3A.1 Overview and rationale of the economic evaluation

Page last updated: September 2016

Information Requests

  • Tabulate the key components of the economic evaluation (Subsection 3A.1.1)
  • Justify the type of economic evaluation and outcome measures used (Subsection 3A.1.2)
  • Identify the objective and primary decision addressed by the evaluation. Include a decision tree or analytic diagram (Subsection 3A.1.3)
  • Use a health care system perspective to inform the base-case analysis, and describe any alternative perspectives provided as supplementary analyses (Subsection 3A.1.4)
  • For analyses exceeding one year, confirm the discounting methodology for costs and outcomes in the base case (Subsection 3A.1.5)
  • Indicate whether the base case is trial based or modelled, and present a summary of the steps that will be taken to transform from trial to model, where necessary (Subsection 3A.1.6)

3A.1.1 Summary table of economic evaluation

Complete Table 3A.1.1 to summarise the key components of the economic evaluation.

Table 3A.1.1 Key components of the economic evaluation



Type(s) of analysis

[eg cost-effectiveness analysis, cost-utility analysis]


[eg events avoided, life-years gained, quality-adjusted life years]

Time horizon

[x] days/months/years in the model base case (vs [y] weeks/years in the key trial(s))
Sensitivity analyses, include time horizons of [...]

Method(s) used to generate results

[eg cohort expected value, Markov, microsimulation, discrete event simulation]

Health states

[If a state transition model, provide number of health states and brief description]

Cycle length

[x] days/weeks/months/years

Transition probabilities

[Describe the source(s)]


[eg Excel 2010, @RISK, TreeAge Pro]

3A.1.2 Type of economic evaluation

State whether cost-effectiveness will be estimated using a CEA and/or a cost-utility analysis (CUA). Identify the incremental health outcomes (as nominated for the CEA, or as quality-adjusted life years [QALYs] for a CUA) and incremental health costs.

Other economic evaluations (eg cost-benefit analyses or cost-consequences analyses) should not be presented as base-case analyses. However, the various types of economic evaluations are not mutually exclusive and more than one analysis can be presented to make a stronger case for cost-effectiveness (eg both a CEA and a CUA, or cost-consequences analysis and a CUA). (See Glossary of terms for definitions.)

Cost-utility analysis

A CUA is preferred over a CEA, particularly where:

  • there is a claim of incremental life-years gained in the economic evaluation (to assess the impact of quality adjusting that survival gain)
  • there is an improvement in quality, but not quantity, of life
  • relevant direct randomised trials report results using a multiattribute utility instrument.

Where transformations or external data sources are required to estimate QALYs, present a stepped transformation from a CEA to a CUA, to transparently indicate the implications of the transformation and/or use of external data.

Cost-effectiveness analysis

Where a CEA is presented as the primary economic evaluation, justify why the quantified health outcomes are not translated into QALYs and presented as a CUA.

Ensure that the incremental health outcome (eg life-years, other health events) presented in a CEA is patient-relevant. Present the outcome measure that is most closely and validly representative of the overall health of the patient, from their perspective, and in the context of the disease or condition for which they are receiving treatment. Justify the choice of outcome and describe the extent to which the outcome captures all relevant health considerations.

Where a combination of outcomes (either intermediate or final outcomes, or both) are relevant to the patient, capture these collectively. Transform and sum these as QALYs in a CUA, rather than presenting cost-effectiveness analyses for multiple outcomes.

Cost-consequences analysis

A cost-consequences analysis compares the incremental costs of the proposed medicine with the comparator, and describes the various incremental differences (consequences) in a range of relevant (nonaggregated) outcomes that would occur with use of the proposed medicine. A cost-consequences analysis can be useful where the proposed medicine is demonstrated to have a different profile of effects that are not adequately captured by a single outcome measure, and where there might be trade-offs in effectiveness and safety between the two medicines.

 Generally, a cost-consequences analysis should not be presented on its own, but it may be useful as a supplementary or preliminary analysis to a CEA or a CUA. Disaggregated analyses may provide transparency in identifying changes in patterns of health care resource provision or specific health outcomes of interest that are not obvious in an aggregated evaluation.

Cost-benefit analysis

Cost-benefit analysis does not incorporate the breadth of considerations that are relevant to PBAC decision making, and there are limitations to the process of eliciting monetary valuations of health, particularly in the context of the Australian health care system where individuals do not face market prices. A cost-benefit analysis should not be presented as the primary analysis. The PBAC is unlikely to be convinced of a cost-effectiveness claim if a cost-benefit analysis is presented without a CUA.

3A.1.3 Decision addressed by the economic evaluation

The purpose of the economic evaluation is to compare the differences in the streams of outcomes and resources that will occur when the proposed medicine or its main comparator are used. This is expressed as the incremental outcomes and incremental costs between these alternatives in the Australian setting.

