Economic Evaluation of Health Technologies
Ifat Abai-Korek, PhD 1,2, Einav Horowitz, MD. 1
1.
2.
Israeli Center for Technology Assessment in Health Care, The Gertner Institute
Assuta Medical Centers
The problem of resources scarcity is one of the fundamental issues in the field of
economics. Scarcity of resources means that attaining one economic good requires
forgoing another. This phenomenon affects the management of the economy on a
national scale, and one of the tools designed to support the proper usage of resources
to achieve desired goals is economic evaluation (EE). EE analyzes the different
options and indicates how they should be prioritized in order to maximize the benefit
within a limited budget.
EE is defined as a comparative analysis between alternative courses of actions, in
terms of costs and consequences. Therefore, conducting EE involves identifying and
quantifying the relevant costs and outcomes. EE is used as a decision-supporting tool
as it enables the decision-makers to systematically rank the alternatives and facilitate
the decision process. [1]
Resource scarcity exists also in the field of medicine. Healthcare systems around the
world face a continuing growth in health expenditures along side with accelerated
development of new and expensive medical technologies. The true cost of using
valuable health resources is the inability to fund other effective technologies. Because
the resources are limited, there is an ever growing gap between the variety of
available health services and those that are funded. The result is a constantly
insufficient health budget, and the need to appraise both the clinical and the economic
aspects of each new technology that is being funded. [2-5]
EE of health technologies supports this need by examining the costs and outcomes
(both in term of clinical outcomes and in terms of subsequent costs added / averted) of
alternative interventions, generally the technology considered for funding and one or
more technologies already being funded for the same indication. It seeks to provide an
objective and systematic method to assist prioritization and reflects the universal goal
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Management of Health Technologies, Israeli Center for Technology Assessment in Health Care, Gertner Institute
of maximizing the value received for the money by demonstrating the existence of not
only clinical effectiveness but also cost-effectiveness. [1,6]
While this problem of scarcity is most severe where funding of health services is
mainly public, even private health insurance agencies are beginning to feel the need to
prioritize between services they may wish to offer their enrollees. Formal use if EE
and EE-based decision making is, however, still predominantly performed for
publicly-funded health services.
Because of the role EE plays in reimbursement
decisions in many countries, it has been termed "the fourth hurdle" (after the three
hurdles for registration- quality, safety and efficacy). [7,8]
Cost-Effectiveness
The term cost effectiveness describes to what degree a particular option gives the
highest value for money (or, conversely, the least cost for a unit of outcome). While
originating in cost-effectiveness analysis (one type of EE), the term is used nowadays
regardless of the method used to conduct the EE. Cost-effectiveness reflects the desire
to achieve a pre-defined target for the lowest expense or a maximal health benefit
within a limited budget. These goals may be accomplished by choosing the most costeffective technologies based on EE.
Table 1 presents the most common types of evaluations related to the costs and
outcomes used in health services:
Are both costs (inputs) and consequences (outputs) of the alternatives
examined ?
NO
Examines only costs
Examines only
consequences
Cost Description
Outcome Description
Is
there
comp
ariso
n of
two
or
more
alter
nativ
es ?
NO
YES
Cost-outcome
description
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Management of Health Technologies, Israeli Center for Technology Assessment in Health Care, Gertner Institute
YES
Partial evaluationPartial evaluationincremental cost/budget incremental efficacy or
impact analysis
effectiveness evaluation
Table 1: Definitions of clinical and economical evaluations.
Full Economic
Evaluation
Based on: Drummond MF, O’Brien B,
Stoddart GL, Torrance GW. Methods for the Economic Evaluation of Health Care Programs. Oxford
Medical Publication 2nd edition. [9]
Costs:
Costs are the monetary value of expenditures for supplies, services, labor, products,
equipment and other items. In EE of medical technologies, many different types of
costs may be involved. While there are many ways of categorizing the different types
of costs, most differentiate between medical costs and non-medical costs. [10-12]
The most basic medical cost is the cost of the technology itself. For pharmaceuticals,
the cost depends on the dosage and the duration of treatment. For devices, it is the
cost of the device, and, if implanted, the procedure of implantation. Costs may also
include the setting in which the technology is used- full or part hospitalization,
ambulatory clinic, etc. Other costs may be related to specific characteristics of the
technology, such as need for specific follow-up (physician visits, laboratory tests
and/or imaging) or treatments for side effects or complications due to the use of the
technology. Last, but not least, medical costs cover costs related to the effects of the
intervention on the course of the medical condition - need for other treatments or
hospitalization due to progression or complications of the disease.
