1. Back to Basics: Health Economics Gavin Lewis, Head of Health Economics, Roche BOPA, Brighton, 18 th October, 2009 HCMR00008 / Date of Preparation October 2009

2. Learning Objectives Following this session you should be able to better understand: 1.Principles of Health Economics 2.Meaning of a cost per QALY 3.Role of health economics in patient access to new medicines 4.Key challenges facing application of Health Economics to Oncology HCMR00008 / Date of Preparation October 2009

3. Agenda What is Health Economics? –Why do we need it? –What is it? –Cost Effectiveness analysis How is Health Economics applied in the NHS? –What is a Cost per QALY? –Calculating a cost per QALY Health Economics and Oncology –Key challenges –Recent Developments HCMR00008 / Date of Preparation October 2009

5. Background Common misunderstandings of Health Economics 1.“The most cost-effective patient is a dead patient” 2.“NICE are all about cost containment” 3.“The cheaper drugs are the most cost-effective drugs” 4.“Cost Effectiveness analysis doesn't consider the patient’s quality of life” HCMR00008 / Date of Preparation October 2009

6. Why do we need Health Economics? HCMR00008 / Date of Preparation October 2009

7. Health Economics provides the tools and analytical framework to help address these objectives Context: Provision of Health Care 3 distinct issues are raised when discussing the provision of health care: –Ageing population –New technologies –Patient expectation UK has a tax-funded healthcare system and therefore finite resources Key objectives of healthcare provider: –Ensure equality of access to healthcare –Generate the greatest health benefit from finite set of resource HCMR00008 / Date of Preparation October 2009

8. A more recent addition to the evidence base Reimbursement Criteria “The Fourth Hurdle” Mandatory evidence requirement to ensure funding for new medicines Regulatory Criteria HCMR00008 / Date of Preparation October 2009

9. What is Health Economics? HCMR00008 / Date of Preparation October 2009

10. Some Definitions Economics –Study of the allocation of scarce resources Health Economics –Economic principles applied to healthcare Pharmacoeconomics –Economic principles applied to drug therapy Economic Evaluation –main decision making tool in economics –Economic evaluation is about efficiency and is: ‘the comparative analysis of alternative courses of action in terms of both their costs and consequences’ (Drummond, 1997) –There are different types…… HCMR00008 / Date of Preparation October 2009

11. Types of economic evaluation Cost minimisation analysis –Equal outcomes / clinical benefit assumed –Which has lowest overall total costs? Cost Benefit analysis –Both costs and outcomes expressed in monetary value –Difficult to value all health benefits in monetary terms Cost Effectiveness analysis –Outcomes expressed in natural units –Cost per “% drop in blood pressure” / SRE avoided / cure Cost Utility analysis –Outcomes expressed in QALYs –Cross disease comparisons possible –What NICE use! –Considered current gold standard measure HCMR00008 / Date of Preparation October 2009

12. Other types of Health Outcome analysis Epidemiological –Prevalence / incidence of disease Patient reported outcomes –Quality of life / Utility studies Descriptive Economic studies –Burden of disease analysis – long term cost consequences of disease –Budget impact analysis – cost of treatment / drug –Resource utilisation / time and motion studies However for decision making require full economic evaluation –E.g. Cost Utility analysis HCMR00008 / Date of Preparation October 2009

13. Principles and methods of Cost Effectiveness analysis HCMR00008 / Date of Preparation October 2009

14. Understanding the principle of cost effectiveness analysis Gold standard method: –Cost Utility analysis which utilises the “cost per QALY” or “incremental cost per QALY” (ICER) Methodology to formally evaluate the value for money of a given healthcare technology Value for money = “Efficiency” A misunderstood phrase…… HCMR00008 / Date of Preparation October 2009

15. What is efficiency? “Government announces reduction in number of civil servants, saving £50m as part of drive for greater efficiency” “Payment by Results may reduce total costs of delivering healthcare thus improving the efficiency of the NHS” Statements ignore impact on outcomes –E.g. PBR could reduce costs but increase mortality, is this efficient? ”Cost-reducing” is not the same as efficiency!! Only if achieve same outcomes from reduced resources = improved efficiency. –Need to synthesise both costs and outcomes to evaluate value for money –Cost effectiveness analysis HCMR00008 / Date of Preparation October 2009

16. Decision making principles When judging value for money we naturally evaluate things in increments… Purchasing a new home…is it a good buy? 1.What else is available? (Identify options) 2.What is extra cost? (Purchase, stamp duty, repair etc) 3.What is extra benefit? (Location, Size etc) Key principle: –We can not judge value for money in isolation - need to compare Principles of Cost Effectiveness Analysis no different! HCMR00008 / Date of Preparation October 2009

17. Should the NHS adopt a new intervention? Areas of uncertainty Decision rule is required Do not Adopt Adopt Cost per QALY less than £30,000 HCMR00008 / Date of Preparation October 2009

18. The cost-effectiveness plane £20,000 Incremental Costs £10,000 £30,000 £40,000 Incremental Drug Benefit (QALYs) 0.511.52 B Willingness to pay threshold A Area of acceptance Area of rejection HCMR00008 / Date of Preparation October 2009

19. Cost Effectiveness Threshold Currently defined as £20,000 - £30,000 by NICE No fixed threshold Poor evidence base behind threshold Subject to ongoing research Defines how much society is “willing to pay” to obtain a gain in health outcome (1 additional QALY) –Too high: displace more CE interventions with greater health benefit for same money –Too low: inhibit health improvements / innovation HCMR00008 / Date of Preparation October 2009

