A.A. Introduction to Introduction to Health EconomicsHealth Economics

Dr Alan HaycoxReader in Health EconomicsHealth Economics UnitUniversity of Liverpool Management School

Introduction to Health Introduction to Health Economics – ProgrammeEconomics – ProgrammeThe programme will be broken

down into four sections:1. Introduction to health economics2. Economics modelling: Theory &

Practice3. Value of new drugs including new

cancer drugs: Scottish Medicines Consortia (SMC) Scotland

4. Value of new drugs including new cancer drugs: NICE (England)

Methods of economic Methods of economic evaluation and other evaluation and other techniquestechniquesThe four types of health economic

evaluation are:◦CMA◦CEA◦CUA◦CBA

We will also cover measuring health related

quality of life as well as economic modelling

The Four Methods of The Four Methods of economic evaluationeconomic evaluationCost Minimisation Analysis (CMA)Cost Effectiveness Analysis (CEA)Cost Utility Analysis (CUA)Cost Benefit Analysis (CBA)

Cost Minimisation Analysis Cost Minimisation Analysis (CMA)(CMA)Simplest of all methods of economic

evaluation

Does not mean benefits are ignored – they have to be proven to be equivalent

Once benefits have been proven to be equivalent, analysis needs only to consider costs

Example - CMA of generic Example - CMA of generic formulations and different formulations and different treatments treatments Two drugs with exactly the same

pharmaceutical components with differing costs, e.g. different formulations of paclitaxel

Two approaches to cancer surgery with similar outcomes but different costs, i.e. one approach more invasive requiring more extensive analgesia

Cost-Effectiveness Analysis Cost-Effectiveness Analysis (CEA)(CEA)Health benefits are measured in

natural units reflecting a single dominant therapeutic goal◦Reduction in blood pressure (treatment)◦Increase in cases detected (screening)

CEA is only useful and undertaken if a single dimension dominates the health outcome to be compared

Example - CEA of alternative Example - CEA of alternative Approaches to cervical Approaches to cervical screeningscreeningHow much more does the more

effective screening system cost? (incremental costs)

How many more cases are detected by the more effective screening system? (incremental effectiveness)

What is the incremental cost-effectiveness ratio (ICER)?◦ICER = incremental cost/incremental

effectiveness

(-)

Incre

men

tal costs

(+

)(-

) In

cre

men

tal costs

(+

)

Existing technologydominates

(-) Incremental effectiveness (+)(-) Incremental effectiveness (+)

Cost-effectiveness

ratio(additional

cost per additional success)

Cost-effectiveness

ratio(cost saved per reduced

success)

New technology dominates

The Cost-effectiveness The Cost-effectiveness Plane Plane

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Ceiling ratioCeiling ratio

11

0.50.5

0000 £50,000£50,000

Incorporating cost-effectiveness Incorporating cost-effectiveness thresholds (CEAC’s) for decision-thresholds (CEAC’s) for decision-makingmaking

£30,000£30,000

0.30.3

£20,000£20,000

0.80.8

Cost Utility Analysis (CUA)Cost Utility Analysis (CUA)Incorporates the effects on morbidity

(quality of life) and mortality (quantity of life)

The most commonly used index is the quality-adjusted life-year (QALY)

A QALY is calculated by aggregating the number of years gained from a health care intervention, weighted by the relative value attached to each future health state

Issues underlying outcome analysis for CUA are explored in detail in the next session

Measuring Quality of Life Measuring Quality of Life (QoL)(QoL)QoL weights reflect the subjective level of

wellbeing experienced in different health states; the more preferable a health state the higher will be its associated ‘value’

Perfect health = 1Death = 0

We will return shortly to the methods used to help determine QoL. In the meantime, give a brief overview to determine QALY gains

Preference elicitation Preference elicitation methodsmethodsThere are three main methods

for direct measurement used in cost utility analysis. ◦Visual Analogue Scale (VAS)◦Standard Gamble (SG)◦Time Trade-off (TTO)

Visual Analogue Scale Visual Analogue Scale (VAS)(VAS)Individuals are asked to indicate

where on the line between the best and the worst imaginable health states they would rate a pre-defined health state