The later is
particularly important for intervention with an element of prevention. While
successful treatment of one medical condition (especially if leading to prolongation of
life) may result in additional costs due to other, unrelated, diseases that the patient
would not have suffered from otherwise, these costs are usually not included in an EE.
Non medical costs are costs that, though related to the disease or treatment, are not
related to the healthcare system. Those include direct costs, such as transportation to
the hospital or a need for paid assistance or escort, and indirect costs- reduction of
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Management of Health Technologies, Israeli Center for Technology Assessment in Health Care, Gertner Institute
productivity due to absenteeism (total absence from work) or presenteeism (working
at a reduced capacity) due to illness. [13]
The choice of which costs to include in the EE is dependent on the perspective of the
EE- for whom the EE is meant to be relevant. Therefore, an EE from the perspective
of a health insurer may include costs of treatment covered by it but not those that are
paid out-of pocket by the patient or that are funded by other sources, an EE from the
perspective of a national health-care system will include the medical costs but may
not include non-medical ones, and an EE from a societal perspective should include
both medical and non-medical costs. [14]
The costs used in EE are mainly per-person costs. That means that "once-off" costs,
(e.g. construction of an operations room, purchase of permanent equipment or training
of staff) and other fixed costs are not usually included in the costs, unless they are
translated into per-person units by pricing.
Benefits:
There are four general types of EE of medical technologies, which differs mainly in
the way the outcome of the technology is handled. [6,15,16] The main differences
between the different methods of EE are summarized in table 2.
Type of EE
Outcome
Application/ Interpretation
Used
only
when
the The least costly technology is preferred.
difference in outcomes is 0
(outcomes are equal) so no
units are needed.
Cost
Benefit Outcomes are translated into Net benefit. If the benefit is greater than
monetary units.
the costs, the technology is preferred.
Analysis (CBA)
May be used non-comparatively.
Cost Effectiveness Outcomes are expressed as a What is the incremental cost of
natural endpoint of clinical improving the outcome in one unit?
Analysis (CEA)
effect
Incremental Cost Effectiveness Ratio.
Cost
Utility Outcomes are expressed What is the incremental cost of gaining
Quality Adjusted Life Years- one Quality Adjusted Life Years?
Analysis (CUA)
effects
on
both
life Incremental Cost Effectiveness Ratio.
expectancy and quality of
life
Cost
Minimization
Analysis (CMA)
Table 2: Types of economical evaluations.
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Management of Health Technologies, Israeli Center for Technology Assessment in Health Care, Gertner Institute
a.
Cost Minimization Analysis (CMA)
This type of EE is limited to situations where the health benefits of the technologies
are equal. CMA does not disregard benefits, but rather proper use of CMA requires
evidence that the outcomes of the alternative technologies are identical. It is
commonly accepted that use of CMA is legitimate only when clinical equivalence is
proven in an equivalency trial (trial designed to demonstrate equivalency between
interventions) or a non-inferiority trial (designed to prove that one intervention is not
inferior to the other).
By comparing alternatives with the same clinical outcome, this type of EE identifies
the alternative with the lowest costs as the preferred one. CMA may be seen as a
special case of cost-effectiveness analysis where, because the incremental benefit is
zero, no incremental cost effectiveness ratio (see CEA) can be calculated. [17]
b.
Cost Benefit Analysis (CBA)
In CBA, the outcome is expressed in monetary units. For medical technologies, this
means translation of outcome such as life expectancy and health to money. This type
of analysis makes it possible to compare technologies with very different outcomes,
both in type and in quantity, including intervention completely unrelated to healthcare
such as transportation or education, because they all may be translated into currency.
The result of CBA is usually expressed as Net Benefit:
(Ct – Ca) - (Bt – Ba)
where Ct and Bt are the cost and benefit of the new technology respectively, and Ca
and Ba are the cost and benefit of the alternative.
Use of CBA is not very common for EE of medical technologies because it is
difficult, both technically and conceptually, to capture the full dimensions of health in
monetary terms, especially notions such as concern, happiness, and spiritual
wellbeing. When using CBA, the customary way to quantify the outcome is by the
Willingness to Pay (WTP) method, where respondents are asked how much they
would be willing to pay to live an a certain health state or to avoid/treat a specific
condition. The main problem with using WTP is that, as respondents are not actually
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Management of Health Technologies, Israeli Center for Technology Assessment in Health Care, Gertner Institute
asked to pay, they may treat the question as purely theoretical and not as an accurate
representation of worth.
