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Inflation vs discounting

Added on 12/05/2022

All market access colleagues involved in the preparation of economic files will be confronted with the aspect of inflation. There are 2 viewpoints versus ‘today’.

Inflation vs discounting

Added on 12/05/2022

All market access colleagues involved in the preparation of economic files will be confronted with the aspect of inflation. There are 2 viewpoints versus ‘today’.

 
 

All market access colleagues involved in the preparation of economic files will be confronted with the aspect of inflation. There are 2 viewpoints versus ‘today’. We can analyse the past or we can estimate the future.

In general, most countries rely on official numbers from national offices for statistics like StatBel in Belgium or the Central Office for Statistics in The Netherlands (CBS). When using (published) cost data from the past (example, the cost of hospitalisation), one can project the delta inflation (in %) versus the published costs to end up with a reliable cost estimate as it would be ‘today’. But how to do this for future costs?

Based on the trending data from past decades, inflation will evolve continuously over time as it is driven by economic parameters. An option can be to extrapolate the trend from the past over the time horizon of your economic assessment (up to life long). This would be much better than excluding this effect (either positive or negative).

In most countries, the regulatory bodies (KCE in Belgium and ZiN in the Netherlands) have defined in their guidelines for economic assessments what the correction for future inflation should be. This future projection of inflation is called ‘discounting’. In other words, we will proactively inflate the costs of the future. And thus, the assumption made is that a predefined volume of money to buy ‘health’ will be no longer sufficient to buy the same amount of health in the future (and thus the cost to manage the same disease with the same therapeutic options you have today will be more expensive).

The curiosity is that besides ‘costs’ ‘health’ can be inflated as well. In fact this has nothing to do with money but with efficiency. Disease management will become more efficient due to innovation and knowledge. In other words, if no cost inflation would exist, the same amount of money would result in the production of more health. The beauty of economic assessments is that discounting is taken into account for both costs and health effects. One can do less with the same volume of money but when using this money more efficient, we can gain health.

In Belgium, the discounting factor is 3% for costs and 1.5% for effects. In the Netherlands, 4% is used for costs and 1.5% for effects (date: May 2022). When performing economic simulations, we take into account the discounting factor as mentioned herewith in the base case. But, as future inflation is subject of uncertainty, we have to analyse the effect of inflation in scenario’s. This can be done deterministic or probabilistic (we refer to our former blog ” Quality of Life – be vigilant! ” for more information about uncertainty analysis).

One important note! A budget impact analysis is in general not done over a long time horizon and 5 years is the maximum. The discounting effect would be limited over this short time horizon and is therefore not taken into account. But, the inflation effect is to be taken into account for health economic analysis wen projecting estimations over a longer time horizon (up to life long).

So, if someone ask you if there is need for discounting, you need to reflect that a commercial rebate (discount) is something totally different versus discounting. In case of doubt: feel free to contact us and we will be happy to guide towards a robust economic dataset!

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