2. Comparing relevant alternatives

1. Comparing relevant alternatives

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Economic evaluation is a comparison of the costs and consequences of at least two choices. With new medicines, this is typically a new medicine versus the current standard-of-care treatment.

Of course, the most desirable solution is to lower costs and improve health outcomes important to patients. However, when evaluating how health costs will change with the introduction of the new medicine, it is also important that the right comparison is made. If a new medicine is compared with a very expensive alternative that is not often used, the new medicine will look more attractive, but this comparison is flawed. In order to link health effects and costs, one must have good information on both. Decision-makers need to understand how the new medicine compares with the existing standard of care treatment, and the economic implications of adopting a new health technology over another in the healthcare system, often under the pressure of having to manage limited healthcare funds. The underlying concept is known as ‘opportunity cost’, which describes the value of the achievable benefits forgone by funding one technology, which comes at the expense of another. Within HTA, economic evaluation can help decide which health technologies best to fund.

1.1. Types of economic evaluation

Different types of economic evaluation can be applied and they can be distinguished by the outcomes that are considered in each and how they are valued. The main types are briefly described below.

Cost-effectiveness analysis (CEA) assesses if a new health technology provides value relative to other existing health technologies. It is an estimation of costs incurred using the existing treatment vs. the new treatment whilst also considering the health outcomes associated with all technologies in question. The difference is known as potential cost-savings or cost-increase. The effects of the different technologies are usually measured using unidimensional final (e.g., life-years gained) or surrogate outcomes (e.g., progression-free survival), providing information on the ‘greatest effect for a given cost’, or alternatively, a ‘given effect at minimum cost’. Since implicitly different disease (therapeutic) areas use different units (or metrics) to measure outcomes, CEA carries the potential disadvantage that direct comparison of the results between disease areas is not possible in the same way as in cost-utility analysis (CUA).

Cost–utility[1] analysis (CUA) is an expansion of the cost-effectiveness analysis by using health-related outcomes that allow the measurement and comparison of different outcomes with the same metric e.g., when health technologies affecting a wide range of medical conditions are being compared. A widely used approach is to take the composite measures referred to as quality-adjusted life years (QALYs). QALYs are a type of outcome measure that takes into account both aspects of the quantity (longevity/mortality) and the health-related quality of life (HRQoL, e.g. morbidity, psychological, functional, social, and other factors). (see lesson 6). CUA is therefore also referred to as cost-per-QALY analysis. Cost–utility analyses commonly result in a relative measure of costs per QALY gained: the incremental cost-effectiveness ratio (ICER)[2]. The ICER is then compared to a threshold value below which a technology is judged to offer a cost-effective use of resources, or, more straightforward, value for money.

Note of caution: There is still ongoing debate about the use of QALYs in economic evaluation within HTA on methodological and societal grounds. Critics argue that the QALY oversimplifies how actual patients would assess risks and outcomes, and that its use may restrict patients with disabilities ore rare and ultra-rare diseases from accessing treatment. Proponents of the measure acknowledge that the QALY has some shortcomings, but that its ability to quantify tradeoffs and opportunity costs from the patient and societal perspective make it a critical tool for equitably allocating resources.[3], [4], [5]

Cost–benefit analysis (CBA) evaluates both costs and consequences in monetary terms (e.g., in Euros). For this, it is necessary to assign a monetary value to any consequences (outcomes) associated with the health technologies assessed. Notably the allocation of a monetary value to benefits of a health technology, for which precise estimates are difficult to obtain, poses methodological challenges and limits the use of this form of economic evaluation.

Cost-minimisation analysis (CMA) (also called cost analysis) looks at the costs associated with the health technologies to be compared, to identify the one associated with the lowest costs. In some cases, analysts  may be tempted to assume the health technologies under consideration to have the same desired effects (benefits) and undesired effects (risks/harms), and simply focus on costs. While this may seem to be an efficient way to examine the value of a new medicine, in reality, new medicines are seldom ‘equivalent’ to other medicines; and therefore, if differences between the technologies in outcomes cannot be adequately distinguished, then other approaches may be more useful.

