6 Cost estimation pharmcy madtr 615.pptx

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1. MEASURING AND ESTIMATING COSTS Lecture 2

2. Health spending is increasing worldwide due to epidemiological and demographic changes and the emergence of new and increasingly expensive health technologies. Improving resource allocation and reducing waste can help control costs while delivering better value.

3. Objectives Define different costing terms. Categorize types of costs. Determine the perspective of a study based on types of costs measured. Understand when adjusting for timing of costs is appropriate. Calculate net present value. Compare average costs with marginal or incremental costs. List common sources for obtaining cost data.

4. Costing T erms Cost are used to estimate the resources (or inputs) that are used in the production of a good or service. Resources used for one good or service are no longer available to be used for another. Opportunity Cost defined as the value of the best-forgone option= the value of the “next best option.”

5. Examples of opportunity cost Due to limitation in budget, a PT committee decided to purchase a new medication for treating hypertension over a new medication for treating DM? What is the cost to the hospital?

6. Examples of opportunity cost Due to limitation in budget, a PT committee decided to purchase a new medication for treating hypertension over a new medication for treating DM? What is the cost to the hospital? DM HT The cost of new medication + Health care costs associated with not providing the new treatment for DM

7. Cost of Production vs. Price vs. Reimbursed amount Cost of production: Cost of the resources (or inputs) that are used in the production of a good or service. Price or charge: The Monterey value that is asked by the seller for a good or a service Reimbursed اعادة النفقات amount = allowable charge: the amount that a payer “allows” to be charged for a specific product or service; the monetary amount the payer agrees to reimburse (pay).

8. Price vs. Cost The “price” or the amount that is charged to a payer is not necessarily synonymous with the cost of the product or service. Ex. Car Sticker price higher than the cost to produce the car Amount paid by the average car buyer (usually lower than the sticker price Hospital charge billed to the payer(s) (Insurance) ! Reimbursed - amount paid by the payer(s). lower than the standard charge listed by the hospital

9. Rank from Highest to Lowest: Reimbursed amount Price or Charge Cost of Production

10. Rank from Highest to Lowest: Price or Charge Highest Reimbursed amount Cost of Production Lowest

11. Cost categorization there are four types of pharmacoeconomic- related costs: direct medical costs direct nonmedical costs indirect costs and intangible costs 14

12. Cost Categorization: two ways of classifying cost Direct medical costs Direct non- medical costs Indirect medical costs Intangible costs Patients and family direct costs Health care sectors costs Other sectors costs Productivity costs.

13. T ype of costs Direct Medical Cost Medications Hospitalisation ER visit Dx test Outpatient care Long-term care Direct Non- medical Cost Transporation lodging Child care Indirect Cost working immobility loss of productivity disability caregiver time off from work. Intangible Cost Pain and Suffering Fatigue Anixiety

14. Examples A daughter takes a week off from work to attend to her ill father Inpatient charge of R$268 per day for acute care Fatigue from chemotherapy Taxi fare to emergency department Ambulance service to emergency department

15. Examples A daughter takes a week off from work to attend to her ill father INDIRECT COSTS (productivity) Inpatient charge of R$268 per day for acute care DIRECT MEDICAL COSTS Fatigue from chemotherapy INTANGIBLE COSTS Taxi fare to emergency department DIRECT NON- MEDICAL COSTS Ambulance service to emergency department DIRECT MEDICAL COSTS

16. Cost Categorization: two ways of classifying cost Direct medical costs Direct non- medical costs Indirect medical costs Intangible costs Patients and family direct costs Health care sectors costs Other sectors costs Productivity costs.

17. Productivity loss: Costs related to missing work or being less productive because of health conditions. See Indirect costs .

