Nils-Olov Stålhammar

1. Health Economics II – 2010Health Economic Evaluations Part ILecture 1Why health economic evaluations?Basic types of evaluationsThe (lack of) theoretical foundationsCritical questions to ask Nils-Olov Stålhammar

2. The health care sector is important • Health is important and health care is one, but not the only, way of modifying the incidence and impact of ill health The economics of health care is a matter of life and death • The health care sector of the economy is very large (and increasing in most countries) Sweden and US spend 9.4 and 16% of GPD on health care, respectively (2008) http://www.oecd.org/document/16/0,3343,en_2649_34631_2085200_1_1_1_1,00.html • Decisions about aspects of health care are strongly influenced by the economic environment and constraints ‘the purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists’ Robinson, 1980

3. Is Health Care Different? • Uncertainty • Don’t know when treatment is needed and don’t know its outcome • Uncertainty on both the demand side and the supply side • Insurance • Separation from direct payment weakens the price effect • The physician (acting as an agent for the patient) doesn’t incur any costs • How the providers are paid is crucial • Individuals with pre-existing condition may not be able to purchase insurance • Moral Hazard • Asymmetric information • Lack of information makes the patient dependent on the provider • Can’t test a treatment before consuming and consumption is irreversible • Positive and negative externalities • Role of equity and need – the right to good health care

4. Relationships in health care Direct payments Provider Patients Services Insurance coverage Invoices Taxes/ premiums Payments Third party payer NOS002:1

5. There is a need for economic evaluations in the area of health care • Demand > Supply but rationing as in a free market not possible – or acceptable • Prioritisation – choices – via ‘administrative’ decisions; • lists with pharmaceuticals that may be used or interventions that are regarded as cost-effective • Economic evaluations used as support for decisions • The prioritisation problem is not trivial, i.e. substantial amount of resources spent on health care • World Health Chart • http://www.whc.ki.se/index.php

6. What is HTA? “Health technology assessment (HTA) is a form of policy research that examines short and long-term consequences of the application of a health care technology.” (ISPOR Book of Terms, 2003) “HTA acts as ‘a bridge’ between evidence and policy-making. It seeks to provide health policy-makers with accessible, useable and evidence-based information to guide their decisions about the appropriate use of technology and the efficient allocation of resources.” (What is…? series; http://www.medicine.ox.ac.uk/bandolier/painres/download/whatis/What_is_health_tech.pdf)

7. What is HTA? • While HTA can advice physicians and patients it more often serves to guide other stakeholders - typically those involved in funding, planning, purchasing and investing in healthcare • HTA focuses primarily on ‘the value’ (clinical and economic) of the technology relative to current (or best) clinical practice • Clinical effectiveness – how do the health outcomes of the technology compare with available treatment alternatives? • Cost-effectiveness – are these improvements in health outcomes commensurate with the additional costs of the technology?

8. Different types of HTAs • Traditional HTA to give guidance for clinical decisions • The Swedish Council on Technology Assessment in Health Care (Statens Beredning för medicinsk Utvärdering, SBU) established in Sweden in 1987 – no link to decision making, involvement of KOLs • National Institute of Clinical Excellence (NICE) in the UK in 1999 – part of NHS management system • National Board of Health and Welfare, Sweden – a statutory body set up by the Ministry of Health, but no direct link to the management of health care • Pricing and reimbursement agencies • Pharmaceutical Benefits Advisory Committee (PBAC) in Australia 1992 – first mandatory requirement for economic evaluation • The Dental and Pharmaceutical Benefits Agency, (Tandvårds och läkemedelsförmånsverket, TLV) in Sweden in 2002

9. Health Technology Assessment Is Everywhere Canada CADTH AETMIS MAS IHE ICES USA AHRQ MEDCAC TEC BCBSA VATAP ECRI Japan MHLW PMDA South Korea HIRA CNHTA Taiwan CDE Israel ICTAHC China DSE of MoH Iran IRAHTA Hong Kong HA-CEU Mexico CENETEC Thailand MOPH HITAP Philippines PhilHealth, HTA Colombia CETES y GIBEC Singapore MoH, HTA Brazil DECIT-CGATS Malaysia MaHTAs Chile ETESA Australia PBAC MSAC ANZHSN AHTA ASERNIP-S Indonesia Department of Health Argentina IECS GETSA New Zealand NZHTA ANZHSN

