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Budget Impact Analysis

What is Budget Impact Analysis?

Pharmacoeconomic analyses in healthcare are paramount, because of the high costs of innovative technologies and limited possibilities of their funding. Budget Impact Analysis (BIA) is one such analysis that provides vital information for healthcare decision makers [1]. 

Unlike economic evaluations, such as cost-effectiveness analysis (CEA), cost-utility analysis (CUA) and cost-benefit analysis (CBA) that evaluate the costs and consequences of healthcare; budget impact analysis (BIA) predicts the financial impact of the adoption and diffusion of innovation. Budget impact analysis (with budget impact models) also addresses the expected changes in expenditure of a healthcare system after adopting a new intervention. Decision-makers also use budget impact analysis for resource planning [2] [3]. 

Organisations who manage and plan healthcare budgets also use budget impact models to align pricing with resources, that is finding an optimal price for each intervention. This includes administrators of regional or national budgets, private health insurance plans, healthcare delivery organisations and employers who pay for healthcare. Each user’s requirement may differ, but each requires information on the financial impact of the adoption and diffusion of the new intervention [2].

Though based on the principles of accounting, budget impact analysis is not an economic evaluation (includes cost-effectiveness analysis (CEA), cost-utility analysis (CUA) and cost-benefit analysis (CBA)). There are key distinct differences [Table 1] between the two [2] [4]:

  • economic evaluations do not a model for the expected size of the patient population, however this is a requirement for budget impact analysis;
  • economic evaluations report health outcomes, whereas budget impact analysis report costs only;
  • economic evaluations present results as the discounted present value of costs in one period. Budget impact models report the costs for each year they occur with no discounting.
  • perform a budget Impact analysis and a cost-effective analysis (which determines whether an intervention provides value relative to an existing intervention), to support applications for reimbursement. Both analyses form part of a Health Technology Assessment (HTA) [4] [5]. 
Table 1: Budget Impact Analysis compared with a Cost-Effective Analysis (Source:Carattini, 2011)

1.1. Budget Impact Modelling Framework

The proper design of an analytical framework [Figure 1] is a crucial step in budget impact analysis. It enables a practical comparison between the current treatment and condition, with the new scenario that would result from adopting a new intervention. The framework allows examination of the impact of the intervention on the healthcare system, by assessing disease, incidence, diagnosis and treatment, and resource and costs. The next step is to compare the total costs of each scenario to estimate the budget impact of the innovation. Researchers require certain inputs to construct the BIA modelling framework [2] [3] [6] and enable data drive [2] [3] [6]:

  1. Size and characteristics of the affected population;
  2. The current intervention mix;
  3. The cost of the current intervention mix;
  4. The proposed intervention mix, including intervention under consideration;
  5. The cost of the new intervention mix;
  6. The cost of the new intervention mix, which includes the intervention under consideration;
  7. The use and cost of other health treatment-related healthcare services. 

Figure 1: Budget Impact Analysis Model (Source: Leelahavarong, 2014, adapted from ‘Principles of good practice for budget impact analysis: report of the ISPOR Task Force on good research practices-budget impact analysis’, 2007).

2. Why is Budget Impact Analysis Important?

Budget impact analysis is an essential part of a Health Technology Assessment [3] [7]. A budget impact analysis serves several important functions:

  • To estimate financial consequences for a specialised population of implementing a new intervention or technology;
  • A comprehensive analysis in a Health Technology Assessment, combined with a cost-effective analyses (CEA);
  • To provide affordability data on innovations in healthcare at an optimal price for a specified population, prior to reimbursement;
  • To serve as a budget and service planning tool that policy decision-makers can use to inform their allocation of resources after confirmed reimbursement of a technology;
  • To provide a framework for stakeholders to examine different assumptions about the potential impact of new interventions on the technology mix, treatment costs, key success factors, and dynamic pricing; and
  • To predict how a change in the mix of interventions used for a condition affects the trajectory of spend on that condition.

In a cost-conscious market, providers are under extreme pressure to show the real value of their products. Budget impact analysis is as important as a cost-effective analysis to build a firm position for adopting a new intervention. It is flexible enough to allow efficient estimates of the cost of treatment for a certain condition, and display how each new intervention impacts on total treatment [3] [7].

3. Benefits of Budget Impact Analysis

Budget impact analysis complements the information for a comprehensive Health Technology Assessment. It is complementary to more established types of economic evaluations, namely cost-effectiveness analysis, by providing additional information on the financial consequences of reimbursement of new technologies [1]. However, as a comprehensive HTA takes time and is labour intensive, decision-makers may use a budget impact analysis in isolation to determine the financial impact of an innovation [4].  

