Health Economics Insufficient money to satisfy our health demands

1. Health Economics Insufficient money to satisfy our health demands Davide Casalvolone May 2011

2. 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 health-related 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 Consequences A A CHOICE Costs A B Consequences B Costs B Comparator

3. 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)

4. 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

5. 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?

6. 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.

7. When is a Health Economics Evaluation required? Effectiveness of new technology Improved outcome Similar outcome Poorer outcome Reject Reject Increase Requires further analysis Cost impact Accept ? Reject Neutral Decrease Accept Accept ? Is the increased benefit worth the increased cost?

8. 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

9. Biotechnology :The future with a price tag

10. 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

11. Cost Minimisation

12. 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

13. Cost-effectiveness Analysis

14. 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

15. Cost Utility Analysis Perfect Health Dead 1 0 0.75 0.5 0.25 • 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

16. Years of Life at Full Quality Quality of Life Years of Life

17. Loss of years and quality of life Reduced Quality of Life Catastrophic illness starts Quality of Life Reduced Years of Life Years of Life

18. Current Treatment A 1 QALY’s* gained with 0.9 treatment A = 3.5 Cost: R200,000 0.8 Improved Quality of Life 0.7 No treatment 0.6 0.5 Quality of Life 0.4 0.3 Improved Years of Life 0.2 0.1 0 0 1 2 3 4 5 6 7 8 9 Years of Life Improved Quality of Life Improved Years of Life *Quality Adjusted Life Year

19. New Treatment B 1 QALY’s* gained with 0.9 treatment B = 3.65 Cost: R290,000 Improved Quality of Life 0.8 0.7 No treatment 0.6 0.5 Quality of Life 0.4 0.3 Improved Years of Life 0.2 0.1 0 0 1 2 3 4 5 6 7 8 9 Years of Life *Quality Adjusted Life Year

20. Choice of Treatment: 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

21. It’s all relative.. *Quality Adjusted Life Year

22. 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 • ‘soft’ measures - pain, suffering and disability • ‘hard’ measures - years of reduced life, restenosis • Combined into a single outcome measure: Quality Adjusted Life Year (QALY) • e.g. biologics in Rheumatoid Arthritis • Similar to CUA but the output measure expressed in monetary units. • Measured in terms of “Willingness to pay” • e.g. cost of diabetic counselling Each method is used in different situations, and answers different questions

23. Pharmaco-economic Guidelines Worldwide

24. 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

25. 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

26. 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

27. 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!

28. 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!)

29. Questions?