We would like you to indicate on this scale how good or bad is your health today, in your opinion. Please do this by drawing a line from the box below to wherever point on the scale indicates how good or bad your current health state is

100100

6060

5050

4040

3030

2020

1010

00

7070

8080

9090

Your own health state todayYour own health state today

VASVAS

Alternative 1:Alternative 1:Health state Health state

HH11

with with certaintycertainty

Alternative 2:Alternative 2:GambleGamble

With probability With probability pp: : Full health, HFull health, H22

ChoiceChoice

With probability (1-With probability (1-p)p): : Death, HDeath, H33

Standard GambleStandard Gamble

90 10

% Chance % Chance

PERFECTPERFECTHEALTHHEALTH

DEATHDEATH

Some problems in moving about

No problems with usual activitiesModerate pain or discomfortNot anxious or depressed

Choice AChoice A

Choice BChoice B

No problems with self-care

Standard Gamble boardStandard Gamble board

YearsYears

Value of healthValue of health

QOLQOLAA=1=1

00

QOLQOLBB

LOLLOLAA LOLLOLBB

QALYQALYAA QALYQALYBB=

The time trade-off methodThe time trade-off method

Cost-benefit analysisCost-benefit analysisThis requires all costs and benefits to

be measured in the same unit – money

In cost-benefit analysis an activity should be undertaken if the sum of the benefits are greater than the sum of the costs

The difficulties of converting all benefits (pain, anxiety, disability, death) to a monetary equivalence implies that CBA is rarely used in health economic analyses

Summary Summary Which tool for which Which tool for which analysis?analysis?What is the context of the

analysis?

What is the nature of the comparison being made?

What is the nature of the ‘outcome’ arising from the competing options?

Conclusion - What Health Conclusion - What Health Economics aims to achieveEconomics aims to achieveEfficiency: Does the allocation of

scarce resources maximise the achievement of health outcomes?

Equity: Is the sharing of health care resources fair between people?

The manner in which we are attempting to

achieve these aims is explored in the following

presentations

What is Health Related What is Health Related Quality of Life?Quality of Life?

A multi-dimensional concept that encompasses the physical, emotional and social components associated with an illness or its treatment

PaiPainn

DisabilityDisability

PP22

PP11

PP33

PP44

PP00

DD00 DD11 DD22 DD33

A = PA = P00DD00 = Normal health = Normal health

B = PB = P44DD33 = Total disability = Total disability & severe pain& severe pain

B

A

Measuring Health-Related Measuring Health-Related Quality of Life (HRQoL)Quality of Life (HRQoL)

What are Q of L ‘weights’?What are Q of L ‘weights’?Such weights reflect the

subjective level of wellbeing experienced in different health states; the more preferable a health state the higher will be its associated weight.

Perfect health = 1Death = 0

TIMETIME

ONSET OF ONSET OF ILLNESSILLNESS

11

00

INTERVENTIONINTERVENTION

= = Health Health gaingain

Prognosis with Prognosis with interventionintervention

Prognosis without Prognosis without interventionintervention

Measuring Health Gain in Measuring Health Gain in TheoryTheory

DEATHDEATH

QUALITY QUALITY OF LIFEOF LIFE

Two ‘types’ of MeasureTwo ‘types’ of MeasureGeneric instruments

◦Designed to have broad application across a wide range of disease states

◦eg sickness impact profile, Nottingham health profile, EuroQol

Disease specific instruments◦designed to assess the impact of

specific disease states◦eg arthritis impact measurement scale,

back pain disability questionnaire

Calculating QALYs – A Simple Calculating QALYs – A Simple ExampleExampleSurvival and associated health states

◦With treatment ‘X’ 10 years in improved health

◦Without treatment ‘X’ 8 years in poorer health

Preference weights for health states◦With treatment ‘X’ 0.7◦Without treatment ‘X’ 0.5

QALY Analysis for QALY Analysis for Treatment ‘X’Treatment ‘X’

Without treatment X

Survival = 8 years

Q of L = 0.5

QALY = (8 X 0.5) = 4.0

With treatment X

Survival = 10 years

Q of L = 0.7

QALYs = (10 X 0.7) = 7.0

QALY gain = 3.0 Q.A.L.Y’s (7.0-4.0)

Cost of intervention = £45,000

Cost per QALY = £15,000

QALYs – For and against their QALYs – For and against their use in health economic use in health economic evaluationsevaluationsFor

◦ Generic multi-dimensional◦ Easy to apply◦ Provides practical guidance in allocating

health care resources between very different therapeutic interventions

Against◦ Too superficial to measure the full benefits

from health care?◦ Insufficiently sensitive to capture small

changes in the patient’s Q of L◦ Can we really measure quality of life in

only five questions?

