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An introduction to economic evaluation

In this video, Professor Simon Dixon explains what economic evaluation is (and what it isn't) and how this type of analysis can help decision makers.
Economic evaluation is fundamental to HTA, but not only that but to decision-making throughout the NHS. So hospitals, general practitioners, the Department of Health itself, will all use economic evaluation to inform decisions. It’s not solely used for health technology assessment. It’s frequently confused with cost containment or cost-cutting, and this is wrong. Economic evaluation rarely changes the amount of money that the NHS can spend. It just reallocates between different purposes. It’s sometimes referred to as a financial assessment too, this is wrong as well. Economic evaluation doesn’t just look at costs, it will also look at the benefits to patients, and this is very important.
In terms of a precise definition for economic evaluation, it’s evaluation of the costs and benefits of two or more alternative treatments. So a look at, typically, the current treatment in terms of its costs and its patient benefits and compare those to that of the new therapy in terms of costs and benefits. And those costs and benefits are not just the immediate ones produced by the new drug. They’ll also look at the side effects of the drug which are important to patients, and the long-term consequences which might not materialise for 5, 10, 20, or maybe even 50 years, so it’s quite a long-term assessment.
Once that analysis is being undertaken, we can then make an assessment of whether the additional benefits to the patient are worth the additional costs that the NHS is going to have to bear. This joint assessment of costs and benefits is very important, so clearly a high-cost drug can be found to be cost-effective because it generates a lot of health benefits. Likewise, a cheap drug might not be cost-effective because it isn’t very effective in generating health benefits. So economic evaluation is an umbrella term. It covers lots of different types of methods. So you might have heard of terms such as cost-benefit analysis, cost-effectiveness analysis, cost-consequence analyses. All these are different types with slightly different methods.
Within each of those, you can also use slightly different approaches to measure costs, value benefits, assess uncertainty and present the results. This can be quite confusing, but it’s very useful too in that different topics, different circumstances, different reimbursement bodies might want to use different methods. There’s a good reason for this. So, for example, NICE will use one set of methods when assessing a drug, and a different set of methods when appraising a public health intervention, because the nature of the benefit is so different that we want to use different methods to assess them. The use of different methods is also important too, because different countries will adopt different methods.
So France, for example, will use different methods than England, Wales and Scotland. And this is so it can reflect the different objectives of the health service and the different social values that the French will have regarding side effects, risks and health benefits. Economic evaluation is not purely a technical endeavour. It’s meant to be there just to inform decision-making or aid decision makers to come to a more holistic decision. So after we produce our results through a mathematical formulae, we then add in other considerations, such as was the evidence that we used to produce results of sufficient quality? Are any patient groups going to be discriminated by this?
Do we have to use any particularly strong assumptions in order to produce the results? So rather than being a completely mechanistic approach, economic evaluation can be a holistic assessment of value. We need to be able to compare interventions across the whole range of the NHS, and we need economic evaluation to help us allocate our finite healthcare resource budget. That means we need a generic outcome measure. So for example, if we’ve got an intervention for asthma and an intervention for cancer, if we use disease-specific outcome measures we can’t compare those. We need a generic outcome measure, and that’s where the QALY comes in.
The quality adjusted life year is actually something that takes into account the quality of life and the length of life. For different stages throughout a patient’s life, they will be assigned a different utility score. That utility score is multiplied by the time that they spend in that health state which, over time with an area under the curve approach, gives us the total quality adjusted life years associated with the treatment. The idea is that we compare the incremental cost to the incremental benefits associated with these new treatments. And it has to be an incremental analysis because, otherwise, we might not end up choosing the option which is the most efficient use of healthcare resources.
So that’s where the incremental cost-effectiveness ratio comes in. Once we have the incremental cost-effectiveness ratio, we then need to make a decision as to whether that is acceptable to the NHS and whether we should buy that treatment or not. So while QALYs and ICERs are very important, we then need a threshold to actually tell us whether we’re going to buy the treatment in question.

Economic evaluation is fundamental to both HTA and to decision making in healthcare. In this video, Professor Simon Dixon explains what economic evaluation is (and what it isn’t) and how this type of analysis can help decision makers to determine whether a new treatment is cost-effective.

We will then be joined by Nick Latimer, a Senior Research Fellow in Health Economics and Decision Science, who explains why a generic measure of health is important for economic evaluation. Nick talks about QALYs (Quality Adjusted Life Years) and ICERs (Incremental Cost Effectiveness Ratios). These are units used to measure quality of life and cost-effectiveness which we will explore in more detail in the upcoming steps.

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