Budget impact analysis (BIA) assesses the financial and organisational impact of adopting a new health technology without directly taking health consequences into account (or comparing alternatives). It is therefore at best a ‘partial’ economic evaluation and different from economic evaluations which attempt to provide information about the most economically efficient ways to utilise or allocate available health-care resources.

1.2. Costs

Below, different types of costs are described that should be considered when conducting an economic analysis in HTA. Cost item classification may vary in many ways, such as the costs of health-care technologies that are covered by the health-care sector, other sectors or patients and families. Time, productivity or wider-economic costs can also be classified separately. The inclusion or exclusion of cost items may depend upon chosen perspective or analytical approach.

Costs are a product of resources, such as:

-       Units of medicines or devices.

-       Services, staff hours, etc.

-       Facility time.

The unit cost is the cost incurred in order to produce, store, and sell one unit of a particular product; the unit cost includes all fixed costs and all variable costs involved. Ideally, unit costs are a standard measure of the real value of a product, but in practice these are often estimated through interviews or accounting data.

When costing a resource, care must be taken that this is carried out in a clear and transparent manner using appropriate costing methods. For example, when costing practitioner services, care must be taken to distinguish between 'charges' (the amount billed by the practitioner) and 'costs' (the amount billed for services used – e.g blood test, x-ray imaging), particularly where doctors are able to charge different fees to different patient groups or insurance providers.

Economists must also decide which costs to include in the assessment. Temporary absence from work due to illness (either of a patient or of a carer), reduced working capacity due to illness and disability or lost productivity due to early death all have an economic impact. For example, people who are unable to work are unable to earn an income and contribute to the economy (e.g. as taxpayers). If the analysis is conducted from the perspective of a health facility such as a hospital, these costs may not be included.

Even among evaluations claiming to be based on a particular situation, costs and outcomes may vary widely or be incorrectly applied. However, it is generally agreed that all costs related to the disease or technology in question should be included in the analysis.

1.3. Time horizon

In Time horizon, the time span for which costs and effects (consequences) should be measured or estimated is defined. Typically, a patient lifetime horizon is used, but other time horizons are possible, e.g., an observation time of a population or even an extrapolation to future generations.

1.4. Perspective

The chosen perspective of an economic evaluation is a key element in defining which costs and consequences are to be included in the analysis. Perspectives can be from:

• a health service (all costs and outcomes related to the health care sector are included)
• society (where all relevant costs and outcomes of the technologies have to be identified, measured and valued, no matter who pays these costs and consequences)
• an organization or institution, such as a hospital
• individual patients
• the target group for a specific technology.

1.5. Using a standard approach

Given the potential for variation, it is essential, within a high-quality assessment, that the rationale behind cost estimate and health outcomes and the sources of data used to assess these are clearly documented. Many health systems have developed guidance for economic evaluation. This avoids a situation where an evaluation of one technology looks more attractive than another simply because the analyst used different underlying assumptions and approaches during the assessment.

A database of such guidelines is currently maintained by the International Society for Pharmacoeconomics and Outcomes Research (ISPOR) ISPOR - PE Guideline Detail. The European Network for Health Technology Assessment (EUnetHTA) has published a guideline ’Methods for health economic evaluations - A guideline based on current practices in Europe’ representing a consolidated view of non-binding recommendations of EUnetHTA network members on current practices in the EU[1]. Despite the availability of these guidelines, many are often not properly adhered to. This can lead to inconsistent or overly favourable or overly negative findings in some cases.in the EU[2]. Despite the availability of these guidelines, many are often not properly adhered to. This can lead to inconsistent or overly favourable or overly negative findings in some cases.in the EU[3]. Despite the availability of these guidelines, many are often not properly adhered to. This can lead to inconsistent or overly favourable or overly negative findings in some cases.