TimeTime

Improved survival (increased length of

life) only

Measuring gains from Measuring gains from different types of different types of interventionintervention

Quality Quality of lifeof life

= Health gain= Health gain

TimeTime

Improved quality of life only

Measuring gains from Measuring gains from different types of different types of interventionintervention

Quality Quality of lifeof life

= Health gain= Health gain

TimeTime

Improved survival and improved quality of life

Measuring gains from Measuring gains from different types of different types of interventionintervention

Quality Quality of lifeof life

= Health gain= Health gain

TimeTime

Improved survival at expense of

decreased quality of life

Measuring gains from Measuring gains from different types of different types of interventionintervention

Quality Quality of lifeof life

= Health gain= Health gain

= Health loss= Health loss

Conclusion of this sectionConclusion of this sectionAccurate health outcome measurement

is vital in determining the value and hence priority that should be placed on competing healthcare interventions. For cancer, this includes screening, initial management (adjuvant treatment, surgery, radiotherapy), management of advanced disease and end of life

The need for sensitivity and practicality may pull in different directions

QALYs assume that all health interventions aim either to make us live longer (quantity) or live better (quality)

B.B. Economic ModellingEconomic ModellingTheory & PracticeTheory & Practice

Therapeutic interventions Therapeutic interventions are messy and complexare messy and complexLimited understanding of how things

work◦ Disease/Treatments/Services

Limited evidence of effectiveness◦ A better treatment? How much better and

is it better for all patients?Evidence limited in time and place

◦ Are RCTs valid for other situations and in other countries?

Variable quality and limited availability of evidence◦ How to fill gaps? ◦ What is the comparative value of RCTs,

observational data and ‘expert’ opinion?

Hence we need to model in Hence we need to model in order to…order to…1. Extrapolate beyond the results of a trial

2. Link intermediate clinical endpoints to final outcomes

3. Generalise to alternative settings

4. Synthesise head-to-head comparisons where relevant trials do not exist

1. 1. Extrapolating beyond the Extrapolating beyond the results of a trialresults of a trial

Economic evaluations require long term analyses to comprehensively assess the costs and benefits arising from an intervention

TechniquesTechniquesA range of techniques are available

to extrapolate outcome data into the future e.g. constant benefits or linear extrapolation

2. 2. Linking intermediate Linking intermediate endpoints endpoints to final outcomes to final outcomes where necessarywhere necessaryWhere RCTs only report intermediate

clinical endpoints e.g.◦ Hypercholesterolaemia (changes in HDL/LDL)◦ Response rates to length of survival◦ Disease free progression to length of survival

Economic evaluations in comparing cost-effectiveness attempt to consider ‘harder’ outcomes ◦ Life-years gained

TechniquesTechniquesLogistic equations and other methods are

used to try and determine impact on length of survival

3. 3. Generalising to Generalising to alternative alternative settingssettings Costs

◦ Costs differ from one setting (e.g. country) to another

TechniquesTechniques Adapt analyses to take account of local unit costs,

comparators and patterns of care

Efficacy◦ Patients are carefully selected in clinical trials◦ Compliance in trials is artificially high

TechniquesTechniques Develop an ‘impact model’ that identifies factors underlying

the success of a healthcare intervention and dichotomise between ‘locally specific’ and ‘generalisable’

4. 4. Synthesising head-to-Synthesising head-to-head head comparisonscomparisonsRCTs do often compare an active drug vs.