10. Finland FinOHTA Denmark DSI DACHETA CAST NBoH Norway NOKC Sweden SBU TLV NBHW The Netherlands ZonMw CVZ GR Ireland HIQA Lithuania StaHeCCA Poland AHTAPol Belgium KCE Germany IQWiG DAHTA United Kingdom NICE SMC NHS QIS AWMSG CRD NHSC NETSCC,HTA Austria LBI of HTA GÖG France HAS CEDIT AFFSAPS Hungary HunHTA Italy Age.na.s UVT IHSP AIFA Spain UETS AVALIA-T AETSA AETS CAHTAR OSTEBA Switzerland MTU of SFOPH

11. Payers are having a significant impact on the successof products – UK example NICE decision record Notable examples 63% of 284 drugs evaluated have received negative or restrictive recommendations (2000-2009) Rationale for negative or restrictive recommendations “Over the past decade…decisions on new cancer drugs have generated enormous controversy.” Neither clinically nor cost effective Not cost effective “Patients in England and Wales are being denied a powerful new arthritis drug on the NHS.” 44 Not clinically effective

12. The purpose of a health economic evaluation is to assess and compare costs and consequences of health care programmes What is a Health Economic evaluation? Costs Consequences Program A Choice Costs Consequences Program B NB: The difference in costs is compared to the difference in consequences

13. Type of analysis - the outcome measurement Type of analysis Costs Effect Cost-minimization Money Not measured Cost-effectiveness Money Natural units; Life years gained, relapses Cost-consequence Money Several disease specific measures Cost-utility Money Combining length and quality of life, QALYs Cost-benefit Money Money

14. Quality Adjusted Life Years Health index or Utility or QALY weight 1 Without treatment 0.9 With treatment 0.8 0 4 5 Life expectency, years QALYs without treatment = 4 x 0.9 = 3.6 QALYs with treatment = 5 x 0.8 = 4.0

15. Possible outcomes in CEA/CUA Comparison of two alternatives, A and B Alternative B may fall in area I, II, III or IV Cost I Higher cost Better effect IV Higher cost Poorer effect A CA III Lower cost Poorer effect II Lower cost Better effect Effect EA

16. Possible outcomes in CEA/CUA • To fund new intervention B, C resources must be taken from other usage; how much E will be lost? • Need a generic measure of outcome/effectiveness • At the aggregate level a ‘role of thumb’ or ’threshold value’ is being used; acceptable cost per unit gained of E Cost B C A CA E EA Effect

17. Cost per QALY of health care interventions Intervention £/QALY at 1990 prices Cholesterol testing and diet therapy (all adults aged 40–69) 220 Neurosurgical intervention for head injury 240 GP advice to stop smoking 270 Neurosurgical intervention for subarachnoid haemorrhage 490 Antihypertensive treatment to prevent stroke (ages 45–64) 940 Pacemaker implantation 1,100 Hip replacement 1,180 Valve replacement for aortic stenosis 1,410 Cholesterol testing and treatment (all adults aged 40–69) 1,480 Docetaxel (as opposed to paclitaxel) in treatment of recurrent metastatic breast cancer 1,890 CABG (left main-vessel disease, severe angina) 2,090 Kidney transplantation 4,710 Breast cancer screening 5,780 Heart transplantation 7,840 Cholesterol testing and treatment incrementally (all adults aged 25–39) 14,150 Home haemodialysis 17,260 CABG (one-vessel disease, moderate angina) 18,830 Hospital haemodialysis 21,970 Erythropoietin treatment for anaemia in dialysis patients (assuming 10% reduction in mortality) 54,380 Addition of interferon-α2b to conventional treatment in newly diagnosed multiple myeloma 55,060 Neurosurgical intervention for malignant intracranial tumours 107,780 Erythropoietin treatment for anaemia in dialysis patients (assuming no increase in survival) 126,290 Adapted from Hutton J et al. PharmacoEconomics 1996; 9(Suppl 2): 8–22.; Maynard A. The Economic J 1991; 101: 1277–86.; Nord E, et al. PharmacoEconomics 1997; 12: 89–103.

