Economic Evaluation

Economic modelling process for medical devices

What is an economic evaluation?

Economic evaluation of medical devices involves assessing the cost-effectiveness and economic impact of using a device compared to alternative treatments or strategies. It aims to determine whether the benefits of a medical device justify its costs, accounting for factors such as healthcare resource utilisation, patient outcomes, and long-term financial implications.

The economic evaluation process

Hutton et al.1 describe the process of economic evaluation as consisting of several steps: “(a) Objective determination: The ultimate objective must be clear if we are to compare options in terms of their contribution to its achievement (b) Option selection: The alternative methods to be compared must be exhaustively determined (c) Cost and benefit estimation: Having first determined the relevant costs and benefits and the scope of the analysis in both time and breadth of coverage (d) Allowance for timing of costs and benefits: The pattern of cost and benefit flows for each option is unlikely to be the same, so that society’s preference for benefits sooner rather than later is usually allowed for by discounting future costs and benefits to calculate present values (e) Allowance for uncertainty: The degree of certainty over cost and benefit estimates will vary between options and between the effects, often requiring probabilistic weighting methods (f) Decision criteria: These will be governed by the choice of objectives in (a) and the organizational context of the study.”

Conventional economic evaluations usually employ cost-effectiveness analysis (CEA) and cost-benefit analysis (CBA), each providing different information about a given technology2. In addition, cost minimisation and cost-utility analyses are other methods that may help assess new technologies. The World Health Organization’s (WHO) guide for monitoring and evaluating digital health interventions supports using these methods as appropriate economic evaluation of digital health tools in LMICs3.

Components of economic evaluation

An economic evaluation of a medical device involves assessing its value in terms of its costs and benefits, typically compared to alternative treatments or interventions. This evaluation helps determine whether the device provides good value for money and supports decision-making by healthcare providers, policymakers, and manufacturers. Key methods of economic evaluation include cost-effectiveness analysis (CEA), cost-utility analysis (CUA), and cost-benefit analysis (CBA).

    Direct Costs: These include costs directly associated with the medical device, such as:

    • Acquisition Costs: The purchase price of the device.
    • Operation and Maintenance Costs: Costs for operating, maintaining, and servicing the device.
    • Training Costs: Costs for training healthcare providers to use the device.
    • Implementation Costs: Costs related to integrating the device into clinical practice.

    Indirect Costs: These include broader economic impacts, such as:

    • Productivity Losses: Costs associated with patients’ inability to work due to illness.
    • Transportation Costs: Costs for patients travelling to receive treatment.
    • Caregiver Costs: Costs for informal care provided by family members or friends.

    Clinical Outcomes: Benefits are often measured in terms of clinical outcomes, such as:

    • Effectiveness: Improvement in health outcomes due to the device
    • Quality of Life: Impact on patients’ quality of life, often measured using tools like QALYs (Quality-Adjusted Life Years).

    Economic Outcomes: Benefits can also include economic impacts, such as:

    • Cost Savings: Reduction in other healthcare costs due to the use of the device.
    • Productivity Gains: Improvements in patients’ ability to return to work or perform daily activities.

    Cost-Effectiveness Analysis (CEA):

    • Compares the costs and health outcomes of the device to alternatives.
    • Results are often expressed as an incremental cost-effectiveness ratio (ICER), which is the difference in cost between two interventions divided by the difference in their effectiveness.

    Methods of analysing cost-effectiveness set a monetary value for health and life based on willingness to pay4. All costs are expressed as monetary value, but effectiveness is expressed as physical value. The aim is to maximise effectiveness for a given cost (or, conversely, minimise the cost of achieving a given level of effectiveness).

    Each country sets its value, usually defined as a quality-adjusted life year (QALY), and a cost-effective intervention is worth the extra investment for the expected degree of health gain. Cost-effectiveness analyses are widely used to inform health priority setting in LMICs. However, there is growing recognition that cost-effectiveness should not be the sole criterion and that a broader set of criteria is required to inform policy choices 5. This is particularly important for digital health interventions that involve complex networks of stakeholders, and the mechanisms by which they achieve health outcomes are less evident.

