A Primer on Health Economics and CostEffectiveness

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A Primer on Health Economics andCost-Effectivenes
s

• COMPUS - CERC Member Orientation
• March 28, 2007

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Objectives

• Cost effectiveness
• Concepts
• What is it? Why use it?
• Types of analyses
• Need for more complex economics

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Concepts

• Economics is the study of unlimited needs/wants
  constrained by a limited number of resources
  (scarcity)
• Choices need to be made
• For each choice that is made there is an
  opportunity cost associated with it something
  else that is given up

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Example of Opportunity Cost

• Hawaiian vacation versus ski vacation
• Assume both cost the same
• You would likely choose the one which maximizes
  your enjoyment/happiness
• The opportunity cost is the enjoyment you would
  derive from the one you did not select.

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Need for Economic Evaluations

• Hawaiian vacation versus cottage
• More enjoyment from the Hawaiian vacation but
  more expensive
• How to compare the costs and enjoyment from the
  two options?

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Economic Evaluations Health Care

• Similar principles apply when considering health
  care interventions
• Costs (minimize)
• Cost of the drug
• Cost of health care resources (more or less
  because of the drug)
• Lost time attending doctors appointments
• Clinical effectiveness (maximize)
• Survival
• Quality-adjusted life years
• Other clinically meaningful outcomes

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Economic Evaluations

• When comparing two treatments, a treatment is a
  good option (economically attractive) if
• It costs the same/less as the other but does
  better
• It costs less and does the same as other
• What if it
• Costs less and does less? OR
• Costs more and does more?

Clinical benefits

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Economic Evaluations
O
(-) Difference in total costs ()
?
Treatment is better
(-) Difference in clinical effects ()
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Cost Effectiveness

• Provides a measure of value for money
• Comprised of two concepts
• Cost
• Clinical effectiveness
• Typically reported as a ratio

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Insulins

• Long versus shorting acting insulins
• Higher costs of treatment
• Longer acting insulins require fewer injections
  fewer needles and supplies
• Better glycemic control
• Long term implications of better glycemic control

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Benefits of Using Cost Effectiveness

• Provides a consistent framework to compare a drug
  and its alternatives
• Enables comparison of treatments across
  diseases/disorders
• Reports costs and benefits in a single metric
• Provides a framework to assess uncertainty

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Assessing Cost Effectiveness
If either component is unknown, limits what we
can say about cost-effectiveness
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Type of Economic Analysis

• Depends on
• Type of drug
• Available clinical evidence
• Results from clinical trials

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Elements of Economic Evaluations
Quality of life
Clinical effects
Health care costs
Drug price



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Price comparison


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Cost minimization

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Cost effectiveness
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Cost utility
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Price Comparison Analysis

• What is it
• Only drug costs are considered
• When to use it
• All aspects of care similar to other drugs
• Similar clinical effects (safety and efficacy)
  have been established, similar administration,
  etc.
• Limitations
• Similar clinical effects may not be established

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Cost Minimization Analysis

• What is it
• Lowest cost alternative is selected
• When to use it
• No difference in terms of clinical effectiveness
  of treatments
• Any differences (such as drug administration/
  monitoring) can be accounted for in costs
• Limitations
• Very rare no difference in effects instead
  assumptions around differences in resource use
  provided
• Clinical benefit, compliance, adverse effects may
  not be appropriately captured

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Cost Effectiveness Analysis

• What is it
• Outcomes are measured in natural units (life
  years, lives saved, fracture prevented, some
  bad event)
• Compares alternatives in terms of a ratio of
  incremental costs over the incremental
  effectiveness
• When to use it
• Clinical effectiveness outcomes available and
  relevant
• Limitations
• Inappropriate effectiveness measures make ratio
  difficult to interpret, meaningless?

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Quality of life

• When to include?
• Drug affects time in various health states
  less/more time in poor health states
• Quality of life measures in clinical trials are
  statistically different - health effects
  qualitatively different
• Want to compare cost per QALY from other
  interventions

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Cost Utility Analysis

• What is it
• Type of cost effectiveness analysis
• Effectiveness in terms of quality-adjusted life
  years (QALYs)
• Results presented in terms of cost per QALY
  gained
• When to use it
• Intervention impacts quality of life
• Useful for decision makers to compare across
  disease areas and interventions
• Limitations
• Links to survival
• Appropriate data on quality of life
• (e.g., utilities)

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More Complex Economic Methods

• It is unlikely that all information will be
  obtained from well designed studies with
  appropriate outcomes
• Use of numerous data sources, of varying
  quality/rigor

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More Complex Economic Methods
The economic evaluation assembles all the pieces
to get a complete picture of the treatment
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Insulins and Complex Economics

• Head-to-head trials not available for all
  combinations of treatments
• Short term trials
• Long term impact of HbA1C reduction
• CVD
• Neuropathy
• Ophthalmologic complications
• Linking events to health care resource use
• Linking events to quality of life

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Setting Boundaries

• Spillover effects from treatment bound to occur
• Study should be broad enough to capture all
  relevant costs and health consequences, and
  populations affected
• Must be balanced with trying to capture every
  nuance of treatment

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Complex Economics - Summary

• Difficult to assess cost effectiveness when
  effectiveness unclear
• May not be based entirely on evidence based
  methodology, rather best available information
• Complex modelling techniques do allow for what
  if scenarios
• Range of cost effectiveness estimates do provide
  information regarding existing uncertainty

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