Introduction to Health Economics and

Health (HE) Technology Assessment (HTA)

Tarek Hussein
MBA, BScPhm

October 16, 2010

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Some important concepts

•  Evidenced Based Medicine

–  Focus on what is best for the patient?
–  Aimed to assist clinical decisions
•  Economic evaluation
–  Cost-benefit and Cost-effectiveness
–  Pharmacoeconomic studies
•  Health Technology Assessment (HTA)
–  Medical, economic and social effects
–  Aimed at assisting policy decisions

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 HTA is invented in the US
In 1967, Emilio Daddario, introduced the term “Technology
Assessment” in the House of Representatives as the means to
provide a balanced appraisal to policymakers.

Congressional Office of Technology Assessment

(1972-1995)
“Between 1975 and 1980, an OTA group set the stage
for today's booming industry in the technology
assessment of health care by demonstrating the
inadequacy of information on which decisions about
technology were made; laying out the strengths and
weaknesses of methods to evaluate technology; and
crystallizing the process by which economic tradeoffs
could be incorporated in decisions.”
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Health Technology Assessment (HTA)

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 in 2005 regroups
41 member agencies
in 21 countries

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 HEALTH TECHNOLOGY ASSESSMENT
INTERNATIONAL

Created in June 2003

Health technology assessment (HTA) plays an essential role in modern

health care by supporting effective decision making in health care
policy and practice. There is a vibrant and growing community around
the world of those who undertake and use HTA. HTAi's mission is to
support their work in promoting the introduction of effective
innovations and effective use of resources in health care.

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The Development in Europe

•  Establishment of HTA agencies in Europe

–  SBU in Sweden 1987
–  Nice in UK, 1999
–  IQWiG, Germany, 2005
•  Today about 40 HTA agencies in Europe
•  Different types of agencies
–  National agencies
–  Reimbursement agencies for pharmaceuticals
–  Other (regional, linked to universities)

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THE HTA CANADIAN SCENE
•  CADTH (formerly CCOHTA)
•  AETMIS (Quebec)
•  AHFMAR (Alberta)
•  OHTAC (Ontario)
+
•  ICES (Ontario)
+
•  Canadian Cochrane Network and Centre
•  Health Services Research Centres
•  TAU of MUCH
•  IHE
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Why HTA?

Barriers in Europe’s Evidence-based Healthcare Market, B251-59, Frost & Sullivan, July 2003 10
Why HTA?

http://www.oecd.org/document/11/0,3343,en_21571361_44315115_45549771_1_1_1_1,00.html 11
Why HTA?

RN Battista et al., 1998

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Why HTA?

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Why HTA?

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Dimensions Evaluated

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Economists view of the world…

•  Pessimist: bottle ½ empty

•  Optimist: bottle ½ full
•  Economist: bottle ½ WASTED!!

inefficient!

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The ‘Health Economic’ problem

•  Unlimited healthcare “wants” with

rapid growth in health expenditure.
•  Insufficient health sector resources.
•  Choosing between ‘wants’ we can
‘afford’ given our resource ‘budget’.

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Economic evaluation is…

•  “ The comparative analysis of alternative courses of

action in terms of both their costs and consequences in
order to assist policy decisions” (Drummond et al,1997)

•  Economic evaluation is not “choosing the cheapest”.

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 Why Economic Evaluation?

•  Scarcity → choice → value of benefits (opportunity cost)

→ efficiency
•  Economic evaluation = measuring value of alternative
course of action (opportunity cost again)
•  Opportunity cost forces identification of relevant
alternatives
•  Assessment of ‘value’ makes explicit importance of
viewpoints – an alternative that seems unattractive from
one point of view may seem more attractive from
another (cost to one is benefit to another)
•  Valuation requires value judgements to be made explicit
•  Measurement enables uncertainties surrounding orders of
magnitude to be assessed

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Economic Evaluation criteria

•  Economic evaluation is used to ensure that limited

resources are allocated as efficiently as possible.
‒  Technical efficiency: meeting a given objective at least cost.
‒  Allocative efficiency: producing exactly what society wants.
•  Society may have other goals when allocating
resources: equity or ethical issues.
•  Horizontal equity: ‘equal treatment of equals’.
•  Vertical equity: ‘unequal treatment of unequals’.

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Stages in economic evaluation

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Deciding upon the study question

•  Identifying the problem and aims of evaluation

‒  What is the problem?
‒  Why is this problem important?
‒  What aspects of the problem need to be explained?