Placebo; alternatively an ‘add-on’ drug to an existing regimen and not a replacement. Clinicians need to know whether a new drug is superior to existing therapeutic interventions – not as an ‘add on’ especially when scarce resources

TechniquesTechniquesModelling allows for the results of more

than one trial to be incorporated thus facilitating indirect comparisons between drugs

Stages in developing an Stages in developing an economic modeleconomic model1. Define the problem and your objective

2. Identify all relevant factors and how they inter-

relate

3. Search for data/information to quantify those

relationships

4. Choose an appropriate methodology/structure

5. Construct and calibrate the model

6. Test/validate model

7. Revise/correct model (return to stage 5 as required)

8. Apply model results to problem/decision

Knowledge requirements for Knowledge requirements for modellingmodellingEpidemiological:

◦ Population at risk, mortality, effectsMedical:

◦Nature of the disease and how well do the treatment and comparators work?

Economic◦Resources consumed at each stage

of the treatment process

Data requirements for Data requirements for modellingmodellingParameter estimates for each

possible outcome or health stateProbabilities of occurrence of

each outcome or health stateCost for each resource consumed

during the process of care provision

Types of modelTypes of model1. 1. Decision TreeDecision TreeModel all possible treatment paths

and outcomesEach alternative is shown as a branchEach branch is connected by a

decision (choice) nodeOutcomes are connected to branches

by probability (chance) nodesTerminal health states / outcomes

totalled for costs & benefits

Types of modelTypes of model2. 2. Markov ChainMarkov ChainBased on movements between

defined health states caused by events

Individuals may enter the system at one or more source states

Individuals progress from one state to another according to a set of transition probabilities

Transitions occur at predetermined intervals (cycle period)

Model may include one or more sink or terminal states (no exit)

pn = transitional probability

Asymptomaticdisease

Progressivedisease Death

Patient

p1

1-p1-p3 1-p2 1

p2

p3

Example of a simple Markov Example of a simple Markov ModelModel

How ‘robust’ are health How ‘robust’ are health economic analyses?economic analyses?Issue to be addressed:

◦Do limitations in either the quality or availability of evidence affect the recommended decision?

◦ If the decision is not altered despite ‘reasonable’ variations in key assumptions/parameters, then the analysis can be considered to be ‘robust’

Two types of uncertainty:◦Structural (is the model design correct?)◦Parameter (are the values correct?)

Techniques for handling Techniques for handling uncertaintyuncertaintyStructural: scenario analysis

◦Re-run the analysis with alternate assumptions and model structures

Parameter: sensitivity analysis (SA)◦Re-run the analysis with different

parameter values◦One-way SA, ◦Multi-way SA, ◦Extreme values SA, ◦Probabilistic SA

-5000

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-0.05 0 0.05 0.1 0.15

Incremental QALY

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Presentation of results of sensitivity Presentation of results of sensitivity analysis analysis 1. Cost-Effectiveness Plane1. Cost-Effectiveness Plane

0

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£0 £10,000 £20,000 £30,000 £40,000 £50,000 £60,000

Value of ceiling ratio

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Presentation of results of sensitivity Presentation of results of sensitivity analysisanalysis2. CE Acceptability Curve2. CE Acceptability Curve

Using the results of Using the results of modellingmodellingA model simply provides a structure

(good or bad) that organises complex relationships and data enabling them to be interpreted and manipulated

By predicting and comparing costs and outcomes of competing interventions, it enables decision-makers to address problems in a more systematic manner

Good economic modelling Good economic modelling practicepracticeA good model provides a structure that

allows data to be interpreted and used. However, to maximise the value of the model, certain principles should be followed:◦Keep analyses simple◦Keep analyses transparent◦Make explicit the quality of the underlying

data◦Keep a focus on uncertainty◦Compare the results obtained in your model

to others

Conclusion - converting Conclusion - converting ‘numbers’ to ‘knowledge’‘numbers’ to ‘knowledge’Remember:

◦Numbers are meaningless◦Data = numbers with meaning and a

source of integrity◦Information = data interpreted◦Knowledge = information in action

C.C. Value of new drugs Value of new drugs including including new cancer new cancer drugs:drugs:

Scottish Medicines Scottish Medicines Consortia Consortia (SMC), Scotland(SMC), Scotland

Ref: Andrew Walker and Ailsa Brown EACPT 2009

Only limited number of new Only limited number of new products having reasonable health products having reasonable health gain gain SMC recently analysed their guidance for 281

new products and indications (all drug classes) issued between April 2002 and September 2008

