Health Economics Or : What to do where there is insufficient money to satisfy our health demands Davide Casalvolone Rhodes University September

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. 3 CHOICE 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) 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? 8 Effectiveness of new technology Cost impact ? Increase Neutral Decrease Improved outcome ? Accept Reject Requires further analysis Similar outcome Poorer outcome Is the increased benefit worth the increased cost?

9 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 NameBrands ® CompaniesIndicationsSales $ billion EtanerceptEnbrelAmgen, Wyeth Takeda RA, JRA, Ps, PsA, AS InfliximabRemicadeJ&J, Schering Plough, Mitsubishi Tanabe RA, UC, CD, Ps, PsA, AS RituximabRituxanRoche NHL, RA BevacizumabAvastinRocheColon cancer TrastuzumabHerceptinRocheBreast Cancer AdalimumabHumiraAbbottRA, Ps, JIA, PsA, AS, CD Enoxaparin LovenoxSanofi AventisAnticoagulant DVT InsulinLantusSanofi AventisDiabetes DarbepoetinAranespAmgenAnemia HumanPapilloma Virus Vaccine GardasilMerckCervical cancer

Types of Economic Evaluations 11 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 - KneeIbuprofenParacetamol Daily dose1200mg4000mg Pain relief at 4 weeks33% Cost originator brandR30R12 Cost generic brandR18R7 12

Types of Economic Evaluations: 13 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 InterventionOutcomes/100ptsDrug Costs/pt No treatment15 deaths- Thrombase10 deathsR 2000 Klotgon7 deathsR

Types of Economic Evaluations: 15 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 16 Perfect HealthDead

Years of Life at Full Quality 17 Quality of Life Years of Life

Loss of years and quality of life 18 Quality of Life Catastrophic illness starts Years of Life Reduced Quality of Life Reduced Years of Life

Current Treatment A 19 *Quality Adjusted Life Year Quality of Life QALY’s* gained with treatment A = 3.5 Cost: R200,000 No treatment Years of Life Improved Quality of Life Improved Years of Life Improved Quality of Life Improved Years of Life

New Treatment B 20 *Quality Adjusted Life Year QALY’s* gained with treatment B = 3.65 Cost: R290,000 No treatment Improved Quality of Life Improved Years of Life Quality of Life Years of Life

Choice of Treatment: 21 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)/( ) *Quality Adjusted Life Year

It’s all relative.. TreatmentCost/QALY* Augmentation tx - severe alpha-1- antitrypsin deficiency R996,096 per QALY* Betaferon in multiple sclerosisR459,720 per QALY* Xigris for severe sepsisR390,400 per QALY* Kidney transplantR60,147 per QALY* Antihypertensive therapy to prevent stroke R12,003 per QALY* Hyperlipidaemia treatmentR2,809 per QALY* Hepatitis B immunizationR166 per QALY* 22 *Quality Adjusted Life Year

Types of Economic Evaluations: 23 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 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 27 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!) 29

Questions? 30