18. Cost per QALY gained thresholds • Acceptable additional cost per QALY gained by using a more effective treatment strategy • No official thresholds, but… • UK1: £ 30,000 (≈ € 45,000) • US2: USD 50,000 -100,000 (≈ € 40,000 – 80,000) • Sweden3: SEK 500,000 (≈ € 55,000) • Raftery J. NICE: faster access to modern treatments? Analysis of guidance on health technologies. British Medical Journal 2001;323:1300-3. • Ubel P, Hirth R, Chernew M, Fendrick M. What is the price of life and why doesn’t it increase at the rate of inflation? Arch Intern Med 2003:163;1637-41. • Socialstyrelsens riktlinjer för hjärtsjukvård. Artikelnummer 2004-102-2. Available from: http://www.sos.se.

19. Alternative views on economic evaluation in health care • The ‘welfarist’ approach – consistent with economic theory; individuals maximise utility and societal welfare is an aggregation of individuals utility; emphasis on cost-benefit analyses • The ‘extrawelfarist’ approach – objective is to maximize ‘health’ with a resource constraint, i.e. to help allocate the health care budget; consider health care resources only; preference for QALYs • The ‘decision-maker’ approach – measure and value a wide range of costs and consequences and present them in a way that helps health care decision-makers

20. Components of economic evaluation Costs Consequences Health sector Effects; LYG etc Other sectors Effects; QALYs Patient/ family Willingness-to-pay; how much is included in WTP? Productivity losses

21. Components of economic evaluation Costs Consequences Health sector Effects; LYG etc Other sectors Effects; QALYs Patient/ family Willingness-to-pay; how much is included in WTP? Productivity losses Welfarism

22. Components of economic evaluation Costs Consequences Health sector Effects; LYG etc Extra -welfarism Other sectors Effects; QALYs Patient/ family Willingness-to-pay; how much is included in WTP? Productivity losses

23. Components of economic evaluation Costs Consequences Health sector Effects; LYG etc Decision-maker approach Other sectors Effects; QALYs Patient/ family Willingness-to-pay; how much is included in WTP? Productivity losses

24. Welfare economics as a foundation for health economic evaluations I(V) • Individuals maximise expected utility • Arrow-Debreu economy • Individual preferences must adhere to certain axioms • Complete: any commodities can be compared • Transitive: if x is preferred to y and y to Z, then x is preferred to z • Continuous: if y>z and x close enough to y, then x>z • Monotone: if a change means at least as much of every commodity and more of one, then change is preferred • Convex: the more of x the less willing to give up y for additional x • Producers maximise profits, prices are taken as given • Equilibrium established when demand equals supply

25. Welfare economics as a foundation for health economic evaluations II(V) • Pareto optimality – a pareto improvement is not possible, i.e. a re-allocation such that at least one individual is made better off and no other is made worse off • If a perfect Arrow-Debreu competitive equilibrium is attained, then this is also a Pareto equilibrium • Two criticisms: • The pareto criteria is compatible with a large number of potential allocations • The pareto improvement criteria becomes inconclusive when some gain and others lose U1 D E A C B U2

26. Welfareeconomics as a foundation for healtheconomicevaluationsIII(V) • The Hicks- Kaldorcriterion (Also referred to as Potential Pareto criterion) • If, when moving from state A to B, gainers can compensate the losers and still have some gains left, then B is preferred to A. Note: no requirement that compensation actually takes place. • Assume describes the utility of individual i as a function of income and characteristics associated with state A Define CV as the willingness to pay when moving to state B • Assume that some win and some lose ; Losers will have negative CV, must be compensated to accept change (Willingness To Accept) • If CV>0; then the gainers place a higher monetary value on the move than the losers; Winners’ CV= 51 and Losers’ CV= - 45

27. Welfareeconomics as a foundation for healtheconomicevaluationsIV(V) • Note: There is no concern for distribution • Compensation need not be paid • For the hypothetical compensation test to be valid, all individuals must have the same marginal utility of income • Assume gainers have higher income than losers  Marginal utility of income would then be higher among losers  CV= - 45 could then represent a reduction in utility which is greater than the increase in utility represented by CV= 51 • The rationale for Cost Benefit Analyses – a substitute for a competitive market • Net CV (net increase in utility) for an intervention can be compared to the cost of the intervention (reduction in utility) – same marginal utility of income for all • How can distribution be taken into account? • When aggregating WTP, individuals’ marginal utilities of income and society’s equity weights can be taken into account – at least in theory • In practice, CBAs take the unweighted mean of individual’s WTP • Hence, distributional judgements are left to the decision maker

