This document provides an introduction to health economics. It discusses how health care expenditures have increased dramatically, prompting concerns about scarce resources. Health economic evaluation is presented as a tool to demonstrate the value of health care interventions in terms of both clinical and economic outcomes. The key concepts of health economics evaluation are defined, including comparing costs and outcomes of at least two alternatives from various perspectives. Types of economic analyses - cost analysis, cost-effectiveness analysis, cost-utility analysis - are introduced. The document provides examples of health economic evaluations influencing coverage decisions for treatments in Thailand.

1. Introduction of Health Economics
Nathorn Chaiyakunapruk
Professor of Health Economics
School of Pharmacy
Monash University Malaysia

2. Introduction
• Health care expenditures increased dramatically
• Clinicians and policy makers are concerned
• Why?: Scarce resources
• Decisions are mostly based on
– evidence-based medicine (safety, efficacy, quality)
– the cost of drugs (per course), and its budget impact
• The true value of a drug is mostly not assessed

3. “Value” of Health Care
• Definition of “value” in health care: the health outcomes
achieved per dollar spent (ME Porter 2006)
– Values should therefore be defined around the patients rather
than the service providers
– Values depends on results, NOT inputs
– Values demonstration will benefit all players in the system
• Longitudinal assessment on costs and outcomes
required
• Health economic evaluation can be used as a tool to
demonstrate value of health care interventions
3

4. Terminology
• Health economics
Application of economics in health care
• Health economics evaluation / economic evaluation
Evaluation of economics and outcomes of healthcare
intervention or program
• Pharmacoeconomics
Health economic evaluation related to pharmacy/
pharmaceuticals. It has been used in a broader context
then “pharmaceuticals”

5. Pharmacoeconomics
5
Pharmacoeconomics vs
Health economics
Health
Economics
Health
Economic
Evaluation
Health economics:
Health care financing system, Optimization of health
care system, Understanding demand and supply of
health care,….

6. Fundamentals of Health Economics (HE)
• Under limited resources, everyone including policy decision
makers and clinicians have to make choices
• HE answers the question when comparing 2 choices:
– Whether the benefits incurred from new technolgoy (compared to usual
care) is worth the additional “total” expenses incurred?
• HE estimates clinical & economics outcomes of choices
• When making a decision, in addition to clinical benefits and
safety, economic aspects are considered
– Is it worth it ? (Health economics: HE)
– Is it affordable (Budget impact analysis)
• The focus today will be on “Health economics”
6

7. Total cost of arm new treatment
7
Health Economics
Choice
Costs of therapy
New Treatment
Costs of therapy
Usual care
Outcomes (new Tx)
& associated costs
Outcomes (current Tx)
& associated costs
Total cost of arm usual care

8. What is Economic Evaluation?
• A tool to demonstrate its value in terms of clinical
and economics consequences of decisions made
at the population level
• It answers the question: Whether the additional
benefits incurred from a technology is worth the
additional expenses incurred when comparing it to
the existing medical strategy?

9. Assessing both cost and outcome?
No Yes
Outcome only Cost only
No Outcome
description
Cost
description
Cost outcome
description
yes Efficacy,
effectiveness
Cost analysis Full
economic
evaluation
Compare at least 2 choices?

10. Value for Money
Outcomes Costs
• Benefits
• Safety
• Direct
• Indirect
10

11. Key Features
• Comparing clinical and economics consequences
• At least 2 choices are compared
• Need to define perspective (Target audience)
– Societal perspective
– Hospital perspective
– Payer perspective
– Patient perspective

12. Types of costs
• Costing
– Direct medical cost e.g. hospitalization, medical visit,
lab test, drug, procedures
– Direct non-medical cost e.g. transportation cost,
additional food incurred due to medical visits
– Indirect cost e.g. loss of productivity

13. Perspective Affects Costing
Direct medical
cost
Direct non-medical
cost
Indirect cost
Societal / / /
Hospital / - -
Payer / - -
Patient /
(out of pocket)
/ ??

14. Incremental
Cost-Effectiveness Ratio (ICER)
Total costs (new intervention) – Total costs (current standard)
Outcomes (new intervention) – Outcomes (current standard)
Examines balance between
additional health benefits VS
additional costs of achieving those health benefits
14

15. Cost-effectiveness Plane
Difference in Costs
Worse health, cost increased Better health, cost increased
Most common
 cost
Difference in Health
(benefits)
 Health
 Health
Slope =  cost
Cost saving
e.g. polio immunization
Not Desirable
QQuueessttioionnaabblele Most Desirable
Worse health, cost saved Better health, cost saved
15