Ensure that the decision-tree diagram characterises the primary decision that the economic evaluation addresses, based on the information provided in Subsection 1.1. Use the diagram to provide a conceptual overview rather than the complete computational structure of the economic model. However, after the decision point of the tree, define alternative choices, uncertain events (and probabilities, if practical) and outcomes. Where the model is particularly complex, collapse and summarise branches, and clearly indicate where this has been done. Detail collapsed branches or a more suitable complete diagram of the model structure (eg a health state transition diagram) in Subsection 3A.2.

Ensure that the pathways depicted in the decision tree are consistent with the existing and proposed clinical management algorithms presented in Section 1. Cross-reference to the diagram(s) in Section 1 if they sufficiently represent the decision analytic of the economic model.

Include codependent diagnostic decisions and outcomes, if relevant (see Product type 4).

3A.1.4 Perspective of the economic evaluation

The PBAC’s preferred health care system perspective includes health and health-related resource use (costs and cost offsets), and health-related outcomes. Costs include those incurred by the patient, and the public or private health care provider; outcomes are those associated with the patient. Do not include costs and outcomes that are not specifically related to ‘health and/or provision of health care’ in the base case (see Subsections 3A.5 and 3A.6).

To show a broader societal perspective and quantitatively incorporate considerations beyond the patient and the health care system, present a supplementary analysis in addition to the base case. A well-justified and well-supported analysis will form a more compelling case.

Supplementary analyses may be appropriate where the proposed intervention has important societal implications extending beyond the health outcomes of the patient receiving the medicine, and beyond the health care system. For example, costs/savings or socially relevant outcomes in domains such as education, housing or justice, or economic productivity impacts. Also, in circumstances where the beneficiaries of health or other relevant outcomes are broader than the treated patient population (eg community, carers, dependants), include these as supplementary analyses.

3A.1.5 Discounting

The values of costs and benefits incurred or received in the future are generally discounted to reflect the present value. Discount both costs and outcomes at a uniform, annual (compounding) rate of 5% per year for all costs and health outcomes that occur or extend beyond one year in the base case.

Present sensitivity analyses using fixed discount rates of 3.5%, and 0% per year (applied to both costs and outcomes). If relevant, present supplementary analyses using other discounting methodologies (eg a different uniform rate, differential rates, time-varying rates) and justify the alternative approach.

3A.1.6 Generation of the base case

Trial-based economic evaluation

A trial-based evaluation is sufficient to provide the base case of the economic evaluation if the trial(s):

  • recruited patients who are directly representative of those for whom listing is sought
  • tested the proposed medicine in the circumstances of use expected to apply to the requested PBS listing
  • directly measured and reported patient-relevant end points over an appropriate time horizon.

Modelled economic evaluation (including stepped adjustments to a trial-based evaluation)

If the trial(s) did not provide evidence that sufficiently measures the full clinical and economic performance of the proposed medicine compared with its main comparator in the Australian setting, use modelling or adjustments to the trial data to generate the base-case economic evaluation.

Justify and make transparent any translations of the primary effectiveness data and additional assumptions used in the model. Construct economic models in a way that allows the results to be presented sequentially before and after key translational steps.

The stepped approach may include some or all of the following stages:

  • Present the outcomes and costs as identified in the key trial(s) (see Subsections 3A.5.1 and 3A.6.1).
  • Transform trial-based surrogate outcomes to final patient-relevant outcomes (see Subsection 3A.4.2).
  • Adjust treatment effects on health care resource use and health outcomes, as would be anticipated in the Australian setting and PBS population according to the restriction (see Subsection 3A.3.1). This may involve one or more steps – for example
    • re-estimate the treatment effect in the PBS population (eg use selected subgroups or weighted trial outcomes to improve applicability to the Australian demographic)
    • incorporate Australian circumstances of use or clinical practice (eg with respect to patterns of resource use)
    • incorporate other necessary and justifiable assumptions to improve the representativeness of the model (eg incorporation of resource use or outcomes associated with adverse event data, or subsequent treatment lines that are not captured in the trial data or previous translations).
  • Extrapolate health care resource use and health outcomes (for the proposed PBS use) as required over the appropriate time horizon (see Subsection 3A.4.3).
  • Transform health outcomes, if necessary, to the final outcomes used in the economic evaluation (eg using utility weights to obtain QALYs) (detailed in Subsection 3A.5.1).

The last four stages of the stepped approach may vary depending on the nature of the available data. The base-case result is represented by the final incremental costs, outcomes and incremental cost-effectiveness ratio after the evidence from the main trial(s) has been translated.