•  Choosing the alternative options

‒  Describing the interventions accurately.
‒  Defining the counterfactual intervention (comparator)

•  Defining the audience

‒  Defining the info needs of the audience.
‒  Considering how the audience will use the study results

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Deciding upon the study question

•  Defining the perspective of the study

‒  Patient / Providers / Payers / Healthcare system / Society.
‒  Choosing a perspective depends on the audience.

•  Defining the time frame and analytic horizon

‒  Analytic horizon > Time frame.

•  Choosing the study format

‒  Prospective / Retrospective / Model.
‒  Depends on data, time and resources available.

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Assessment of costs

Overview of costing process:

•  Identification of costs
‒  Cost type: direct vs indirect vs intangible.
‒  Cost category: programme, patient.
‒  Organizational level: national, regional, district.
‒  Input category: capital vs recurrent.
‒  Intervention activities: planning, administration, media, training.
‒  Time: start-up vs post-implementation.
‒  Funding: national govt vs NGO vs donor.

•  Measurement
‒  Measure in natural physical units (e.g. hours of labour time).
‒  Fixed, variable and total costs.
‒  Average versus marginal costs.
‒  Marginal versus incremental costs.
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Assessment of costs

•  Valuation
‒  Market prices (e.g. wage rates) used unless strong belief they do
not reflect opportunity cost (e.g. volunteers).
‒  Local currencies vs international currencie.
‒  Adjustments for price inflation.

•  Calculation
‒  Multiply unit of measurement by unit cost (e.g. 2 hours of time at
$5 per hour = $10 labour cost).

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Assessment of costs
Overview of the process:
•  Identification
‒  Which outcome measure is employed depends on the objective of the
evaluation.
‒  This then determines the type of evaluation.

•  Measurement
‒  Measure effectiveness not efficacy.
‒  Measure (count) in natural physical units.
‒  Measure final not intermediate outcomes.

•  Valuation if appropriate
‒  Value is determined by benefits sacrificed elsewhere (see opportunity
cost again).
‒  Valuation either in terms of:
‒  Utility (e.g. QALY, DALY, HYE)
‒  Money (e.g. WTP) 26 26
Assessment of health effects

Zoom on the concept of QALY:

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Adjusting for timing

•  Discounting
‒  Prefer to have benefits now and bear costs in the future – ‘time
preference’
‒  Rate of time preference is termed ‘discount rate
‒  To allow for differential timing of costs (and benefits) between
programmes all future costs (and benefits) should be stated in
terms of their present value using discount rate.
‒  Thus, future costs given less weight than present costs.

•  Annuitization of capital costs

‒  Capital costs represent an investment at start-up in an asset
which is used and depreciated over time.
‒  Annualise the initial capital outlay over the useful life of asset.

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Sensitivity analysis

•  Process of assessing the robustness of an economic

evaluation by considering the effects of uncertainty.

•  Consists in:
‒  Identifying the (uncertain) variables.
‒  Specifying the plausible range over which they should vary.
‒  Recalculating results, usually based on:
‒  One-way analysis
  Multi-way analysis
  Extreme scenario analysis
  Threshold analysis.

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Basic types of economic evaluation

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Challenges in Assessing Economic Value of Devices

•  Medical Device Licensing process

•  Some devices are diagnostic, meaning:
‒  Full assessment of economic value requires
assessment of the effects from the resulting change
in treatment
‒  Part of the value of improved diagnosis could be
reassurance, or a better understanding of prognosis
‒  Some diagnostic devices have multiple uses and are
indivisible
•  Device – Operator Interaction and learning
curve in the use of device.
•  Incremental innovation of medical devices
•  Relative lack of comparative clinical studies
•  Prices can change over time

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Diffusion of new technologies: less than optimal
•  Why?
–  Disagreement or uncertainty on therapeutic value
–  Defending List (Reference) Price
–  Large dose or treatment length variations between patients and/
or indications and/or induction vs. maintenance therapy
–  Uncertainty on dose in daily practice
–  Payers/insurers demand certainty in response and in the use of
scarce resources
•  “Innovative payer schemes”: Main strategies
–  Portfolio deals
–  One price per patient
–  Targeting the patient out-of-pocket burden
–  Disease management
–  Risk sharing
–  Coverage with evidence development (CMS cover of CRC CT chemo
cost)
–  Conditional coverage (MS scheme in UK; statins scheme in UK)
–  Outcome guarantee (Velcade response scheme)
–  Price and volume agreements (prospective budget fixing)
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HTA – Overview and issues

•  While HTA systems Is HTA merely

a mechanism
increasingly play a role in to restrict
access?

supporting decision-making, What factors

they are not without impact

effective
Who
participates in

controversy.
implementation the process?
of HTA?