Budget impact analysis also assesses affordability by estimating an intervention’s short-term net costs from the payer’s perspective [2] [8]. The outcomes of a budget impact analysis reflects scenarios with a specific set of assumptions and data inputs of interest to the decision makers [1] [8]. It provides a structured framework that allows users to see how different assumptions results in changes in the treatment mix and cost of treating that condition [9]. 

Although a new intervention is generally expensive, it may reduce overall costs because of reduced hospital days and out-patient visits. A budget impact analysis that shows a reduction in overall disease cost, is an added motivation for reimbursement [8].

4. Practical steps in Getting Started with a Budget Impact Analysis

Researchers apply six steps to conduct a budget impact analysis. These are preceded by developing an analytic framework to guide data collection and populate a budget impact model with data relevant to the budget holder [3] [8] [9]:

  1. Characterise the population: A focused description of the target population improves the relevance and accuracy of budget impact results;
  2. Select the Time Horizon: Decision makers often prefer shorter horizons. Allow for flexibility so that decision maker can choose any period from 1 to 5 years. Longer horizons are useful only when the population and treatments are likely to remain stable;
  3. Current and Future Treatment Mix; Clarity on the positioning (new or substitute) of the new intervention will influence how the market shifts;   
  4. Estimate Intervention Costs; Adherence to interventions impact on cost and outcomes and consider discounting if the time horizon is long;
  5. Estimate Changes in Disease-Related Costs; data from clinical trials should be considered for acute diseases, while progression models and effectiveness estimates are used for chronic diseases; 
  6. Present Budget Impact and Health Outcomes: Results are presented as costs per treated person per month and are presented alongside health outcomes studies.  
Figure 2: Six Steps for Estimating the Budget Impact (Source: Steuden 2017)

Summary

A budget impact analysis is used to assess whether adopting a new health innovation is affordable, given resource and budget constraints [3]. Budget impact analysis is important as part of a Health Technology Assessment when combined with a cost-effectiveness analysis for reimbursement. It is also important for budget and forecast planning, estimating the impact of health technology changes on health insurance premiums and estimating potential fiscal impact on pursuing an intervention at national level [3] [7]. 

Budget impact analysis may be conducted in isolation or part of a comprehensive analysis with complementary economic evaluations for HTA [1] [4]. In addition, managers can make strategic decisions, as BIA estimates the financial feasibility of a new intervention in a healthcare [6]. The budget impact analysis services at Syenza determine the optimal price of innovations by identifying opportunities for dynamic pricing and outcomes based pricing. Our budget impact models also align pricing with value, and articulate key success factors in value-based pricing frameworks. Learn more here and contact us for further details.

References

[1] R. I. Yagudina, A. U. Kulikov, V. G. Serpik and et.al, “Concept of Combining Cost-Effectiveness Analysis and Budget,” Value in Health Regional Issues, vol. 13C, pp. 61-66, 2017. 

[2] S. D. Sullivan, J. A. Mauskopf, F. Augustovski and et.al, “Budget Impact Analysis—Principles of Good Practice: Report of the ISPOR Task Group,” Value in Health, vol. 17, pp. 5-14, 2014. 

[3] P. Leelahavarong, “Budget Impact Analysis,” J Med Assoc Thai, vol. 97, no. Suppl 5, pp. S65-S71, 2014. 

[4] Health Information and Quality Authority, “Guidelines for the Budget Impact Analysis of Health Technologies in Ireland,” Health Information and Quality Authority (HIQA), Dublin, 2018.

[5] L. Garattini and K. van de Vooren, “Budget impact analysis in economic evaluation: a proposal for a clearer definition,” The European Journal of Health Economics, pp. 449-502, 2011. 

[6] M. T. Silva, E. N. da Silva and M. G. Pereira, “Budget impact analysis,” Epidemiol. Serv. Saude, vol. 26, no. 2, pp. 1-4, 2017. 

[7] J. B. Babigumira, “Budget Impact Analysis,” School of Public Health University of Washington, Seattle, 2017.

[8] A. Bilinski, P. Neumann, J. Cogen and et.al, “When cost-effective interventions are unaffordable: Integrating cost-effectiveness and budget impact in priority setting for global health programs,” Plos Medicine, vol. 14, no. 10, pp. 1-10, 2017. 

[9] L. Steuten, “Budget Impact Analysis,” University of Washington, Seattle, 2017.

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