Health economics can feel a bit like alphabet soup — QALYs, ICERs, BIAs… To help you navigate the essentials, CELforPharma faculty member Prof Dr Lieven Annemans, expert-trainer of the courses Health Economics for Non-Health-Economists, Online Self-Study Programme: Basics of Health Economics and Critical New HTA Developments in Europe: Challenges & Solutions, has made a glossary of commonly used terms in health economic evaluations.
1. Health Economic Evaluation (HEE)
A structured comparison of the costs and health effects of alternative healthcare interventions, mostly a new technology or medicine versus Standard of Care (SoC). Helps decision makers judge whether a new technology/medicine provides value for money versus the comparator.
2. Quality-Adjusted Life Year (QALY)
A measure that combines length of life and quality of life into a single index.
- 1 QALY = 1 year in perfect health.
- Used as the main health outcome in many health economic evaluations, but also criticised for not capturing all value aspects that matter for patients.
3. Incremental Cost-Effectiveness Ratio (ICER)
The additional cost per additional unit of health gained (often per QALY).
💡 Formula: ICER = (Cost New – Cost SoC ) / (QALYs New – QALYs SoC ) |
The higher the ICER, the less cost-effective a new programme (technology/medicine).
If the ICER is below a country’s threshold for willingness-to-pay for QALY, the new intervention may be considered cost-effective.
4. Cost-Effectiveness Analysis (CEA)
The most applied type of health economic evaluations, comparing interventions in terms of cost per unit of health outcome (e.g., cost per QALY gained, cost per life-year saved). Note that, when the health outcomes are expressed in QALYs, several authors prefer the term cost-utility analysis.
5. Budget Impact Analysis (BIA)
An analysis estimating the financial consequences of adopting a new healthcare intervention, usually over a short horizon (3-5 years). Focused on affordability, not cost-effectiveness. The concerned budget can be a narrow pharma or MedTech budget, but also – and better – the broader healthcare budget accounting for offsets in other parts of the system.
6. Perspectives in Health Economic Evaluations
The viewpoint taken in an economic study:
- Societal: includes all costs (healthcare + productivity losses + social care costs).
- Healthcare payer: only healthcare costs paid by the public or private payer – can also include patient co-payment.
- Hospital: costs incurred within the hospital.
7. Decision Tree Model
A simple economic model using branches to represent possible events and outcomes (e.g. treatment success/failure). Often used for acute diseases without long-term sequelae.
8. Markov Model
A model that simulates patient transitions between health states (e.g., healthy, sick, dead) over time. Useful for chronic diseases and long-term outcomes.
9. Discrete Event Simulation (DES)
A more complex model that simulates individual patient journeys and events over time, capturing heterogeneity and complex disease pathways.
10. Discounting
Adjusting future costs and health benefits to their present value, reflecting time preference. Typically, a discount rate of ~3% is applied, but differences between countries exist.
11. Perspective on Value
- Value: the benefit an intervention provides to patients and/or society.
- Value for Money: whether the benefit is worth the cost.
12. Relative Effectiveness vs. Efficacy
- Efficacy: how well a treatment works in controlled circumstances, such as randomised controlled clinical trials.
- Effectiveness: how well a treatment works in real-world practice.
- Relative effectiveness compares an intervention with the most relevant alternatives.
13. Managed Entry Agreements (MEAs)
Arrangements between manufacturers and payers to allow access to a new therapy under certain conditions (e.g., outcome-based reimbursement, price-volume agreements) to manage uncertainty and affordability.
14. Target Reimbursable Product Profile (TrPP)
A forward-looking “value blueprint” outlining what attributes (effectiveness, safety, cost, price) a product should demonstrate to be reimbursed.
15. Sensitivity Analysis
Testing how results of health economic evaluations change when assumptions or inputs vary.
- One-way sensitivity: change one parameter at a time.
- Tornado diagram: shows several one-way sensitivity analysis in one picture, ranking the parameters from those with the highest impact to those with the lowest impact on the final outcome.
- Probabilistic Sensitivity Analysis (PSA): tests uncertainty across multiple variables simultaneously.
🎓 If you want to learn about:
- The logic and mathematics behind QALYs, ICERs, decision trees and Markov models.
- How external stakeholders use and challenge health economic evidence.
- How to distinguish good from bad health economic evaluation studies (of your brand or its competitors).
- Key principles of cost-effectiveness analysis and Budget Impact Analysis.
- The role of health economic evaluations in clinical research, pricing & reimbursement decisions, and post-launch.
👉 Attend Prof. Dr Lieven Annemans’ highly praised course:
Health Economics for Non-Health-Economists
With Prof. Dr Lieven Annemans
If your budget or agenda doesn’t allow you to join us in Brussels, our self-study programme allows you to learn from Prof. Dr Lieven Annemans at your own pace:
Online Self-Study Programme: Basics of Health Economics
With Prof. Dr Lieven Annemans
🎓 If you want to learn about:
- The different types of HTAs in Europe.
- How to address the broad and evolving range of assessment criteria in Europe.
- How to optimise clinical evidence generation for HTA bodies.
- How to use Real-World Data for HTA purposes.
- How to prepare for the Joint Clinical Assessment (JCA) in the EU.
👉 Attend Prof. Dr Lieven Annemans' highly praised 1-day course:
Critical New HTA Developments in Europe: Challenges & Solutions
With Prof. Dr Lieven Annemans