2
5.04
6.2
Rituximab
Rituxan
J&J, Schering
Plough,
Mitsubishi
Tanabe
Roche
NHL, RA
4.7
5.01
5.5
Bevacizumab
Avastin
Roche
Colon cancer
2.4
3.93
4.8
Trastuzumab
Herceptin
Roche
Breast Cancer
3.14
4.4
4.7
Adalimumab
Humira
Abbott
RA, Ps, JIA, PsA,
AS, CD
2.04
3.06
4.5
Enoxaparin
Lovenox
Sanofi Aventis
Anticoagulant DVT
3.06 3.65
4.0
Insulin
Lantus
Sanofi Aventis
Diabetes
2.2
2.8
3.6
Darbepoetin
Aranesp
Amgen
Anemia
4.1
4.2
3.1
HumanPapilloma
Virus Vaccine
Gardasil
Merck
Cervical cancer
1.4
2.8
Types of Economic Evaluations
Cost Minimisation Analysis (CMA)
Cost Effectiveness Analysis (CEA)
• Same outcome, different costs
• “the cheapest option”
Cost Utility Analysis (CUA)
Cost Benefit Analysis (CBA)
Each method is appropriately used in different situations, and answers different questions
Cost Minimisation
Osteoarthritis - Knee
Ibuprofen
Paracetamol
Daily dose
1200mg
4000mg
Pain relief at 4 weeks
33%
33%
Cost originator brand
R30
R12
Cost generic brand
R18
R7
Types of Economic Evaluations:
Cost Minimisation Analysis (CMA)
Cost Effectiveness Analysis (CEA)
• Costs measured in monetary units.
• Identification of consequences: a single
effect of interest common to both.
• measured in events prevented, natural units,
blood pressure reduction ,also YLS, LYG.
Cost Utility Analysis (CUA)
Cost Benefit Analysis (CBA)
Each method is appropriately used in different situations, and answers different questions
Cost-effectiveness Analysis
Intervention
Outcomes/100pts
Drug Costs/pt
No treatment
15 deaths
-
Thrombase
10 deaths
R 2000
Klotgon
7 deaths
R10 000
Types of Economic Evaluations:
Cost Minimisation Analysis (CMA)
Cost Effectiveness Analysis (CEA)
Cost Utility Analysis (CUA)
Cost Benefit Analysis (CBA)
• Costs measured in monetary units
• Single or multiple effects not necessarily
common to both.
• Combined into a single outcome measure:
Healthy years or Quality Adjusted Life Year
(QALY)
Each method is appropriately used in different situations, and answers different questions
Cost Utility Analysis
Perfect Health
1
•
0.75
Dead
0.5
0.25
0
Quality of Life Utilities are measured from 0-1
Since we can cost the treatment we get:
•
cost per year of life gained AND
•
cost per year of life gained adjusted for quality of life (I.e. pain and
disability)
=
COST / QUALITY ADJUSTED LIFE YEAR (QALY)
= A life utility assigned a value of 0.6 for a certain disability
means that 10 years in this state is equivalent to 10*0.6 = 6
QALYs
Years of Life at Full Quality
1
0.9
0.8
Quality of Life
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
0
1
2
3
4
5
Years of Life
6
7
8
9
Loss of years and quality of life
1
Reduced Quality
of Life
0.9
0.8
Quality of Life
0.7
0.6
Catastrophic
illness starts
0.5
0.4
0.3
Reduced Years of
Life
0.2
0.1
0
0
1
2
3
4
5
Years of Life
6
7
8
9
Current Treatment A
1
QALY’s* gained with
treatment A = 3.5
Cost: R200,000
0.9
0.8
Improved
Improved
Quality
Quality of
of Life
Life
Quality of Life
0.7
0.6
No treatment
0.5
0.4
0.3
Improved
Years of Life
0.2
0.1
0
0
1
2
3
4
5
Years of Life
*Quality Adjusted Life Year
6
7
8
9
New Treatment B
1
QALY’s* gained with
treatment B = 3.65
Cost: R290,000
0.9
Improved
Quality of Life
0.8
Quality of Life
0.7
No treatment
0.6
0.5
0.4
0.3
Improved
Years of Life
0.2
0.1
0
0
1
2
3
4
5
Years of Life
*Quality Adjusted Life Year
6
7
8
9
Choice of Treatment:
1
1
QALY’s* gained with
treatment A = 3.5
Cost: R200,000
0.9
0.8
Improved
Quality of Life
0.6
No treatment
Quality of Life
Quality of Life
0.7
0.5
0.4
0.3
Improved
Years of Life
0.2
0.1
0.8
QALY’s* gained with
treatment B = 3.65
Cost: R290,000
0.7
No treatment
0.9
0.6
0.5
0.4
0.3
0.2
0.1
0
0
0
1
2
3
4
5
6
7
8
9
0
1
2
3
4
5
6
7
Years of Life
Years of Life
Treatment A = R200,000 per 3.5
QALY’s*
Treatment B = R290,000 per
3.65 QALY’s*
Incremental Cost-Effectiveness Ratio (ICER)
= (290,000-200,000)/(3.65-3.5)
Incremental Cost/QALY* = R600,000/QALY*
*Quality Adjusted Life Year
8
9
It’s all relative..
