Concept Architecture
Concept
Theoretically, Budget Impact Modelling is the process of constructing and applying quantitative models to estimate the financial consequences of adopting a healthcare intervention within a specified budget setting. It is based on the principles of Budget Impact Analysis and health economic modelling, recognising that changes in healthcare expenditure depend on the size of the eligible population, treatment uptake, market share, resource utilisation and unit costs. The method exists to evaluate affordability rather than cost-effectiveness.
Mathematically, Budget Impact Modelling represents total healthcare expenditure under alternative adoption scenarios by combining epidemiological, clinical and economic parameters over a defined time horizon. The mathematical framework estimates the difference in expenditure between current practice and the introduction of a new intervention.
In practice, Budget Impact Modelling is implemented using spreadsheet-based or decision-analytic models populated with epidemiological data, treatment pathways, market uptake assumptions, healthcare resource use and unit cost information. It is routinely used by health technology assessment agencies, payers and healthcare organisations to support reimbursement, formulary and budget planning decisions.
Purpose
Used to estimate the financial consequences of adopting healthcare interventions, evaluate affordability, support reimbursement decisions, inform budget planning, and assess alternative implementation scenarios.
Mathematical Formulae
Primary Formula
TC? = P? ? U? ? M? ? C?
Where:
- TC? = Total intervention cost in period t
- P? = Eligible population
- U? = Treatment uptake
- M? = Market share
- C? = Cost per treated patient
Supporting Formulae
Budget impact:
BI = ????? (TC??w,? ? TCc??????,?)
Related Mathematical Methods
- Budget Impact Analysis
- Decision-Analytic Modelling
- Market Share Modelling
- Scenario Analysis
- Sensitivity Analysis
Example
A payer evaluates a new medicine for 12,000 eligible patients.
- Treatment uptake = 30%
- Market share = 45%
- Annual treatment cost = �2,800
Projected annual expenditure:
12,000 ? 0.30 ? 0.45 ? �2,800 = �4,536,000
The model compares this expenditure with current treatment costs to estimate the annual and cumulative budget impact over five years.
Excel Implementation
| Function | Example Formula | Health Economics Application |
|---|---|---|
| PRODUCT | =PRODUCT(B2:B5) | Calculate projected intervention expenditure. |
| SUMPRODUCT | =SUMPRODUCT(B2:B20,C2:C20) | Calculate expenditure across multiple patient groups or interventions. |
| SUM | =SUM(B10:B14) | Calculate cumulative budget impact over the model time horizon. |
| Data Table | =TABLE() | Perform one-way or two-way sensitivity analyses on key model assumptions. |
VBA (Optional)
Automate multi-year budget impact models with configurable uptake, market share and scenario analyses.
Sources
- 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 in Health.
- Mauskopf J, Sullivan SD, Annemans L, et al. Principles of Good Practice for Budget Impact Analysis. ISPOR Task Force Report.
- 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 (2)
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 modelling?
The practice of building and applying budget impact models to estimate the financial consequences of adopting a health technology.
Source: Sullivan et al. 2014
What does budget impact modelling involve?
It begins with scoping against the decision the payer faces, establishing the budget holder, the population and the horizon. Parameters are then identified and sourced, with local values used wherever available. The model is built, tested and documented. It is presented to the payer, who examines the assumptions and substitutes local values. The output is renegotiated as terms change, and the model is retained for reuse when the indication widens or the price is revisited.
Source: Sullivan et al. 2014
Who carries out budget impact modelling, and what does that imply?
They are usually commissioned by the manufacturer of the technology under consideration, which creates an interest in assumptions that make the projection modest: slower uptake, a narrower eligible population, more displacement of expensive alternatives and more offsetting savings. None of this requires anything false, since each assumption is individually defensible and the combination is what produces the result. Payers therefore treat a submitted model as an argument rather than as an estimate.
Source: healtheconomics.wiki
How should a payer examine budget impact modelling?
The population calculation should be traced from the general population to those treated, checking each proportion against local data. The uptake curve should be compared against observed uptake of a comparable technology in the same system. The displaced treatments should be checked against what local clinicians actually use. Any claimed savings should be tested for whether they release cash, fall on the same budget and arrive within the horizon. These four checks account for most of the difference between submitted and realistic projections.
Source: Mauskopf et al. 2007
What happens to budget impact modelling after submission?
The model is adapted using local population figures, local prices and locally agreed uptake, which frequently changes the projection substantially. The revised figures then inform negotiation over price, over restrictions on the eligible population, or over an arrangement capping total expenditure. The model is rerun under whatever terms are agreed, so the final projection reflects the deal rather than the original submission, and it becomes the baseline against which actual expenditure is later compared.
Source: Sullivan et al. 2014
What keeps budget impact modelling honest?
Requiring the model to be supplied in a form the payer can open and alter, rather than as a locked file or a report of results. Agreeing a reference case in advance, so that submitted analyses share a horizon, perspective and population definition and can be compared. Publishing the assumptions alongside any decision. Comparing projected against actual expenditure once the technology has been in use, which is rarely done and is the only step that creates a consequence for optimistic projection.
Source: healtheconomics.wiki
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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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- HE-EE-BIA-014
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