Health Economics: A Tool for Shaping Health Policy


In recent years, the discipline of health economics has played an increasingly important role in shaping health care policy in the evolving Canadian health care environment. With advances in medical research, prescription drugs have assumed a more prominent position in health care. A growing number of new chemical entities are targeting diseases that were previously not treatable with medication or are permitting medical treatment instead of surgery. Moreover, as the average age of the population steadily increases, society has greater expectations of a high level of quality of life and health care services.

To control rising health care costs, health care payers (those entities ultimately responsible for reimbursement of health care costs) have used the drug formulary as a tool for cost containment. Drug formularies are listings of drugs that a health care payer agrees to pay for. Not adding new drugs to a formulary is seen as a mechanism to keep drug costs down. However, by focusing on the medication budget rather than taking a broader view of the total health care budget, the impact of new medications on the global health care system is ignored. In fact, an increase in total drug costs may often lead to a decrease in the costs of surgery or hospitalization. From the broad perspective of society, new drugs may also have a positive impact on both productivity and quality of life. A health economist working in the pharmaceutical industry must establish partnerships with patient associations, governmental bodies, physicians, pharmacists, and other health care stakeholders, to develop patient-centered health management programs and consider the whole cost of treating patients, rather than just drug costs.

There are many roles for health economists in shaping health policy. One primary function is assessing the economic impact of pharmaceuticals on the health care system. Economic evaluations are crucial for achieving and maintaining access to drug formularies. Although new medications do tend to be more costly than current therapies, principally due to the high cost of research and development, they often lead to reduced costs in other health care expenditures, making them relatively cost-effective. The health economist quantifies the clinical benefits of treatments in economic terms that are meaningful to health care payers.

To perform an economic evaluation of a particular therapy, the health economist must gain a thorough understanding of the disease, current treatments, and cost drivers (the factors in caring for a patient that incur costs). This is usually accomplished by a review of the biomedical literature, which is synthesized into an understanding of the burden of illness. This information is used to create a mathematical model simulating the disease treatment. A model may have different mathematical structures (e.g., a decision tree, a Markov model) and allows for comparison between the new drug and usual care. The numerical differences in clinical effectiveness and costs of treatment that are derived from the model are expressed as a cost-effectiveness ratio, a single number representing the comparative value of two treatments. Designing these models can be a complex task, because many variables must be considered in the treatment of a disease, e.g., how many days will be spent in the hospital, how many surgical interventions will be required, and how much each component of treatment will cost.

Using a model, the cost-effectiveness of a drug is determined, not from the drug costs alone, but from the overall cost of treatment. Drug A is "cost saving" if it is at least as clinically effective as Drug B and results in less total health care expenditure to treat a patient. Drug A may be "cost-effective" even if it is more expensive than Drug B if it has greater effectiveness. However, no matter what the relative cost-effectiveness of a drug, the payer must decide how much more they are willing to pay for an increase in effectiveness. Drug A is "dominant" over Drug B if it is both less expensive and more effective, the most desirable situation. If use of a drug also enhances health-related quality of life, which is not easily quantified, cost-utility analysis may also be desired, examining the value to society of quality-of-life gains.

Cost-effectiveness evaluation is only part of the work of a health economist. Cost-effectiveness arguments alone are usually not sufficient to convince payers that the cost of a new drug should be reimbursed. For this, budget impact analyses are needed. The cost-effectiveness analysis is incorporated into a realistic forecast of locally representative patient treatment patterns to assist health care budget managers in planning for potential changes to their budgets. Estimates are made of how many people in the population will be affected by the disease in question over the next 10 years, and the potential cost of treatment under different treatment strategies is evaluated.

Health economists also participate in preparation of the clinical and economic rationale for submission to health care decision-makers to obtain access to or reimbursement for a drug. After a submission has been made, the health economist will respond to queries concerning the submission and may conduct further studies to address those queries. Once a drug has been granted access, the health economist works to maintain or extend this status.

A secondary role for health economists is measurement of the appropriateness of drug utilization, the care gap in patient health management programs, and how effectively these programs close the gap. After estimating cost-effectiveness and predicting the budget impact of a new medication, the evidence of appropriate use of that medication must be demonstrated to budget managers to assuage concerns that drug costs may spiral out of control.

Health economics has evolved into an essential tool for shaping health policy in the Canadian health care environment; it helps achieve and maintain public access to proven medications, by demonstrating that they provide added value, are effective, and are appropriately used.

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