Unlike the other types of EE, CBA may be used in a non-comparative manner, i.e. to
determine whether a specific technology is cost-effective by itself. A technology can
be said to be cost-effective using CBA if its benefits (as translated into money) are
greater than its costs, irrespective of what the alternatives may be. [18]
c.
Cost Effectiveness Analysis (CEA)
CEA has become almost a synonym for EE when dealing with medical technologies.
CEA is defined by the UK National Institute for Health and Clinical Excellence
(NICE) as an economic study where the clinical outcomes of different interventions
are measured by one endpoint, usually a "natural endpoint". This endpoint usually
represents the dominant clinical effect such as survival (life years gained or mortality
avoided), complications prevented or a clinical parameter achieved.
The product of CEA, known as Incremental Cost-Effectiveness Ratio (ICER),
expresses who much it would cost to gain/avoid one unit of the outcome (e.g. cost per
life-year gained) by switching from one option to another. ICER is calculated by the
formula:
(Ct – Ca) / (Et – Ea)
where Ct, Et, Ca and Ea are the costs and effects of the new technology respectively
and the alternative. [16,19]
A related product is Average Cost-Effectiveness Ratio (ACER), in which the
comparator is "do nothing" or "no treatment". ACER (and sometimes ICER) is
occasionally, and erroneously, thought to mean the division of the cost of the
technology by its benefit. Although this value may be considered to represent an
intrinsic characteristic of the technology, is not used for decision making because it
implies that the alternative the technology comes to replace has a cost and a benefit of
0, a highly unlikely possibility, even when the alternative is not treating.
There may be circumstances where there is more than one outcome of clinical
importance, but aggregating them is not feasible or desirable. In those cases, it is
possible to calculate the ICER for each outcome (i.e. what is the cost to increase
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Management of Health Technologies, Israeli Center for Technology Assessment in Health Care, Gertner Institute
outcome A, what is the cost to increase outcome B etc.). This is called CostConsequence Analysis (CCA). It should be noted that making decision based on CCA
can be complicated if the ICERs of the outcomes are significantly different.
In order to conduct CEA, the benefit of the options being compared should be
expressed in the same units. Because of this, CEA is useful when comparing
technologies in the same field to determine which will give the best value for money,
but is less so when needing to prioritize technologies from different fields, because
the outcome may not be comparable. Even survival, thought by many to be the
ultimate endpoint in medicine, is not always appropriate, because many interventions
are aimed at improving quality of life.
d.
Cost Utility Analysis (CUA)
CUA is a subtype of CEA, where the outcome is measured in units known as Quality
Adjusted Life Years (QALYs). The concept behind QALYs is that the benefit of
every medical technology can be said to be longer survival, improved health related
quality of life (HRQoL) or both. Therefore, CUA addresses the short coming of
classical CEA by making it possible to use the same unit of benefit for technologies
from vastly different fields. [16,20,21]
Because of its wide applicability, CUA is the most commonly used type of EE in
healthcare. It should be noted that although CEA and CUA are two distinct types of
EE, the two terms are often used interchangeably, and, in fact, many of the studies
published under the heading of CEA are actually CUA.
The use of QALYs is based on the concept that the benefit of every medical
technology is increased life-expectancy, improved quality of life, or both. QALYs are
the product of the time spent in a health state multiplied by a factor denoting the
relative desirability of that health state. This factor, called utility, usually ranged from
0 to 1, where 0 is the value given to being dead and 1 represent perfect health
(negative values may be used to represent health states that are worse than death, but
their usage in CUA is still unclear). One QALY, therefore, is equivalent, but not
necessarily equal, to one year of life in perfect health. It may also stand for living two
years at a HRQoL that is half of that of full health, 5 years at 20% quality, etc. [22-24]
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Management of Health Technologies, Israeli Center for Technology Assessment in Health Care, Gertner Institute
Selecting the type of EE depends on the context and purpose of the evaluation as well
as the specific health condition and technologies compared. The specific type of EE
selected reflects the type of decision it is meant to inform. Therefore, for a decision on
which medication should be used for treating patients with a certain health condition,
such as diabetes, CEA using glycosylated hemoglobin (HbA1C) may be appropriate.
For prioritizing medical technologies for different health conditions affecting different
parameters, CUA, where all the effects are translated into QALYs, is considered best.