Data extracted from base case QALY gain estimates provided by the manufacturers showed:

Overall median health gain - 0.1 QALY Mean health gain - 0.5 QALYs (standard deviation

1.72) This broken down as:

◦ 22% offered no benefit◦ 28% offered >0 – 0.1 QALY◦ 25% offered >0.1 -0.5 QALY◦ 13% offered >0.5- 1.0 QALY◦ 12% offered >1 QALY

Recent examples of new drugs not Recent examples of new drugs not recommended by SMC as economic recommended by SMC as economic concernsconcerns

Drug DiseaseReason for rejection

Cost/ QALY

Sunitinib (SUTENT)

GIST and mRCC

Economic case not proven

£34000 - £81000

Aliskiren (RASILEZ)

Essential hypertension

High costs with comparable

efficacy

£11-14/ year (generic ACEi) vs. £257-309

Pemetrexed (ALIMTA)

Metastatic NSCL cancer

Economic case not proven

Up to £53,000

AVASTIN and ERBITUX

Metastatic ca colon/ rectum

Economic case not proven

£24000 –£93000

Rimonabant (ACCOMPLIA) Obesity

Economic case not proven

Not assessed - no comparator

Ref: SMC website

SMC and new anti-cancer SMC and new anti-cancer medicines recently reviewedmedicines recently reviewed61 cancer medicines reviewed

◦36 for advanced/metastatic cancer◦25 for earlier/adjuvant treatment

Median QALY gain (over current treatment)◦0.38 for advanced cancer◦0.30 for earlier/adjuvant treatment

Mean QALY gain (over current treatment)◦0.52 for both groups

What do these ‘mean and What do these ‘mean and median’ QALY gains imply in median’ QALY gains imply in reality?reality?Median health gain

◦6 months with quality of life 70% of normal

Mean health gain◦8-9 months with QoL 70%

Only 6 drugs (10%) offered ≥1 QALY

22 drugs (36%) offered ≤0.2 QALY◦= ≤3 months at 70% of normal QoL

Overall

Some individual cancer Some individual cancer drugs had considerable drugs had considerable health gainhealth gainSome of the greatest health-gains

are with really innovative drugs:◦Trastuzumab – 2.4 QALYs◦Nilotinib – 2.1 QALYs◦Bortezomib – 1.1 QALYs

Even if these are expensive, they may offer good ‘value-for-money’

The issue subsequently becomes affordability and opportunity costs (workshop)

Health gain with cancer Health gain with cancer drugs similar to other drugs similar to other disease areadisease areaAnti-cancer drugs are much like

new drugs for other disease areas◦Musculoskeletal (11) – 0.66 QALY◦Infections (33) – 0.11 QALY◦Endocrine (24) – 0.07 QALY◦Cardiovascular (33) – 0.05 QALY◦CNS and pain (55) – 0.04 QALY

Overall new drugs in general do not appear to be as valuable as many would like to think!

D.D. Value of new drugs Value of new drugs including including new cancer new cancer drugs:drugs:

NICE (England)NICE (England)

What does NICE mean by What does NICE mean by cost-effective?cost-effective? More effective and less costly

More effective and more costly AND additional effect is worth the extra cost

Less effective and less costly AND the cost saving is large enough to compensate for the loss of effect

What is the cost-effectiveness threshold for acceptance?

NICE ‘does not use a precise ICER threshold above which a technology would automatically be defined as not cost effective or below which it would’

Why do NICE use a cost-Why do NICE use a cost-effectiveness threshold?effectiveness threshold? “The appropriate threshold to be used is that of

the opportunity cost of programmes displaced by new, more costly technologies”

If most plausible estimate is below £20,000 per QALY gained: cost effective use of NHS resources

Above £20,000: are there benefits not captured by the QALY? Has quality of life aspect been adequately measured?

