HERC: Budget Impact Analysis
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Budget Impact Analysis



A budget impact analysis (BIA) is an economic assessment that estimates the financial consequences of adopting a new intervention.

A budget impact analysis is usually performed in addition to a cost-effectiveness analysis. A cost-effectiveness analysis evaluates whether an intervention provides value relative to an existing intervention (with value defined as cost relative to health outcome). A budget impact analysis evaluates whether the high-value intervention is affordable. For example, a cost-effectiveness analysis may indicate that Drug A is a good value relative to Drug B because it has an incremental cost-effectiveness ratio (ICER) of $40,000 per Quality-Adjusted Life Year. This means that per person, one needs to spent $40,000 additional dollars to provide each patient with Drug A. If there are 50,000 patients within a health system that need this drug, the healthcare system will have an additional $2 billion dollars of budget impact to treat these patients, which may not be affordable.

A budget impact analysis takes the true "unit" cost of an intervention and multiplies it by the number of people affected by the intervention to provide an understanding of the total budget required to fund the intervention. Thus, the size of the population is explicitly considered. If the intervention is expected to have limited uptake within the population, this should be modeled.  When setting up a budget impact analysis, one should consider whether the intervention is replacing the existing standard of care (substitution), is being used in addition to the existing standard of care (combination), or is being used only in situations where there has been no existing care (e.g., due to patient intolerance of standard care). In the case of substitution, cost offsets should be included in the model. In all cases, if the intervention causes changes in health care utilization (due to changes in outcomes, symptoms, and/or adverse events), this should be included. As with any modeling exercise, sensitivity analyses should be conducted to evaluate the impact of varying these assumptions.

As a budget impact analysis is often used for resource allocation purposes, it takes a payer's perspective, and uses a short-term time horizon (often 1 to 5 years). A budget impact analysis does not use discounting. Results should be presented on an annual or quarterly basis, or in whatever increment of time that is relevant to the decision maker.

The focus of a budget impact analysis is the direct costs of specific resources needed to put the intervention into effect, such as supplies, equipment, and staff. Because the budget impact analysis uses a short-term time horizon, and overhead costs are fixed in the short term, these overhead costs are ordinarily excluded in budget impact analyses.This distinguishes budget impact analysis from cost-effectiveness studies, which include overhead costs. This difference can be important, as overhead can account for a substantial part of the cost of operating a hospital or health care system.

Budget impact analyses versus cost-effectiveness analyses

Similarities and differences between budget impact analyses and cost-effectiveness analyses
Features Budget Impact Analysis Cost Effectiveness Analysis
Perspective Payer Societal
Time Horizon Short-term Long-term/Lifetime
Size of Population Includes Ignores
Model Inputs Payer-specific Population-average
Model Output Cost Cost and Health Outcomes
Uses Discounting No Yes
Includes Overhead Costs No Yes



Last updated: May 4, 2023