Cost-effectiveness plane and decision making in CEA/CUA
Understanding decision making using CEA and CUA can be simplified by
conceptualizing the analysis as a two-dimensional place, where the X axis is the
incremental effectiveness, and the Y axis- the incremental cost of the technology
compared to the alternative. A graphic representation of this plane, called the CE
plane, is presented in Figure ZZZ. Because the axes are incrementals, the alternative
to which the technology is compared is placed at the crossing point (0,0). [16]
The place has four quarters, representing the four possible combinations of
incremental cost and effectiveness. The left upper quarter is the situation where the
new technology is less effective (negative incremental effectiveness) and more costly
(positive incremental cost) compared to the alternative. In such cases, the new
technology is considered to be dominated (sometimes referred to as "strongly
dominated") by the alternative and funding the new technology is clearly undesirable.
On the other hand, if a technology is in the right lower quarter, it means that it is
dominant over the alternative, i.e. offer better outcomes for less cost. In this case, the
decision is also clear- such a technology should be funded, unless there are good
extraneous reasons.
The decision making dilemmas in CEA/CUA involves the two remaining quarters:
technologies with positive benefits and positive costs and technologies with negative
benefits and costs. Very few articles dealt with the question of when is a saving in
costs worth the "price" of lower effectiveness and worse health outcomes, a ratio
sometimes called "decremental cost effectiveness ratio", but since cases of such
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Management of Health Technologies, Israeli Center for Technology Assessment in Health Care, Gertner Institute
technology are rare so far, the matter is more of a theoretical interest than a practical
consideration [25]
Most decision making focuses on technologies that are more effective but more costly
than the alternative, with the ICER influencing the decision whether to fund the
technology or not. Because the ICER is the ratio of the cost to benefit, it is obvious
that the lower the ICER, the more cost-effective the technology is. From the
standpoint of EE, funding those technologies that have the lowest ICER (as well as,
obviously, dominant technologies) is the best way to achieve economically efficient
allocation.
Decision making based on ICER may be in two forms: the decreasing marginal utility
approach and the threshold approach.
Using the decreasing marginal utility approach, the first technology to be funded is
the one with the lowest ICER, than the one with the second-lowest ICER etc, until the
budget is exhausted. Obviously, this approach is relevant for countries with a fixed
healthcare budget. With this approach, there is no pre-defined value denoting what is
cost-effective, but rather, it is an ex post result of the ICERs of the technologies
considered. Moreover, this value is also dependent on the size of the budget. The
greater the available budget, the more technologies, with higher ICERs, may be
funded, and the value defining cost-effectiveness will be higher. [26,27]
The threshold approach sets a threshold value defining whether a technology is costeffective or not, and the decision is based on the relationship of the ICER to that
threshold. Technologies with ICER below the threshold are likely to be funded, while
those above it are not. The threshold may be formal and binding, or may serve as a
general declaration of intent. The threshold approach is usually used when there is no
set budget for funding health technologies- if, at a specific point, many technologies
have ICERs below the threshold, there may be a need for considerable resources to
fund all of them; on the other hand, if all the technologies are above the value, none
will be funded. The threshold value may be different in different countries, reflecting
cultural perception on the value of life and health as well as political and economical
necessities. [29-30]
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Management of Health Technologies, Israeli Center for Technology Assessment in Health Care, Gertner Institute
Economic Evaluations around the world
There is a continuous growth in the literature regarding EE and in the number of
articles reporting cost-effectiveness of medical technologies, with over 300 studies
published annually in the last few years. [16,31]
During the 1990's, there was a significant increase in the use of comparative EE,
especially CEA and CUA, in relation to re-imbursement of pharmaceuticals,
especially in Europe. This is related in part to the growing costs of new and advanced
technologies but also a result of a coordinated effort by clinicians involved in
Evidence-Based Medicine. [32,33]
Australia was the first country to formally include cost-effectiveness in its health
policy in 1993. The Guidelines for preparing submissions to the Pharmaceutical
Benefits Advisory Committee (PBAC), last updated in 2008, requires EE for all
significant submissions. The preferred method of analysis of CUA, but all other types
may be used if relevant to the technology. [34] Analysis of PBAC decisions between
1991 and 1996 showed a threshold of 42,000-76,000 Aus$ per life year. In a more
recent study which analyzed 245 Australian EE, the median ICER was 20,165 Aus$
for fully funded technologies, 9,011 Aus$ for partially funded technologies and
20,850 Aus$ for technologies that were not funded. [16, 35-37]
The United Kingdom is one of the leading countries in the worlds in EE. The vast
majority of the health services in the UK are supplied by the National Health Services
(NHS). In 1985, the British parliament made the first change in the healthcare system
by creating the "black list". This list was a cost containment method and it included
