Back to Basics: Health Economics

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

2. Learning Objectives • Following this session you should be able to better understand: • Principles of Health Economics • Meaning of a cost per QALY • Role of health economics in patient access to new medicines • 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

4. HCMR00008 / Date of Preparation October 2009

5. Background Common misunderstandings of Health Economics • “The most cost-effective patient is a dead patient” • “NICE are all about cost containment” • “The cheaper drugs are the most cost-effective drugs” • “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. 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 Health Economics provides the tools and analytical framework to help address these objectives HCMR00008 / Date of Preparation October 2009

8. Regulatory Criteria Reimbursement Criteria “The FourthHurdle” A more recent addition to the evidence base • Mandatory evidence requirement to ensure funding for new medicines 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. When judging value for money we naturally evaluate things in increments… Purchasing a new home…is it a good buy? What else is available? (Identify options) What is extra cost? (Purchase, stamp duty, repair etc) 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! Decision making principles HCMR00008 / Date of Preparation October 2009

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

18. A B The cost-effectiveness plane £40,000 Area of rejection Incremental Costs Willingness to pay threshold £30,000 £20,000 Area of acceptance £10,000 0.5 1 1.5 2 Incremental Drug Benefit (QALYs) 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. 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 Utility Scores 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. (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) Calculating a Cost per QALY: 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 HCMR00008 / Date of Preparation October 2009

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?” 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 • “The most cost-effective patient is a dead patient” • Cost Effectiveness ratios include survival, reduce survival increases cost per QALY • “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 • “Cheaper drugs are the more cost effective drugs” • Cost Effectiveness takes into account the benefits generated by a given drug • “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 • Methodology Limitations and Oncology • EQ-5D sensitivity • Dynamic CE ratio • Variation in threshold by patient characteristics • 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 • HTA Policy developments: • NICE End of Life Criteria • Kennedy Review • Pharmaceutical Oncology Initiative (POI) • PPRS innovation package • Patient Access Schemes • 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