18. Average cost vs. marginal cost Average cost=cost/effectiveness Marginal cost= cost associated with producing one more unit

19. Average VS Marginal costs Average cost=cost/effectiveness Marginal cost= cost associated with producing one more unit Drug A Drug B Total Cost ($) 325 450 Effectiveness 87% Successful 91% Successful Avg. Cost- effectiveness($) 325/0.87=373 per success 450/0.91=494 per success

20. Incremental Costs Average costs = total cost / total units Incremental = Change in total cost / change in units Example: Drug A is SR$500 per patient and is 95% effective while Drug B is SR$750 per patient and 97% effective

21. Incremental Calculation (SR$750 – SR$500) / (0.97 – 0.95) = SR$12,500 per extra cure

22. Which Cost to measure? It depends on the perspective Perspective: An economic term that describes whose costs are relevant (being measured) based on the purpose of the study Types of perspectives: Patient Hospital or provider Payer (insurance company or employer) Society

23. Perspectives of cost analysis perspective is the viewpoint from which the cost analysis is conducted there are four types of perspectives in cost analysis: – patient, healthcare provider, payer/funding entity and society perspectives determine which costs are relevant and should be included in the analysis 19

24. Patient perspective if the perspective of the analysis is the patient , only costs incurred by patients/family are included all costs that only the patient would pay, not costs that third party would cover – Examples: out-of- pocket expenses, lost wages, and transportation costs, would be used when estimating costs 20

25. 21 Imagine a pharmacists run asthma management service. Can you think of direct and indirect costs that a patient would incur related to a asthma service? Direct Co- pays education transportation prescriptions sitters Indirect missed work sitters Asthma management service

26. Healthcare provider perspective if the perspective is the healthcare provider (such as hospital, clinic, physician’s office, pharmacy), costs related to providing the health services are considered – if you are conducting a cost analysis merely to set a budget or plan strategically for the future, you would typically conduct a cost analysis that extended organization-wide the monetary value of resources consumed directly to produce a certain health outcome will be included Examples: administrative cost, personnel costs, building maintenance costs, facilities and equipment costs, drugs costs, etc. 22

27. 38 Payer/funding entity perspective if the perspective is the payer/funding entity, only costs incurred by entities responsible for financial costs of health services are considered (e.g., insurance companies and employers), the amount that is covered by the insurance or employer should be used when estimating costs costs a third party payer might cover these are almost always direct medical costs

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30. 41 societal perspective is common in countries where the government is the largest payer of health care benefits the choice of a perspective depends on who will be using the results of the cost analysis as a general rule: CEA and CUA require only health care costs to be collected CBA requires all costs and benefits to be collected, no matter on whom they fall

31. Indirect lost productivity lost wages Imagine again the pharmacists run asthma management service. Can you think of direct and indirect costs that society or the government might incur related to a pharmacist run asthma service? Direct healthcare costs Medication R & D Healthcare workforce etc Asthma cost of illness 42

32. Indirect time loss from work (absenteeism) time loss from usual activity early retirement or premature death due to illness or injury Medical Public / private Outpatient Resources physician assessments X- rays, tests, procedures home care visits ER visits Hospitalizations hospital bed stays by ward lab tests and assessments health care personnel time equipment, capital costs, overheads Non- Medical travel, parking intangibles (suffering caused by disease & tx Caregiver( Informal care costs) Medications (+dispensing fees) Societal Direct Patients

33. What will the health insurance cover?

34. TIMING ADJUSTMENTS FOR COSTS

35. Standardization of Costs If you compared costs for patients who received treatment in 2005 with those for patients who received treatment in 20 2 0, The comparison of resources used would not be fair because treatment costs tend to go up each year; So patients who received the same treatment in 2005 would have lower costs than those who received the treatment in 20 20 Adjustment of the 2005 costs to the amount they would have cost in 20 20 is needed before a direct (fair) comparison can be made between these groups. A cost or outcome today is not equivalent in value to the same cost or outcome in the future or past.

36. Direct comparison of unadjusted cost and outcome data collected from different years is inaccurate. To make costs and outcomes collected in different years comparable, they should be standardized to the same base year – timing adjustments for costs

37. Example If the objective of the study is to estimate the difference in the costs of chemotherapy regimens, information on the past use of these two treatments might be collected from a review of medical records. If the retrospective review of these medical records dates back for more than 1 year, it may be necessary to standardize the cost of both medications by calculating the number of units (doses) used per case and multiplying this number by the current unit cost for each medication.