technologies that are not covered by the NHS because they may be replaced by other
technologies with lower costs. In order to lead this process, the National Institute for
Clinical Excellence (NICE) was established in 1999. This body is an independent
health authority whose task is to provide guidance for maintaining and improving
health and his recommendations focus on the question whether a medical technology
is cost effective considering the resources available to the NHS. The Department of
Health refers technologies that are considered to be of special interest to NICE for
technology assessment, including EE. NICE considers CUA the most appropriate
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Management of Health Technologies, Israeli Center for Technology Assessment in Health Care, Gertner Institute
form of EE, and the QALY is considered to be the most appropriate measure that
reflects both mortality and quality of life effects. [38,39]
NICE is one of the frontrunners of the threshold approach. In the UK, technologies
with an ICER of less than 20,000-30,000 £/QALY are very likely to be covered, while
those above it are not, although exceptions has been known to occur. In January 2009,
because of a report published by the UK Ministry of State, NICE decided to adopt a
new, and higher, threshold for "end of life drugs". The criteria for inclusion in this
category are: a small population of patients, short life expectancy (<2 years),
prolongation of survival (using the technology) by at least 3 months and lack of
comparable funded alternative. [40,41]
In the United States, economic evaluations are manly used in the private sector. The
Academy of Managed Care Pharmacy has developed a standard format for submitting
clinical and economic information, including EE. [42,43] Since its first edition,
published in 2000, the AMCP format, or a format-like process, was adopted by over
50 health insurers/organizations, covering approximately 120 million individuals,
adopted the use of EE. Medicare, on the other hand, has been largely resistant to
formal inclusion of economic issues, especially cost-effectiveness, claiming coverage
is based on necessity of the technology. [44] Many Americans (including policy
makers) seem to view EE as a rationing method and a limit to both patients and
providers/ insurers freedom of choice [45,46]
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Management of Health Technologies, Israeli Center for Technology Assessment in Health Care, Gertner Institute
Economic evaluations in Israel
The gap between the growing demand for health services and the limited resources,
characterizing most healthcare systems in the western world, has not passed over
Israel.
The question of costs was always an integral part of the discussion of the public
committee when updating the National List of Health Services (NLHS) but cost
considerations were generally limited to Budget Impact analysis, in order to fit the
technologies to the pre-defined annual budget allocated for updating the NLHS.
As the use of EE in the world increased, some manufacturers began to include in the
submissions of technologies references to the cost effectiveness of the technology, as
additional information that manufacturers hoped will help increase the chances the
technology will be funded. This use of EE, however, was informal- submission of cost
effectiveness was voluntary, the evaluations were from different countries and using
different methodologies, and no review or critical assessment of those evaluations was
conducted. Although a retrospective analysis for the NLHS public committee's
decision in 2006/2007 found a rough threshold of approximately 50,000 NIS per
QALY, it appears that cost-effectiveness did not play a significant part in the decision
process [47]
In 2007, the Director General of the Israeli Ministry of Health, in the annual call for
updating the NLHS, introduced Israeli-specific EE into the data included when
submitting technologies. While this circular identified CUA as the preferred method,
it was vague and did not cover other important details of the desired EE. [48]
In 2009, the Ministry of Health published guidelines for EE, developed by the
Infrastructure and Health Technologies Administration and the Israeli Center for
Technology Assessment in Health Care. EE were to be conducted by the submitters,
and reviewed and approved by a team comprised of experts from both agencies,
before being presented to the NLHS public committee. EE was required only for
technologies with annual cost of 100,000 NIS per patient or more, although EE of less
costly technologies was also accepted. The choice of this threshold for submission
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Management of Health Technologies, Israeli Center for Technology Assessment in Health Care, Gertner Institute
was both a reflection of the sort of technologies where EE may be of greater
importance to the decision makers and a concession to the limited personnel available
in Israel, both to conduct and to review the EE.
The pilot attempt to introduce the results of the EEs into the deliberations and
decision making of the public committee in 2010-2011 was met with limited success.
The results of the EEs were presented at a relatively late stage of the process, when
most members already had a general idea which technologies they thought should be
funded. Moreover, only a few of the technologies required had EE, and the quality of
those varied greatly, making comparison and prioritization nearly impossible. Overall,
the members of the committee seemed to treat the EEs with suspicion and distrust
their results, and were largely reluctant to have them influence their decision making.
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Management of Health Technologies, Israeli Center for Technology Assessment in Health Care, Gertner Institute
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