A Primer on Health Economics and Cost-Effectiveness COMPUS - CERC Member Orientation March 28, 2007

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

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 Addressing issue of scarcity

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. Issue of opportunity cost

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?

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 doctor’s appointments Clinical effectiveness (maximize) Survival Quality-adjusted life years Other clinically meaningful outcomes Relating to insulin treatments

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 $ When do we need EEs – Not sure if we need to get into terms such as “dominance”, etc.

 ?  Economic Evaluations C E F D O B A Other treatments better Consider cost effectiveness F D ? O B A (-) Difference in total costs (+)  Treatment is better Or graphically (-) Difference in clinical effects (+)

Cost Effectiveness Provides a measure of “value for money” Comprised of two concepts: Cost Clinical effectiveness Typically reported as a ratio: Incremental Cost Effectiveness = Cost (1) – Cost (2) Effect (1) – Effect (2)

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 Incremental Cost Effectiveness = Cost (1) – Cost (2) Effect (1) – Effect (2) Often based on head to head trials

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

Assessing Cost Effectiveness If either component is unknown, limits what we can say about cost-effectiveness Dose used in actual practice may be higher Advantage in resource use based on assumption Cost (1) – Cost (2) Effect (1) – Effect (2) Incremental Cost Effectiveness = Only information on efficacy; effectiveness unknown No information on comparative effectiveness

Type of Economic Analysis Depends on: Type of drug Available clinical evidence Results from clinical trials

Elements of Economic Evaluations Drug price Health care costs Clinical effects Quality of life Price comparison  = = = Cost minimization   = = Cost effectiveness    = Cost utility    

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 Mortality Quality of life Resource use Costs

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

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

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

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