20. What is a Cost per QALY? HCMR00008 / Date of Preparation October 2009

21. What is a QALY? - concept “Quality adjusted life year” Which drug would you prefer? –Drug a) additional 12 years of life? –Drug b) additional 10 years of life? Drug a) IV – large side-effects, weekly hospital visits, toxic, nausea. Drug b) Oral formulation, perfect health Therefore need to adjust survival benefits for standard/quality of life Achieved via a “utility score” HCMR00008 / Date of Preparation October 2009

22. Utility Scores Way of capturing Quality of Life in Cost Effectiveness Analysis Measured on a scale of 0 to 1 1 = Perfect Health 0 = Death –Negative values possible Captured through patient reported generic quality of life instruments –EQ-5D, SF-36 Can be applied across all disease areas and variety of health states HCMR00008 / Date of Preparation October 2009

23. What is a QALY? - calculation Patients on Drug A live longer than patients on Drug B Utility Scores: Drug A = 0.40 Drug B = 0.65 QALYs for Drug B (6.5) greater than Drug B (4.8) HCMR00008 / Date of Preparation October 2009

24. Cost per QALY Standardised measure to assess the value for money of a health intervention “How much additional NHS money is required to produce an additional QALY using the intervention under question?” Cost per QALY is therefore a COMPARATIVE measure –Additional costs and benefits relative to chosen comparator HCMR00008 / Date of Preparation October 2009

25. What is a Cost per QALY? HCMR00008 / Date of Preparation October 2009

26. How do you calculate a cost per QALY? HCMR00008 / Date of Preparation October 2009

27. Calculating a Cost per QALY: Total Cost = Drug cost + NHS Resource costs Total QALY = (Survival)*(Utility score) Period of survival is often stratified into discrete “health states” –Response versus Progression –Cure versus Active disease (Total Costs Drug A) – (Total Costs Drug B) (Total QALYs Drug A) – (Total QALYs Drug B) (Total Costs Drug A) – (Total Costs Drug B) (Total QALYs Drug A) – (Total QALYs Drug B) HCMR00008 / Date of Preparation October 2009 Calculating a Cost per QALY: (Total Costs Drug A) – (Total Costs Drug B) (Total QALYs Drug A) – (Total QALYs Drug B) (Total Costs Drug A) – (Total Costs Drug B) (Total QALYs Drug A) – (Total QALYs Drug B)

28. The Cost per QALY, an example. “How much additional cost is required to generate an additional quality adjusted life year compared to current practice?” Current Practice New DrugDifference Total NHS Cost per patient £10,000£18,000£8,000 Total QALYs per patient 6.206.900.70 Cost Per QALY £11,429 HCMR00008 / Date of Preparation October 2009

29. What influences Cost per QALY? Drug Price Patient Survival Patient Quality of Life Related NHS resources –Drug Administration –Nurse / Pharmacy time –Side Effect management –Medical Supplies We can not judge the merits of treatments in isolation from current alternatives HCMR00008 / Date of Preparation October 2009

30. Cost per QALY Summary When given the Total costs and QALYs for each intervention cost per QALY a simple calculation Controversy surrounds estimation of QALYs: –Multiple health states and utility scores –Longer term outcomes and overall survival unknown Clinical outcomes rarely available for the necessary lifetime time horizon of the analysis ICER can be very sensitive to small changes in model assumptions Uncertainty around parameter estimates the most consistent source of debate within economic evaluation and NICE decisions HCMR00008 / Date of Preparation October 2009

31. NICE’s preferred methodology – the Reference Case Source: National Institute for Clinical Excellence (NICE). Guide to the Methods of Technology Appraisal. London: NICE, 2004. HCMR00008 / Date of Preparation October 2009

32. Background Common misunderstandings- revisited 1.“The most cost-effective patient is a dead patient” Cost Effectiveness ratios include survival, reduce survival increases cost per QALY 2.“NICE are all about cost containment” NICE guidance can dramatically increase costs within a disease area. “Efficiency” not same as “cost- cutting” HCMR00008 / Date of Preparation October 2009

33. Background Health Economic Myths - Revisited 3.“Cheaper drugs are the more cost effective drugs” Cost Effectiveness takes into account the benefits generated by a given drug 4.“Cost Effectiveness analysis doesn't consider the patient’s quality of life” The “QALY” is the outcome measure of CE analysis HCMR00008 / Date of Preparation October 2009

34. Health Economics and Oncology HCMR00008 / Date of Preparation October 2009

35. Key Challenges 1.Methodology Limitations and Oncology –EQ-5D sensitivity –Dynamic CE ratio –Variation in threshold by patient characteristics 2.Oncology Clinical Trial Design –Comparator –PFS and OS relationship (Cross-over) –Quality of Life outcomes –Sub Groups / Personalised Medicine –Means and Medians –Resource Use HCMR00008 / Date of Preparation October 2009

36. Recent Developments 1.HTA Policy developments: –NICE End of Life Criteria –Kennedy Review –Pharmaceutical Oncology Initiative (POI) –PPRS innovation package –Patient Access Schemes 2.Regionalised HTA –Pre-NICE Health Economics requirements HCMR00008 / Date of Preparation October 2009

37. Thank you HCMR00008 / Date of Preparation October 2009

38. Back Up HCMR00008 / Date of Preparation October 2009

39. End of Life Criteria Patients with less than 24 months life expectancy Additional 3 months survival from new treatment “Small patient numbers” (approx 7,000?) No alternative with comparable benefits Single indication HCMR00008 / Date of Preparation October 2009