•  Questions abound surrounding HTA

a number of issues, including:
–  Role of HTA in decision-making What How do HTAs
and priority-setting evidence is
required?
get
prioritised?
–  Methods employed during the How is HTA
assessment process evidence
used in the
–  Impact on innovation and access decision-
making
process?
–  Transparency & openness
–  A rationing device?
–  Role of stakeholders 34
The past….silo approach with low burden of
providing evidence beyond regulatory requirements
Clinical (HEOR) Commercial (P&MA)

‘Fence’
•  Regulatory Focus •  Physician and patient focus
•  Scientific focus on features •  Profit Optimization
•  HE Models = ‘Silver Bullet’ •  Payers are a barrier/hurdle

•  Products pitched over the fence to achieve price with limited

data/evidence to support and looking for the silver bullet
•  Strategy and evidence not aligned and pricing strategies often
left vulnerable
•  Payer an after thought to product development
•  Payer perceived as a barrier by commercial and not seen as a
customer
HEOR: Health Economics Outcomes Research
P&MA: Pricing & Marketing Access
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Payer Environment Becoming More Complex

1990s 2000s 2010s

Australian IQWiG IQWiG/HAS/NICE
NICE Fourth
reference pricing German created collaboration
created tier
Reference
system (1998) (1999) UK price (2005)
pricing
cuts (2004) Medicare
system
(2001) Part D
US Medicaid
tiering (2003) (2006)
Spanish US HTA on
reference pricing Price cuts in Spanish price horizon
system (1999) Japan/Italy cuts (2005/6)
(2002)
Regionalization
Regionalization Payer Collaborations
in Italy (1999)
in Spain (2002)
More tiers

Generics ‘good enough’

Delisting and price cuts

Comparative and Cost-effectiveness

Regionalization

Reference pricing

Cost containment mechanisms

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World is getting smaller even as payer systems
rapidly evolve and become more sophisticated

Regional/
local/B2B

National

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You must look at the market, and your
product, through your customers’ eyes!

“Sure it’s a bit large….

but you only take one a year!”
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Focus has been on the ‘science’ with little emphasis
on Value which is what Payers are buying

Features •  What it is (molecule, mechanism of action)

Benefits •  What it does (lowers BP, relieves pain)

Value •  Why it matters (Economic and QOL effects)

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How to define Value?
Clinical Economic Lifestyle Emotional
  Efficacy   Price   QoL Measures   Trust
  Cost/Outcome
  Safety   Changes in   Relationship
  Cost specific
  Tolerability Effectiveness   Self-
activities
perception
  Drug   Impact on (eating,
Interactions Direct Costs sleeping, etc)   Habit
  Morbidity   Impact on In-   Etc.   Satisfaction
Direct Costs
  Mortality   Preference
  Productivity
  Etc.   Etc.   Etc.

Value is the perceived worth of a product or service, that

takes into account the cost, benefit, convenience and other
factors considered important to each respective customer

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Changes in external environment are driving
changes in manufacturers operating models

•  Pressure on, and within, pharma companies to find new models

•  The challenges facing existing pricing models
•  Payer cost containment approaches and the growth of HTAs
•  Downward pricing pressure
•  The emergence of new partners and stakeholders

P&MA HEOR

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Internal model to address the gap between
commercial and clinical teams

Brand Value Team

Commercial Medical Science
Leader Director
Cross functional team
focused on strategy
and evidence
development to
ensure payers needs
Pricing & are met Value Demonstration
Market Access Leader HEOR

Regional Commercial Leads

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We’re also getting closer to our customers, the Payers

•  Getting closer to the customer, the payer through

more open and regular interactions
–  Payer Ad Boards
–  Mock P&Ts
–  Partnerships with Payers
•  Generating insights to better understand payer needs
–  Influence Clinical R&D to focus on meaningful data that will
deliver value

Identify and Develop Measures Communicate Value

Prioritize Payer and Tools to Deliver Message that are
Needs Value Message Relevant

•  Goal bringing ‘value’ to payers that achieves win-win

position and removes perception of payer as barrier
and more as partner
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Final thoughts…

•  External pressures will continue to mount

•  No longer can payer needs be ignored
•  Internal cross functional integration enables aligned
strategies and evidence
•  We need new partnerships, built around common
ground – how to deliver patient benefit at an affordable
cost
•  This will yield more customer focused solutions and
unlock greater value
•  And potentially, we will be better positioned to consider
next generation deals (i.e., value-based contracting)
with payers

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There’s a
Paradigm
shift…

Thank You

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