16. Cost-effectiveness Plane
Difference in Costs
Worse health, cost increased Better health, cost increased
Most common
Most common
Difference in Health
(benefits)
Cost saving
e.g. polio immunization
Not Desirable
QQuueessttioionnaabblele Most Desirable
Simple Decision: Cost-savings
Worse health, cost saved Better health, cost saved
16

17. Slope =
 cost
 cost
 Health
Difference in Health
(benefits)
Cost-effectiveness Plane
Difference in Costs
Worse health, cost increased
 Health
Cost saving
e.g. polio immunization
Not Desirable
QQuueessttioionnaabblele Most Desirable
Worse health, cost saved Better health, cost saved
17

18. What is  Health?
•  Health can be a number of things
– Cost-effectiveness analysis (CEA)
• Difference in outcome e.g. 1 mmHg reduction,
1 fracture prevented
– Cost-utility analysis (CUA)
 Health
 cost
• The most commonly used in Thailand is QALY (Quality-adjusted life years)
• A unit of full quality years, calculated by the multiplication of “Number of
years” and “Quality of life during those years”
– E.g. Mr. A has DM nephropathy for 7 years, HRqol is 0.5, QALY is calcualted 7*0.5 = 3.5 QALY
18

19. Interpretation
• Meaning of ICER
– On average, the additional cost incurred to extend life for 1 year of
full quality.
• ICER = 30,000 RM/ QALY
– On average, the additional cost incurred to extend life for 1 year of
full quality is 30,000 RM
19

20. Criteria for “Being cost-effective”
• WHO recommendation: Use GDP/capita as criteria
(Threshold approach)
– <1 GDP = very cost-effective
– 1-3 GDP = maybe cost-effective
– > 3 GDP = not cost-effective
• Many countries do not state the threshold explicitly but
the value comes after analysis of decision with empirical
evidence
– USA: US $50,000 ~ US $100,000/QALY
– Australia: US $28,200 ~ US $51,000/LYG (1.26 ~ 2.29 GDP)
– NICE: £20,000–30,000/QALY (1.4~2.1 GDP/capita/QALY)
– GDP per capita of Malaysia 2012: USD 10,304 (IMF 2012)
< USD 10,304 30,000 RM Very cost-effective
< USD 30,912 (3 x 10,304) 30-90,000 RM Maybe cost-effective
> USD 30,912 (3 x 10,304) >90,000 RM Not cost-effective
20

21. • The ICER is less than $3,861 (120,000 THB) per QALY gained in 2012
21
• Adding IVIG to standard treatment in the treatment of childhood
idiopathic thrombocytopenia purpura with life-threatening bleeding is
possibly a cost-effective intervention in Thailand

22. 22

23. 23

24. 24

25. 25

26. 26

27. Examples of application of HE for National List of Essential Medicine
Decision Making in Thailand (160,000 Baht/QALY, new decision rule 2014)
Health Interventions ICER(Baht/QALY) Coverage
Pegylate interferon alpha 2a and 2b + ribavirin for treatment chronic hepatitis C subtype 1 4 5 & 6 cost-saving Yes
Lamivudine or tenofovir for treatment of chronic hepatitis B cost-saving Yes
IVIG for steroid-resistant dermatomyositis cost-saving Yes
IVIG for steroid-resistant chronic inflammatory dymeliating polyneuropathy 57,290 Yes
Simvastatin for primary prevention of cardiovascular disease 82,000 Yes
Nilotinib for the second-line treatment of chronic myeloid leukemia 86,000 Yes
IVIG for life-threatening bleeding in pediatrics with idiopathic thrombocytopenia purpura 87,562 Yes
Oxaliplatin (FOLFOX) for treatment of advance colorectal cancer 126,000 Yes
Galantamine for treatment of mild-to-moderate Alzheimer's disease 157,000 No
Donepezil, rivastigmine for treatment of mild-to-moderate Alzheimer's disease 180,000-240,000 No
HPV vaccine at age 15 vs. Pap smear, 35-60 years old, q 5 years 247,000 No
Peritoneal dialysis vs. palliative care 435,000 Yes
Hemodialysis vs. palliative care 449,000 Yes
Osteoporosis drugs (alendronate, residronate, raloxifene) for primary and secondary prevention of
300,000-800,000 No
osteoporotic fractures
HPV vaccine at age > 25 vs. Pap smear, 35-60 years old, q 5 years 2,500,000 No
Transtuzumab in breast cancer 5,051,000 No
Imiglucerase for treatment of Gaucher disease type 1 6,300,000 Yes
Erythropoietin treatment in chemotherapyinduced anemia negative dominant No
Adefovir, entecavir, telbivudine, pegylate interferon alpha 2a for treatment of chronic hepatitis B negative dominant No
23 27

28. Q & A Session
28