Budget Impact Analysis

Budget impact analysis estimates the financial consequences of adopting a new health intervention - such as a medicine - within a specific budget over a defined period. It complements cost-effectiveness analysis by asking not whether an intervention offers good value, but whether a payer can afford it given the size of the eligible population and the available budget.

Definition

A budget impact analysis is an economic assessment that estimates the change in expenditure to a defined budget holder that would result from adopting and diffusing a new intervention across an eligible population over a specified time horizon.

Scope

This entry covers the purpose and structure of budget impact analysis: the comparison of a current scenario with a new scenario, the role of population size and uptake, the short-to-medium time horizon, the payer perspective, and the good-practice standards that govern these analyses. It is a methodological reference and does not provide financial or coverage advice.

Core questions

• How much would adopting a new medicine change a payer's expenditure?
• How do population size and rate of uptake affect the estimate?
• Why is budget impact analysis distinct from cost-effectiveness analysis?
• What time horizon and perspective should a budget impact analysis use?

Key concepts

• Affordability versus value
• Eligible population size
• Uptake and market-share projections
• Current versus new treatment scenario
• Payer perspective
• Short-to-medium time horizon
• Scenario and sensitivity analysis

Mechanisms

A budget impact analysis compares the expected cost of a 'current scenario' (the existing mix of treatments) with that of a 'new scenario' in which the intervention is adopted and diffuses over time. The estimate is driven by the size of the eligible population, the projected uptake or market share of the new product, and the prices and resource use of the compared treatments. Analyses are conducted from the perspective of the budget holder, usually over a short-to-medium horizon of one to several years, and report undiscounted period-by-period costs. Good-practice standards specify how the population, comparators, scenarios, and uncertainty should be handled, including scenario analyses around uptake and price (Sullivan 2014). The method is complementary to cost-effectiveness analysis, which addresses value rather than affordability (Drummond 2005; Neumann 2014).

Clinical relevance

Budget impact analysis informs whether a health system can afford to fund a medicine and therefore feeds into reimbursement and planning decisions. This entry explains the method at a system level and is not guidance for individual coverage, prescribing, or treatment choices.

Evidence & guidelines

The reference standard for the method is the ISPOR Budget Impact Analysis Good Practice II Task Force report, which sets out the recommended structure, inputs, and reporting for these analyses (Sullivan 2014). Many health technology assessment agencies require a budget impact analysis alongside a cost-effectiveness analysis as part of reimbursement submissions, drawing on the broader economic-evaluation methods literature (Drummond 2005).

History

Budget impact analysis emerged as a distinct requirement as payers and health technology assessment agencies recognised that cost-effectiveness alone did not address affordability. ISPOR issued good-practice guidance in 2007 and an updated Good Practice II report in 2014, which became the principal methodological reference for the method (Sullivan 2014).

Debates

Should budget impact be weighed alongside or against cost-effectiveness?

A medicine can be cost-effective yet unaffordable at scale, so debate continues over how payers should reconcile good value with limited budgets, and whether affordability constraints should modify coverage decisions.

Key figures

• Sean Sullivan
• Josephine Mauskopf
• Michael Drummond

Seminal works

• sullivan-2014
• drummond-2005

Frequently asked questions

How does budget impact analysis differ from cost-effectiveness analysis?

Cost-effectiveness analysis asks whether an intervention offers good value for its added health benefit, while budget impact analysis asks whether a payer can afford the total cost of adopting it across the eligible population over time.

Why is the time horizon of a budget impact analysis usually short?

Budget impact analyses serve payer planning, which is concerned with near-term affordability, so they typically use a short-to-medium horizon of one to several years and report undiscounted annual costs rather than long-term lifetime estimates.