Above £30,000 “…need to identify an increasingly stronger case for supporting the technology as an effective use of NHS resources”

End of life care: The NICE End of life care: The NICE criteriacriteriaIntroduced 5 January 2009, revised

July 2009Three criteria in order to qualify:

◦The treatment is indicated for patients with a short life expectancy, normally <24 months

◦There is sufficient evidence to indicate that the treatment offers an extension to life, normally of at least an additional 3 months, compared to current NHS treatment

◦The treatment is licensed or otherwise indicated for small patient populations

End of life care: The NICE End of life care: The NICE processprocessFor eligible treatments, the Committee will

consider:◦ The impact of giving greater weight to QALYs

achieved in the later stages of terminal diseases, using the assumption that the extended survival period is experienced at the full quality of life anticipated for a healthy individual of the same age

◦ The magnitude of the additional weight that would need to be assigned to the QALY benefits in this patient group for the cost-effectiveness of the technology to fall within the current threshold range

Committee requires that the assumptions used in the reference case economic modelling are plausible, objective and robust

End of life care:End of life care:Specifying the comparatorSpecifying the comparatorThe comparator for the technology

being assessed is very important because the choice to a large extent determines the incremental costs and incremental effects (and thus the cost per QALY)

Relevant comparators might include:◦Therapies routinely used in the NHS◦Current best practice◦What is expected to be replaced (SMC)◦‘Do nothing’ (e.g. best supportive care)

End of life care:End of life care:Measurement of health Measurement of health benefitbenefitThe incremental QALYs as a result of a

treatment have two components:◦Changes in survival◦Changes in health-related quality of life

The main challenge with estimating changes in survival arises because the data on clinical effectiveness typically means that long-term overall survival must be extrapolated from short-term progression-free survival data

Two challenges recur with quality of life data 1.The absence of data2.Unsatisfactory measure of quality of life

Case study: Cetuximab for locally Case study: Cetuximab for locally advanced squamous cell cancer of advanced squamous cell cancer of head and neckhead and neck Cetuximab with radiotherapy versus radiotherapy alone

in patients considered unsuitable for chemotherapy

RCT showed significant improvement in duration of locoregional control, overall and progression-free survival, and overall response rate for the combination than for radiotherapy alone (Bonner et al, NEJM 2006)

Manufacturer estimated a cost per QALY of £6,390

Committee rejected the submission highlighting uncertainties regarding the clinical evidence (e.g. RT regimens used in trial not typical of UK current practice, high proportion of patients in trial suitable for chemotherapy, and no clinical benefit demonstrated in patients with poor performance status)

End of life care: End of life care: The importance of sub-The importance of sub-groupsgroupsCost-effectiveness generally varies across

sub-groups

Important because ICER for entire patient group may be above the threshold but there may be sub-groups for whom the intervention is cost-effective

Similarly, an ICER below the threshold for the patient group as a whole may hide ICERs for particular sub-groups above the cost-effectiveness threshold

RCTs often under-powered to assess treatment effects in sub-groups

Additional analysis Additional analysis presented following appealpresented following appeal

Karnofsky performance status

Hazard Rate

Confidence Interval

Cost effectiveness

100 0.61 0.28 to 1.31 £13,200

90 0.58 0.39 to 0.88 £4,500

80 1.11 0.69 to 1.77 £58,200

70 1.22 0.53 to 2.78 RT dominant

<70 3.41 0.65 to 17.7 £37,000

NICE recommendation (June NICE recommendation (June 2008)2008)The Committee concluded that

Cetuximab in combination with radiotherapy is clinically and cost-effective in patients with locally advanced squamous cell cancer of the head and neck who have a Karnofsky performance status score of 90% or greater and for whom platinum-based chemoradiotherapy treatment is contraindicated

NICE evaluation: NICE evaluation: A summaryA summaryICERs and cost-effectivenessUnderstanding the economic

modelKey elements to watch out for:

◦Appropriate comparators◦Relevant sub-groups◦Measurement of health benefit◦Analysis of uncertainty

The importance of HTA:The importance of HTA:ConclusionConclusionNo health system can afford to fund all new

healthcare interventions so we inevitably have to prioritise and choose

HTA simply attempts to identify the healthcare interventions that provide sufficient clinical benefit to justify their cost

HTA enables health systems to optimise the amount of patient benefit obtained from the limited resources available to the healthcare system

HTA also enables an informed debate to be undertaken with the industry concerning the importance of linking drug pricing to drug effectiveness