28. Welfareeconomics as a foundation for healtheconomicevaluationsV(V) • Can welfare economics serve as the foundation for CUA (QALYs = StQtas measure of effectiveness)? • Can QALYs be interpreted as utilities? • Will an individual concerned about health, consumption, leisure etc. seek to maximise QALYs? • For this, a number of very restrictive assumptions are required: • Quality and quantity (time) must be mutually utility independent • U(Q,T)=U(Q) x U(T); U(Q) depends only on the health state, irrespective of T; U(T) depends only on the number of life years, irrespective of the health state • Constant proportional trade off • Willing to give up a constant proportion of remaining LYs irrespective of the number of LYs that remain • Risk neutrality • Risk neutral with respect to gambles over LYs for all health states • Paretianwelfare economics lend only weak support to CUA (empirical evidence suggest that the restrictive assumptions can be questioned)

29. Extra-welfarism (Non-welfarism) • Health can be seen as an independent argument in the welfare function • W=W(U1, H1, U2, H2,….) • If then we might impose Pareto optimality as a normative goal for the goods sector and a competing maximand for the health sector, for instance, to maximise health • “...should not health care be allocated to maximize the level of health of the nation instead of the satisfaction which consumers derive as they use health services?” (Feldstein 1963) • QALY is seen as a measure of health benefit unrelated to individual preference over health states – can also be seen as ‘capabilities’ brought on by good health • The goal for the health sector is to maximise QALYs – without consideration of costs outside of the health care budget • This raises distributional concerns could incorporate explicit weights, at least in theory • In practice, distributional judgements are left to the decision maker

30. So, what are the options? • If you are a traditional Paretian welfare economist, claiming that all decisions should be based on individual utilities: • Use WTP-based CBA • If you are concerned with individuals’ health and the distribution of health (rather than the utilities individuals may derive from their health): • Treat QALYs as an ‘objective’ measure of health in its own right - Maximising QALYs (or equity-weighted QALYs) would then be an appropriate goal for the health care sector (or society at large) – Extra welfarism or • Measure and value a wide range of costs and consequences and/or perform CUA (or CEA, realising that the measure of health is less comprehensive) to inform and aid decision making – Decision-maker approach

31. ’Old’ exam question. Part I 1. Re. welfare economics as a foundation for health economic evaluations. Consider the movement from state A to state B. a) Give a brief description of the Hicks-Kaldor criterion. b) Assume that utility of individual i is a function of income and other characteristics of the state the individual is in. Introduce the concept of Compensating Variation and give a basic ‘rationale’ for Cost Benefit Analysis. c) In what sense is it correct to say that when CBA is based on welfare economics there are no concerns for distributional aspects? d) Why is it correct to say that welfare economics only gives weak (if any) support to the use of Cost Utility Analysis?

32. ’Old’ exam question. Part I The terms ‘the welfarist approach’, ‘the extra-welfarist approach’ and ‘the decision-maker approach’ are often used to refer to three different views on the role of economic evaluation in health care. Please give a description of each approach. Your description should include e.g. 1) the view on Willingness To Pay valuations, 2) the view on the appropriate perspective for a health economic evaluation and thereby also the view on the appropriate range of costs to consider, and 3) the view on the inclusion of non-health care costs during added years of life. Note: The textbook is not explicit about the different views on inclusion of non-health care costs during added years of life. Hence, presentation of the views on this topic was not be required for full score.

33. A checklist for assessing economic evaluations 6. Were costs and consequences valued credibly? 7. Were costs and consequences adjusted for differential timing? 8. Was an incremental analysis of costs and consequences of alternatives performed? 9. Was a sensitivity analysis performed? 10. Did the presentation and discussion of study results include all issues of concern to users? 1. Was a well-defined question posed in answerable form? 2. Was a comprehensive description of the competing alternatives given? 3. Was there evidence that the programs´ effectiveness had been established? 4. Were all the important and relevant costs and consequences for each alternative identified? 5. Were costs and consequences measured accurately in appropriate physical units? Drummond et al. 2005

34. Three alternatives compared • Direct effect of BMI on QoL not considered • Health-care system perspective • Model used to translate from weight loss to LYs and QALYS gained, and costs • Efficacy data from clinical trials • Costs of unrelated diseases during life years gained are taken into account • Incremental cost-effectiveness ratios (ICER); Cost per QALY gained • ProbabilisticSensitivityAnalysis (PSA) • Univariatesensitivity analyses • Scatter plot in the cost-effectiveness plane • Cost-effectiveness acceptability curves