Treatment
Cost/QALY*
Augmentation tx - severe alpha-1antitrypsin deficiency
R996,096 per QALY*
Betaferon in multiple sclerosis
R459,720 per QALY*
Xigris for severe sepsis
R390,400 per QALY*
Kidney transplant
R60,147 per QALY*
Antihypertensive therapy to prevent
stroke
R12,003 per QALY*
Hyperlipidaemia treatment
Hepatitis B immunization
*Quality Adjusted Life Year
R2,809 per QALY*
R166 per QALY*
Types of Economic Evaluations:
Cost Minimisation Analysis (CMA)
Cost Effectiveness Analysis (CEA)
• Same outcome, different costs
• e.g. antibiotics, generics
• “the cheapest option”
• Different outcome, different costs
• Usually measured in events prevented, lives
saved
• e.g. Open vs. laparoscopic surgery
Cost Utility Analysis (CUA)
Cost Benefit Analysis (CBA)
• Multiple outcomes, different costs
• Similar to CUA but the output measure
expressed in monetary units.
• ‘soft’ measures - pain, suffering and disability
• Measured in terms of “Willingness to pay”
• ‘hard’ measures - years of reduced life,
restenosis
• e.g. cost of diabetic counselling
• Combined into a single outcome measure:
Quality Adjusted Life Year (QALY)
• e.g. biologics in Rheumatoid Arthritis
Each method is used in different situations, and answers different questions
Pharmaco-economic Guidelines Worldwide
35
30
25
20
15
10
5
0
Who uses Health Economics and why?
• Healthcare Funders
 Allocate resources equitably
 Assist in decision-making for high cost technologies
 Ensure sustainability of the fund
• Government/State
 Allocate resources to programmes
 Decide whether to purchase
 Decide what to purchase
• Manufacturers/Suppliers
 Decide whether to market product
 Decide where to market – primary vs. specialists
 Sell their product – providers, funders, state
• Healthcare Providers
 Provide most cost-effective treatment vs. least/most costly
 Choose between alternative treatments
What it helps us with:
• Benefit design:
 Formularies and structured benefits
 Reference pricing
 Caps and co-pays
• Managed care:
 Manage access through protocols
 Pilot projects and registries
 Involvement of prescribers in health process ( budgets)
• Negotiations and Risk-sharing
 Negotiate risk sharing – in SA a form of discounting? Regulations
for drugs prohibit this.
 Determine alternative re-imbursement items
 Negotiate reduced prices from suppliers
Principles for Using Health Economics
Is the increased benefit worth the increased cost?
• Thorough clinical and financial evaluation
• Aid to decision making – not a substitute
• Ensure access to the latest health care technology
• Ensure system remains sustainable and equitable
• Budget impact analysis important.
• Consider opportunity costs.
• Create certainty and transparency
Common Problems
•
•
•
•
Use of clinically insignificant outcomes
Surrogate outcomes
Therapeutic equivalent dosages
Duration of trials too short
Don’t bother with a pharmacoeconomic
evaluation if the clinical evidence is poor!
Food for thought
• ICER thresholds –Are they useful?
• Often implies a need for more resources – raising
questions of broader resource allocation. Where is
the money best spent? Country specific problems,
unmet needs, socio-economic structures, political.
• Efficiency and implications for opportunity cost.
• Consider the sacrifice when substituting a more
cost effective treatment for a less cost effective one
( remember incremental cost!)
Questions?