#PharmEconFriday: Budget Impact Analysis

In the world of pharmacoeconomics, a budget impact analysis (BIA) or budget impact model (BIM) refers to the framework to estimate the potential financial consequences of the decision to add a new drug to a formulary.  Payers and health system pharmacy and therapeutics (P&T) committees frequently require drug manufacturers to submit a BIM as a part of the formulary submission.  The Academy of Managed Care Pharmacy even has a guideline document for formulary submissions to help serve as a template for pharmaceutical companies to prepare their submissions.

Below is a basic summary of the 2012 Budget Impact Analysis Good Practice II Task force published in Value in Health in 2014.  For the full article please check out:  http://www.ispor.org/budget-impact-health-study-guideline.asp1



For a submission to a managed care organization, such as a pharmacy benefits manager (PBM), the BIA would be conducted from the perspective of that company.  The perspective is a critical piece of information because it determines what costs are important in the calculation.  For example, a PBM that only focuses on the drug spend would not be as concerned about events that typically fall under another benefit (ie: hospitalization, physician visits, child care).  However, the PBM may be interested in the larger economic impact as well so they can negotiate with their customers and provide an additional benefit to justify an increase in the member contribution or premium.

Eligible Population

A PBM with a million covered lives that primarily represent a middle-class workforce will not be interested in looking at data projections that only impact senior citizens or children.  It is important that the drug company do a little more homework about the population that the PBM represents to gauge a better estimate of the individuals who may actually need the therapy.  In addition, not all sick patients are diagnosed or seek treatment, so there may be adjustments for the number likely to be treated following the addition of the drug.

Implementation or Uptake of the New Therapy

On day 1, 100% of the eligible patients will not immediately switch to the newly approved therapy.  The approval will impact the current market dynamics of the treatment of the disease and the new therapy may replace existing therapies.  When developing a BIA, consider different rates of market penetration (which may end up being part of your sensitivity analysis).

Uncertaintypharmacoeconomics drug costs blue

With all of the different assumptions and variables to consider, there may be a wide range of uncertainty in your model.  Limited information may also play a factor and attempting to create a “95% Confidence Interval” (like in other scientific studies) may produce results for decision-makers that just aren’t helpful.  In the case of a BIM, it may make more sense to sacrifice confidence level to give a more precise dollar amount.2  One effective way to demonstrate uncertainty would be through the creation of different “scenarios” that the decision-maker can review.


  1. Sullivan SD, Mauskopf JA, Augustovski F, et al. Budget impact analysis – Principles of good practice: Report of the ISPOR 2012 budget impact analysis good practice II task force. Value Heal. 2014;17(1):5-14. doi:10.1016/j.jval.2013.08.2291.
  2. Briggs AH, O’Brien BJ, Blackhouse G. Thinking outside the box: recent advances in the analysis and presentation of uncertainty in cost-effectiveness studies. Annu Rev Public Health. 2002;23:377-401. doi:10.1146/annurev.publhealth.23.100901.140534.
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Joey Mattingly, PharmD, MBA is an assistant professor at the University of Maryland School of Pharmacy located in Baltimore, Maryland. Joey has managed retail and long-term care pharmacy operations in Kentucky, Illinois and Indiana. Leading Over The Counter is a blog of Joey's views and opinions on the topics of pharmacy leadership and management and do not represent the University of Maryland, Baltimore. Joey can be followed on Twitter @joeymattingly.

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