Concept Architecture
Concept
Theoretically, Budget Impact is the estimated financial consequence of adopting a new health intervention within a specified healthcare budget over a defined time horizon. Unlike cost-effectiveness analysis, which evaluates value for money, budget impact analysis assesses affordability by estimating changes in expenditure resulting from the introduction, expansion or replacement of healthcare technologies. The concept is central to reimbursement decision-making because healthcare systems operate under finite budgets and must understand the expected effect of new interventions on annual resource allocation.
Mathematically, budget impact is represented as the difference between projected healthcare expenditure under the current scenario and expenditure following implementation of the new intervention. The calculation incorporates the eligible population, market uptake, treatment costs, displaced therapies and associated healthcare resource utilisation. Budget impact models typically estimate annual financial consequences over a short- to medium-term horizon, commonly one to five years.
In practice, budget impact is estimated using epidemiological data, treatment utilisation, unit costs, market share assumptions and healthcare resource use. Analyses are conducted from the perspective of the healthcare payer or budget holder and are frequently submitted alongside cost-effectiveness analyses during health technology assessment. Sensitivity and scenario analyses are routinely performed to assess the effect of uncertainty in key assumptions.
Purpose
Used to estimate the affordability of introducing or expanding a healthcare intervention by quantifying its expected financial impact on a healthcare budget over a defined time period.
Mathematical Formulae
Primary Formula
Budget Impact = Total Cost?New Scenario? ? Total Cost?Current Scenario?
Supporting Formulae
Total Cost = ?(N? ? C?)
where:
- N? = number of patients receiving intervention i
- C? = cost per patient for intervention i
Incremental Budget Impact:
?B = B? ? B?
where:
- B? = projected expenditure after adoption
- B? = projected expenditure before adoption
Related Mathematical Methods
- Budget Impact Analysis
- Cost Analysis
- Cost Projection
- Scenario Analysis
- Sensitivity Analysis
- Population Estimation
Example
A health service currently spends �18,000,000 annually treating patients with standard therapy. A new medicine is expected to treat 1,500 eligible patients at an additional net cost of �1,200 per patient after accounting for displaced treatment costs.
Incremental Budget Impact = 1,500 ? �1,200 = �1,800,000
Total annual expenditure therefore increases from �18,000,000 to �19,800,000, producing an annual budget impact of �1.8 million.
Excel Implementation
| Function | Example Formula | Health Economics Application |
|---|---|---|
| SUMPRODUCT | =SUMPRODUCT(PatientRange,CostRange) | Calculates total expenditure across interventions. |
| SUM | =SUM(B2:B10) | Aggregates annual healthcare costs. |
| IF | =IF(NewCost>CurrentCost,NewCost-CurrentCost,0) | Calculates incremental budget impact. |
| INDEX | =INDEX(CostTable,MATCH(Treatment,TreatmentList,0)) | Retrieves treatment-specific unit costs. |
| XLOOKUP | =XLOOKUP(Treatment,TreatmentList,CostList) | Obtains unit costs for budget calculations. |
VBA (Optional)
VBA can automate multi-year budget impact models by updating patient populations, treatment uptake, market shares and annual expenditure under alternative scenarios.
Sources
- Mauskopf J, Sullivan SD, Annemans L, et al. Principles of Good Practice for Budget Impact Analysis: Report of the ISPOR Budget Impact Analysis Good Practice II Task Force. Value in Health.
- ISPOR Budget Impact Analysis Good Practice Reports.
- NICE. Health Technology Evaluation Manual.
- Briggs A, Claxton K, Sculpher M. Decision Modelling for Health Economic Evaluation. Oxford University Press.
- Drummond MF, Sculpher MJ, Claxton K, Stoddart GL, Torrance GW. Methods for the Economic Evaluation of Health Care Programmes. Oxford University Press.
Related Concepts (5)
Library
Budget Impact Analysis—Principles of Good Practice: Report of the ISPOR 2012 Budget Impact Analysis Good Practice II Task Force — Sullivan, Mauskopf, Augustovski, Caro, Lee, Minchin, Orlewska, Penna, Rodriguez Barrios & Shau, 2014 (Value in Health)
Approved authoritative resource supporting Budget Impact Analysis methods or institutional application.
Web/PDFView source →
Frequently Asked Questions (6)
What is budget impact?
The projected change in total spending for a payer or health system resulting from adopting a new treatment or policy.
Source: Sullivan et al. 2014
How does budget impact differ from cost-effectiveness analysis?
Cost-effectiveness analysis asks whether a treatment is worth its cost by comparing health gained against health displaced, and expresses the result per patient. Budget impact analysis asks what the adoption will cost in total, taking the perspective of the budget holder, over a short horizon of a few years, using the prices actually paid including any confidential discounts, and without discounting, since the question concerns cash in each period rather than value over time. The two answer different questions and a treatment can pass one and fail the other.
Source: Sullivan et al. 2014
What does a budget impact estimate require?
It requires the size of the eligible population and how it will change, the proportion expected to receive the treatment in each year of the horizon, the mix of treatments currently used and how that mix will shift, the cost of the new treatment and of those it displaces, and the changes in other resource use that follow, including monitoring, administration, management of adverse effects and any activity avoided. The projection is built as the difference between two scenarios, one in which the treatment is adopted and one in which current practice continues.
Source: Mauskopf et al. 2007
What horizon and perspective does budget impact use?
The perspective is that of the budget holder taking the decision, which determines whose costs count and excludes costs falling on other budgets or on patients unless the analysis says otherwise. The horizon is short, typically the period over which the budget is planned, because the purpose is to inform a financial commitment rather than to assess lifetime value. Results are reported year by year rather than as a single total, since the profile matters as much as the sum where the constraint applies annually.
Source: Sullivan et al. 2014
What are the common errors in budget impact?
Uptake assumptions are the largest source of error and are usually optimistic, since real adoption is slower and less complete than projected. Analyses frequently omit the treatment displaced, counting the full cost of the new treatment against no saving from what it replaces. Offsetting savings are often claimed where they fall on a different budget, arrive outside the horizon, or depend on capacity being released in units large enough to remove, which a small reduction in bed days does not achieve. Capacity constraints are also commonly ignored, so the projected volume could not be delivered even if funded.
Source: healtheconomics.wiki
How is budget impact used in decisions?
It is used alongside evidence on effectiveness and cost-effectiveness rather than in place of them, answering the affordability question that those analyses leave open. Where the projected impact cannot be accommodated, the usual responses are to negotiate price, to restrict initial eligibility to the group with most to gain, to phase introduction over several years, or to agree an arrangement capping total expenditure regardless of volume. Each of these changes the projection, so the analysis is normally revised as the terms are settled rather than produced once at the outset.
Source: Sullivan et al. 2014
Trust Record
Verified by Dr Darrin Baines
British health economist
Professional identity: darrinbaines.org
Verification date: 18 Jul 2025
Content version: 1.0.0
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- Persistent URI
- https://healtheconomics.wiki/concept/budget-impact
- Term code
- HE-EE-BIA-011
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