38. Adjusting for Time Differences Two different concepts Inflation If data collected over more than one year Prices may be adjusted to uniform price Time Preference If program or therapy extends more than one year, “discounting” is appropriate Used even if inflation rate is zero

39. Adjustment for Inflation Can count number of services/ resources used and multiply by standard costs at one point in time OR Use inflation rate for past years times cost from past years

40. Bringing Future Costs (Benefits) to the Present: Discounting What Do you prefer? SR1000 after a year or SR950 today

41. Measuring Costs Costs are measured over a relevant time period such as a month or year. The length of time used depends on the typical span of the illness. Acute diseases such as the flu would have a short span; while chronic or long- term illness such as depression or heart disease would span years.

42. Scarcity is the fundamental economic problem that forces consumers and producers to use resources wisely. Unlimited Wants NIPH & PNIPH – Budget Impact Analysis 57 Limit resources Scarcity Choices For whom to make it What to make How to make it How does the concept of scarcity apply to healthcare? The fundamental economic problem Recap Sl ide from: Chola L, Heupink LF, Peacocke E, Sæterdal I (2020). Economic evaluation of public health interventions [PowerPoint s l ides]. Norwegian Institute of Public Health, Oslo.

43. The ‘Health Economic’ problem Recap Unlimited healthcare “wants” with rapid growth in health expenditure. Insufficient health sector resources. Choosing between ‘wants’ we can ‘afford’ given our resource ‘budget’. 4 NIPH & PNIPH – Budget Impact Analysis Sl ide from: Chola L, Heupink LF, Peacocke E, Sæterdal I (2020). Economic evaluation of public health interventions [PowerPoint s l ides]. Norwegian Institute of Public Health, Os lo. Sl ide from: Chola L, Heupink LF, Peacocke E, Sæterdal I (2020). Economic evaluation of public health interventions [PowerPoint s l ides]. Norwegian Institute of Public Health, Oslo.

44. How HTA can inform policy and priorities BIA can be a part of an HTA to inform on the financial impact of a ‘new’ intervention Financial and non- financial levers for quality improvement Quality standards Clinical guidelines and pathways HTA Health technology assessment (HTA) to compare clinical and cost- effectiveness of different interventions Clinical guidelines and pathways distilled from HTA and other evidence Quality standards and indicators from evidence-based guidelines Health benefits plans (HBPs), pay- for- performance, other levers (regulation, accreditation, education…) Evidence NIPH 2020 - Lithuania Workshop 6 Source: International Decision Support Initiative (iDSI) Sl ide from: Chola L, Heupink LF, Peacocke E, Sæterdal I (2020). Economic evaluation of public health interventions [PowerPoint s l ides]. Norwegian Institute of Public Health, Oslo.

45. Budget impact analysis (BIA) Definitions for BIA “ An evaluation of the financial impact of the introduction of a technology or service on the capital and operating budgets of a government or agency.” * 60 Budget impact analysis (BIA) is a relatively recent method for economic evaluation (EE) in the field of health care. It assesses the financial consequences of the introduction of new technology in a specific setting in the short-to-medium term.

46. The reason for interest in BIA seems to be the lack of responsiveness and the complexity of CEA to the needs of budget holders and decision-makers in health care. According to best practice, CEA should take a societal perspective and a long enough time horizon to include all the benefits of a new technology, and this often implies modelling for lifetime estimates.

47. To summarize, these issues show the limitations of CEA from the budget holder’s viewpoint. BIA should provide useful information to tackle the new hurdle of “affordability”, after having fulfilled the better-known hurdles of “safety”, “efficacy”, and “added value” of new treatments over existing ones

48. Another difference between CEA and BIA is the possibility of using virtual populations in a CEA (e.g. theoretical cohorts in Markov models), while BIA should be restricted to real populations in national or local settings, in line with the perspective chosen.

49. The budget impact analysis takes the true "unit" cost of an intervention and multiplies it by the number of people affected by the intervention to provide an understanding of the total budget required to fund the intervention. Budget-impact analyses are used by healthcare decision-makers either before adding a new drug to the formulary to determine its affordability given budget constraints or as a tool to use once a new drug has been added to the formulary to determine by how much annual budgets are likely to increase.