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

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

3. 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

4. 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

5. 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?

6. 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

7. 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.

8.  ?  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 (+)

9. 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)

10. 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

11. 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

12. 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

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

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

15. 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

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

17. 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

18. 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

19. 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