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Indirect Medical Costs

Added on 27/12/2021

HTA bodies should take indirect costs in the scope to assess the cost/benefit of innovation.

Indirect Medical Costs

Added on 27/12/2021

HTA bodies should take indirect costs in the scope to assess the cost/benefit of innovation.

 
 

HTA bodies should take indirect (medical) costs into account to assess the cost/benefit-ratio of life sciences innovations

 

HTA bodies may request the inclusion of indirect medical costs when 2 therapeutic options are compared by means of a health economic assessment. The methodology to include indirect medical costs differs from the classic inputs in a health economic analysis.

Indirect costs

Let’s start with what ‘indirect costs’ are. Indirect costs have a relation with the disease and/or the management of the disease. Indirect costs can be seen as a costs consequence resulting from the management of the disease but different from the therapy itself. For example: a patient treated with intravenous injections in an ambulatory healthcare setting. Here, the patient will go to the hospital in line with the frequency of the posology. The cost for transportation (and parking) can be identified as an indirect cost. The transportation has nothing to do with the disease or the treatment itself but is nonetheless unavoidable. In addition, if the patient was economically active (before the treatment), economic loss will occur due to absenteeism and/or presenteeism (during and potentially after the treatment). All of these costs described so far are indirect non-medical costs. Indirect non-medical costs will be addressed in one of our future blogs.

Indirect medical costs

Let’s now focus on a category of indirect costs: the indirect medical costs. We sometimes get the question how medical costs can be ‘indirect’. Part of the answer lies ‘hidden’ in the future. Each intervention (surgery, pharmaceuticals, MedTech, diagnostic tests and/or a combination of these) can impact the probability of the need for subsequent other healthcare solutions. Example: a patient treated for heart failure (scope of the primary HE-analysis). Treatment with an intervention different from the standard of care may result in an improved overall survival rate. These extra life years may of course lead to the need for additional budget to manage diseases (or their effects) different from heart failure, e.g., diabetes, macular oedema, cancer, etc.. But how to best quantify this?

Benchmarking future medical costs

A benchmark is needed to quantify the future medical costs. In general, the overall population in the country of interest is used as a reference point (e.g., what is the medical cost coming forward from the average population). Based on age (and life expectancy) at the time of the primary event (the subject of the health economic assessment) one can calculate the average future healthcare costs for the number of years between ‘year x’ (when the primary event, heart failure in this example, is diagnosed) and death. Of course, every single person in the overall population can experience a different health trajectory and will cause different costs over time. Therefore, when the overall population is used as a benchmark, these costs should represent the estimated ‘average’ cost per person taking into account the gender proportion. If the health economic study is set up to analyse the impact of a new intervention for a certain condition, the average future medical cost should be corrected for the cost effects of that condition over time to avoid double counting of costs.

Health economic modellers can include the indirect medical costs in the simulation models. These indirect medical costs are recalculated towards the budgetary costs in line with the model cycle (e.g., 1 month). Multiplying the cost per model cycle with the proportion of patients alive in that cycle will represent the estimated future healthcare costs. In general, however, the cost of terminal healthcare (at life’s end) is higher than before terminal healthcare is initiated. It would be incorrect to spread out the cost of terminal healthcare over all the years between the start of the treatment and death. A solution can be to add the cost of terminal healthcare as a one-off cost multiplied by the probability of dying in the concerned model cycle.

Delta of indirect medical costs

Finally, the sum of all costs will reveal the total estimated indirect medical cost. If this is done for both comparators in your analysis, it is possible to calculate the delta cost between both interventions. These incremental costs can be added on top of the overall direct medical costs (with or without indirect non-medical costs) and projected versus the (quality of) life years gained, expressed in an ICER (€/QALY or €/LY gained).

 

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