Insights

Market access: budget impact analysis

by Kirsten Chalmers

What is a budget impact analysis?

Pressure on healthcare insurers to fund the best available care while keeping within budgetary constraints has made budget impact analysis (BIA) an increasingly important part of any application for getting new drugs or medical devices reimbursed. BIAs are, in fact, required for reimbursement approval in many countries, including Canada, France, and the UK.

A BIA estimates at the population level what it would cost to fund a new drug or technology. For example, the UK National Health Service or a private health insurer may want to know what reimbursing a new cancer drug will mean for its budget. In other words, a BIA assesses the affordability of a new drug or technology. In this way, a BIA can be essential for budget planning in healthcare, where profit margins can be tight, and budgets may be inflexible because of political or socioeconomic constraints.

Modelling budget impact

The cornerstone of a BIA is the budget impact model, which typically assesses what the payer, who might be a public provider or private insurer, is likely to have to pay out for a new drug or technology over a period of 3-5 years. The budget impact is calculated by comparing two scenarios: a world in which the new drug or technology is implemented, and another world without the new drug or technology (Figure 1).

Figure 1. The two scenarios are compared in a BIA: left, without the new drug or technology, and right, with the new drug or technology.

For each scenario, the budget impact model considers the population size, patient eligibility, market share, speed of uptake, and direct costs of the new and existing interventions (Figure 2). The model may also consider the costs of any downstream health effects, such as adverse events, changes in hospital admissions or visits to specialists, and impact on healthcare resource use.

Figure 2. A budget impact model. This example includes only direct costs of the drug or technology.

Using the budget impact model, analysts determine whether reimbursing the new health technology leads to lower or higher overall costs than not reimbursing it – within the context of all the interventions that the payer funds (Table 1). The difference between the costs of the two scenarios is referred to as the “net budget impact.” If the total costs for the scenario in which the new health technology is reimbursed are lower than the total costs for the scenario in which the technology is not reimbursed, then the net budget impact is negative. This means that the new health technology is likely to be cost-saving. A BIA may report net budget impact annually or cumulatively across a multi-year period. It may also be expressed per individual in the patient population and per different periods of time such as quarterly and monthly.

Drug B and C are the current interventions for the disease of interest. Drug A is the new intervention. The table below details the cost of each intervention and the total cost for each scenario during Year 1.

Table 1. Calculating net budget impact in BIA.

Year 1Scenario without Drug CScenario with Drug C
Cost of interventions
Drug A021,200
Drug B58,80040,100
Drug C18,50013,900
Total cost77,30075,200
Net budget impact = 75,200 - 77,300 = -£2,100

When developing a budget impact model, analysts aim to keep all its elements as simple as possible so that the client, the Health Technology Assessment agency, payers, and other stakeholders can understand it. However, keeping things simple is not always so simple: models may need to consider the cost implications when patients discontinue treatment or die. Models may also need to account for rebates, co-pays, deductibles, wholesaler mark-ups, and dispensing fees. Thus, modelling budget impact in a BIA means following Einstein’s advice to make things “as simple as possible, but no simpler.”

Budget impact analysis vs. cost-effectiveness analysis

Cost-effectiveness analyses are the most common and well-known type of health economic evaluation. These analyses compare the costs and benefits of a medicine, or device, with alternative treatments to assess value for money. BIA and cost-effectiveness analysis involve many of the same methods and types of data. However, the two types of analysis differ in how they build relevant data into a final model (Table 2).

Table 2. Comparison of BIA and cost-effectiveness analysis.

ParameterBudget impact analysisCost-effectiveness analysis
PurposeTo indicate whether an intervention is affordable for a healthcare payerTo indicate whether an intervention is value for money for a healthcare payer
Time horizonShort term (3-5 years)Long enough to consider all the effects of the intervention, ranging from one year to a lifetime
PopulationAll patients affected by the condition in a population and eligible for new intervention or technologyA typical individual patient
Costs consideredThe direct cost of the intervention and any combination therapies. Additional costs associated with the treatment (e.g., monitoring costs, cost of adverse events, administration costs)Direct costs (e.g., cost of intervention) Societal costs (e.g., productivity loss)
Discounting of costs and health outcomesNot usually doneUsually done
What is comparedTreatment mixes with or without the new interventionTwo or more interventions with each other
Model outputChange in spending by a healthcare payer if they agree to reimburse a new intervention (net monetary benefit)An incremental cost-effectiveness ratio

Symmetron’s experience with BIAs

Symmetron has collaborated with a diverse portfolio of clients to prepare BIAs for markets in the USA, France, Canada, and the UK. We build BIMs de novo as well as adapt global BIMs for use in specific countries. Two examples of BIAs where we played a prominent role are:

If you want to partner with us to prepare a BIA or simply wish to find out more about our work on BIAs and cost-effectiveness analyses, please contact us.

Additional reading

If you would like to know more about BIAs, we recommend the following resources:

A

Average cost

C

Cost-benefit analysis

Cost-effectiveness analysis

Cost-effectiveness threshold

H

Healthcare system

Health economics

Health outcome

Health state

Health technology assessment

I

Incremental cost

Incremental cost-effectiveness ratio

 

M

Marginal cost

O

Opportunity cost

Q

Quality-adjusted life years

Quality of life and health-related quality of life

T

Total cost

U

Utility

Kirsten Chalmers is a Health Economics Associate at Symmetron.

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