Health Economics Insufficient money to satisfy our health demands

Davide Casalvolone

May 20111

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.

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CHOICEA

B

Costs A

Costs B

Drug

Comparator

Consequences A

Consequences B

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)

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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

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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?

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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.

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When is a Health Economics Evaluation required?

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Effectiveness of new technologyC

ost i

mpa

ct

?

Incr

ease

Neu

tral

Dec

reas

eImproved outcome

?

AcceptAccept

Accept Reject

RejectRejectRequires further

analysis

Similar outcome

Poorer outcome

Is the increased benefit worth the increased cost?

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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

Why do we need Health Economics?

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 J&J, Schering Plough, Mitsubishi Tanabe

RA, UC, CD, Ps, PsA, AS

4.2     5.04     6.2       

Rituximab Rituxan 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

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Cost Benefit Analysis (CBA)Cost Utility Analysis (CUA)

• Same outcome, different costs• “the cheapest option”

Cost Effectiveness Analysis (CEA)Cost Minimisation Analysis (CMA)

Each method is appropriately used in different situations, and answers different questions

Cost Minimisation

Osteoarthritis - Knee Ibuprofen ParacetamolDaily dose 1200mg 4000mgPain relief at 4 weeks 33% 33%Cost originator brand R30 R12

Cost generic brand R18 R7

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Types of Economic Evaluations:

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Cost Benefit Analysis (CBA)Cost Utility Analysis (CUA)

• 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 Effectiveness Analysis (CEA)Cost Minimisation Analysis (CMA)

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

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Types of Economic Evaluations:

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• 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)

Cost Benefit Analysis (CBA)Cost Utility Analysis (CUA)

Cost Effectiveness Analysis (CEA)Cost Minimisation Analysis (CMA)

Each method is appropriately used in different situations, and answers different questions

Cost Utility Analysis

• 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

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Perfect Health Dead

1 00.5 0.250.75

Years of Life at Full Quality

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0

0.10.2

0.3

0.40.5

0.6

0.7

0.80.9

1

0 1 2 3 4 5 6 7 8 9

Qua

lity

of L

ife

Years of Life

Loss of years and quality of life

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0

0.10.2

0.3

0.40.5

0.6

0.7

0.80.9

1

0 1 2 3 4 5 6 7 8 9

Qua

lity

of L

ife

Catastrophic illness starts

Years of Life

Reduced Quality of Life

Reduced Years of Life

Current Treatment A

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*Quality Adjusted Life Year

Qua

lity

of L

ife

QALY’s* gained withtreatment A = 3.5Cost: R200,000

No treatment

Years of Life

Improved Quality of Life

Improved Years of Life

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0 1 2 3 4 5 6 7 8 9

Improved Quality of Life

Improved Years of Life

New Treatment B

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*Quality Adjusted Life Year

QALY’s* gained withtreatment B = 3.65Cost: R290,000

No treatment

Improved Quality of Life

Improved Years of Life

Qua

lity

of L

ife

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Years of Life0 1 2 3 4 5 6 7 8 9

Choice of Treatment:

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Treatment A = R200,000 per 3.5 QALY’s*

Treatment B = R290,000 per 3.65 QALY’s*

Incremental Cost/QALY* = R600,000/QALY*

Incremental Cost-Effectiveness Ratio (ICER) = (290,000-200,000)/(3.65-3.5)

*Quality Adjusted Life Year

Qua

lity

of L

ife

QALY’s* gained withtreatment A = 3.5Cost: R200,000

No treatment

Years of Life

Improved Quality of Life

Improved Years of Life

0

0.10.2

0.3

0.4

0.5

0.6

0.7

0.80.9

1

0 1 2 3 4 5 6 7 8 9

Qua

lity

of L

ife

QALY’s* gained withtreatment A = 3.5Cost: R200,000

No treatment

Years of Life

Improved Quality of Life

Improved Years of Life

0

0.10.2

0.3

0.4

0.5

0.6

0.7

0.80.9

1

0 1 2 3 4 5 6 7 8 9

QALY’s* gained withtreatment B = 3.65Cost: R290,000

No treatment

Qua

lity

of L

ife

0

0.10.2

0.3

0.4

0.5

0.6

0.7

0.80.9

1

Years of Life0 1 2 3 4 5 6 7 8 9

QALY’s* gained withtreatment B = 3.65Cost: R290,000

No treatment

Qua

lity

of L

ife

0

0.10.2

0.3

0.4

0.5

0.6

0.7

0.80.9

1

Years of Life0 1 2 3 4 5 6 7 8 9

It’s all relative..

Treatment Cost/QALY*

Augmentation tx - severe alpha-1-antitrypsin 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 R2,809 per QALY*

Hepatitis B immunization R166 per QALY*

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*Quality Adjusted Life Year

Types of Economic Evaluations:

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• Similar to CUA but the output measure expressed in monetary units.

• Measured in terms of “Willingness to pay”• e.g. cost of diabetic counselling

• 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

Cost Benefit Analysis (CBA)Cost Utility Analysis (CUA)

• Different outcome, different costs• Usually measured in events prevented, lives

saved• e.g. Open vs. laparoscopic surgery

• Same outcome, different costs• e.g. antibiotics, generics• “the cheapest option”

Cost Effectiveness Analysis (CEA)Cost Minimisation Analysis (CMA)

Each method is used in different situations, and answers different questions

Pharmaco-economic Guidelines Worldwide

19931995

19992002

20042006

20082010

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5

10

15

20

25

30

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Who uses Health Economics and why?

•Healthcare FundersAllocate resources equitablyAssist in decision-making for high cost technologiesEnsure sustainability of the fund

•Government/StateAllocate resources to programmes Decide whether to purchase Decide what to purchase

•Manufacturers/SuppliersDecide whether to market productDecide where to market – primary vs. specialistsSell their product – providers, funders, state

•Healthcare ProvidersProvide most cost-effective treatment vs. least/most costlyChoose between alternative treatments

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What it helps us with:

• Benefit design:Formularies and structured benefitsReference pricingCaps and co-pays

• Managed care:Manage access through protocolsPilot projects and registries Involvement of prescribers in health process ( budgets)

• Negotiations and Risk-sharingNegotiate risk sharing – in SA a form of discounting? Regulations

for drugs prohibit this.Determine alternative re-imbursement items Negotiate reduced prices from suppliers

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Principles for Using Health Economics

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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!)

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Questions?

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