Do you know how health economic evaluations are used in reimbursement decisions?

Health economics aims to find the best possible way to spend the available financial means for health care in the society. In order to apply economic thinking to healthcare, one should view the health sector as a productive sector whose aim is to produce health, by ensuring that people live longer and more healthily. Priority must be given to interventions (both preventive and curative) which result in the greatest amount of health for the money that is invested.  Interventions with a good ratio between the invested money and the resulting health outcome are called cost-effective.  In health economic evaluations, the net costs of an investment (e.g. a new pharmaceutical) are calculated in comparison to the current alternative, and the ratio between these net costs and the net health benefits is then assessed.

It is a challenge for policy makers to balance what is possible and what is not, within the available budget. There are several methods for carrying out an economic evaluation of a particular health intervention in comparison with an alternative intervention. The most popular one is the application of medical decision modeling through a medical decision tree, in which the consequences of the choice of a particular intervention are examined, thereby using data from different sources. Suppose, for example, that a new pharmaceutical  ‘New’ is compared to an existing one ‘Current’ and the effectiveness of ‘New’ proves to be better according to the results of a clinical study. Suppose now that ‘New’ is more expensive than ‘Current’. It is still possible that in addition to achieving a health gain, savings can be made through the adoption of ‘New’ because the chance of a hospitalisation and thus the expense associated to it are significantly reduced. A decision tree makes it possible to examine these questions and can provide a solution to the problem.

But not only costs are considered, also the health gains need to be calculated in order to make conclusions based on the two dimensions, cost and health gains. Hence, the full health economic evaluation allows us to calculate the cost-effectiveness of the new therapy. The basic principles of a cost-effectiveness analysis are relatively simple.  The approach consists of three steps:

1. The calculation of the difference in costs between New and Current treatment (C_N-C_C). It should be noted that this difference is one of net cost; that is, it already takes any savings (due to avoided complications) into account.
2. The calculation of the difference in effectiveness between New and Current treatment (E_N-E_C). If the new treatment is more effective it will result in a net health gain. Note that, just as costs are expressed in Euros or pounds and body weight expressed in kilos or pounds, we can express this health gain in units. A frequently applied unit of health is the QALY, which is the acronym for Quality Adjusted Life Year. This crucial concept will be explained in detail in the Health Economics for Non-Health-Economists course.
3. The calculation of the Incremental Cost Effectiveness Ratio (ICER): (C_N-C_C)/(E_N-E_C).

Results can be graphically expressed in two dimensions. Usually the representation that is used is the one shown in the below figure. In that figure, the current treatment is shown in the origin. The new treatment or intervention is then shown in relation to the difference in the effect (represented on the X axis) and the difference in cost (represented on the Y axis) in relation to the current treatment.

Policy makers will base their decision on the relative position of the new treatment versus the current treatment. For instance, it is possible that the new treatment is cheaper and more effective than the current treatment (situation 1). In that case the new treatment appears below and to the right of the current treatment and is known as the dominant treatment. However, if the new treatment is more expensive than the current treatment and does not lead to significant health gains (situation 2), most policy makers will decide that this treatment is not worth the money and is therefore not efficient, not cost effective.  In C.E.L.forpharma’s  health economics course, many practical examples of cost-effectiveness will be shown, as well as how results of such evaluations can be interpreted.

“ Invaluable course for any European marketer who needs to develop his understanding of the complex world of health economics. The course leader breaks through the jargon and brings the concepts to life in a relevant and memorable way.”

Lisa Williams, European Marketing Manager, Established Brands, Takeda - UK