health economics or : what to do where there is insufficient money to satisfy our health demands...
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Health Economics Or : What to do where there is insufficient money to satisfy our health demands
Davide CasalvoloneRhodes University
September 2011
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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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CHOICECHOICE
A
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
imp
act
?
Incr
ease
Neu
tral
Dec
reas
eImproved outcome
?
AcceptAccept
Accept Reject
RejectReject
Requires 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 Paracetamol
Daily dose 1200mg 4000mg
Pain 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
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0 1 2 3 4 5 6 7 8 9
Qu
alit
y o
f L
ife
Years of Life
Loss of years and quality of life
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0
0.1
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0 1 2 3 4 5 6 7 8 9
Qu
alit
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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
Qu
alit
y o
f 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
Qu
alit
y o
f L
ife
0
0.1
0.2
0.3
0.4
0.5
0.6
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0.8
0.9
1
Years of Life
0 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
Qu
ali
ty o
f 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
Qu
ali
ty o
f 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
QALY’s* gained withtreatment B = 3.65Cost: R290,000
No treatment
Qu
ali
ty o
f L
ife
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Years of Life
0 1 2 3 4 5 6 7 8 9
QALY’s* gained withtreatment B = 3.65Cost: R290,000
No treatment
Qu
ali
ty o
f L
ife
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Years of Life
0 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
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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