    Cost-Utility Analysis (CUA):

    • Similar to CEA but incorporates quality-adjusted life years (QALYs) as the measure of benefit.
    • Helps to compare interventions with different types of health outcomes by converting them into a common unit (QALYs).

    This method considers the quality of life and the length of life gained from an intervention measured in QALYs or disability-adjusted life years (DALYs). These measures are more comprehensive than CEA methods, enabling the capture of well-being and resource use across the health system.

    Cost-Benefit Analysis (CBA):

    • Compares the costs and benefits of the device in monetary terms.
    • Benefits and costs are both expressed in monetary units, allowing for a direct comparison.
    • Results are often expressed as a benefit-cost ratio (BCR) or net present value (NPV).

    All benefits and costs (QALY, disability days avoided, life years gained) are expressed as monetary value, and new interventions are compared to existing practice. Decisions are based on the option that produces the greatest net present value (NPV). In theory, any intervention with a positive NPV is beneficial.

    Sensitivity analysis

    In economic evaluations, sensitivity analysis is used to assess the robustness and reliability of the results obtained from a model or study. It involves systematically varying key parameters or assumptions within plausible ranges to examine how sensitive the outcomes (such as costs, benefits, or cost-effectiveness ratios) are to changes in these inputs. TYpes of sensitivity analysis include:

    • Univariate Sensitivity Analysis: This involves varying one parameter at a time while holding others constant. For example, changing the discount rate, cost estimates, or probabilities of events.
    • Multivariate Sensitivity Analysis: This examines the combined effect of changing multiple parameters simultaneously. It can be conducted using methods like scenario analysis or probabilistic sensitivity analysis (PSA).

    The results of sensitivity analysis provide insights into the robustness of the economic evaluation. If the conclusions remain consistent across a wide range of plausible assumptions, the findings are considered more reliable. Conversely, if outcomes vary significantly with small changes in assumptions, it suggests greater uncertainty.

    Sensivity analysis helps decision-makers understand the potential impact of uncertainty and variability in input parameters on the study findings. It informs them about the reliability of using those findings for decision-making purposes.

    Importance of economic evaluations

    • Informed Decision-Making: Helps healthcare providers and policymakers make evidence-based decisions regarding the adoption and reimbursement of medical devices.
    • Resource Allocation: Assists in the efficient allocation of limited healthcare resources by identifying interventions that provide the most value.
    • Market Access: Supports manufacturers in demonstrating the value of their devices to regulators and payers, facilitating market access and adoption.
    • Patient Outcomes: Ensures patients receive treatments that offer the best combination of effectiveness and value.

    Conclusion

    Economic evaluation is a critical tool in the healthcare industry. It provides valuable insights into the costs and benefits of medical devices. Economic evaluations help stakeholders make informed decisions that optimise healthcare outcomes and resource utilisation by systematically comparing devices to alternative interventions.

    References

    1. Hutton J. Economic Evaluation of Medical Technologies. International Journal of Technology Assessment in Health Care. 1986;2:43 - 52.
    2. Seifan A, Shemer J. Economic evaluation of medical technologies. The Israel Medical Association journal : IMAJ. 2005;7(2):67-70.
    3. Halminen O, Chen A, Tenhunen H, Lillrank P. Demonstrating the value of digital health: Guidance on contextual evidence gathering for companies in different stages of maturity. Health Services Management Research. 2021;34(1):13-20.
    4. Cartwright WS. Methods for the economic evaluation of health care programmes, second edition. By Michael F. Drummond, Bernie O’Brien, Greg L. Stoddart, George W. Torrance. Oxford: Oxford University Press, 1997. The Journal of Mental Health Policy and Economics. 1999;2(1)
    5. Baltussen R, Mitton C, Danis M, Williams I, Gold M. Global Developments in Priority Setting in Health. International journal of health policy and management. 2017;6(3):127-8.

    Updated on 10 May 2024