# Economic Evaluation: ICER, NMB, and Value-Based Pricing

## ICER (Incremental Cost-Effectiveness Ratio)

### The Formula

\[ICER = \frac{\Delta Cost}{\Delta Effect} = \frac{C_{intervention} - C_{comparator}}{E_{intervention} - E_{comparator}}\]

### The Scenario – New Diabetes Drug

A trial-based economic evaluation compares a new DPP-4 inhibitor to metformin monotherapy over 5 years:

Outcome | Metformin | DPP-4 Inhibitor
--- | --- | ---
Total Cost | INR 85,000 | INR 1,42,000
QALYs | 3.82 | 4.15

    c_new <- 142000; c_old <- 85000
    e_new <- 4.15; e_old <- 3.82

    delta_c <- c_new - c_old
    delta_e <- e_new - e_old
    icer <- delta_c / delta_e

    cat("Incremental Cost: INR", format(delta_c, big.mark = ","), "\n")
    #> Incremental Cost: INR 57,000
    cat("Incremental QALYs:", delta_e, "\n")
    #> Incremental QALYs: 0.33
    cat("ICER: INR", format(round(icer), big.mark = ","), "per QALY\n")
    #> ICER: INR 172,727 per QALY

### Interpretation

The intervention falls in the NE quadrant (more costly, more effective). Compare the ICER to the Willingness-to-Pay (WTP) threshold:

- If ICER < WTP: Cost-effective
- If ICER > WTP: Not cost-effective

## Net Monetary Benefit (iNMB)

### The Formula

\[iNMB = (\Delta E \times WTP) - \Delta C\]

iNMB > 0 means cost-effective at the given WTP.

    wtp <- 100000  # INR per QALY (HTAIn threshold)

    inmb <- (delta_e * wtp) - delta_c
    cat("iNMB at WTP INR 1,00,000/QALY: INR", format(round(inmb), big.mark = ","), "\n")
    #> iNMB at WTP INR 1,00,000/QALY: INR -24,000

    if (inmb > 0) {
      cat("Decision: Cost-effective (iNMB > 0)\n")
    } else {
      cat("Decision: NOT cost-effective (iNMB < 0)\n")
    }
    #> Decision: NOT cost-effective (iNMB < 0)

## Value-Based Pricing (Headroom Analysis)

### The Scenario – SepsiQuick (Point-of-Care Test for Sepsis)

You are pricing a new rapid diagnostic test for sepsis. The evidence:

- Clinical benefit: 0.02 QALYs per patient (from faster treatment initiation)
- Comparator cost: INR 500 (existing lab-based test)
- Associated costs: INR 200 (nurse time for bedside testing)
- WTP threshold: INR 1,00,000 per QALY

### The Formulas

\[C_{max} = (\Delta E \times WTP) + C_{comparator}\]

\[P_{max} = \frac{C_{max} - C_{associated}}{N}\]

### Worked Example

    delta_e_test <- 0.02
    wtp_threshold <- 100000
    c_comparator <- 500
    c_associated <- 200
    n_units <- 1

    c_max <- (delta_e_test * wtp_threshold) + c_comparator
    p_max <- (c_max - c_associated) / n_units

    cat("Clinical Value: INR", format(delta_e_test * wtp_threshold, big.mark = ","), "\n")
    #> Clinical Value: INR 2,000
    cat("+ Savings from replacing old test: INR", format(c_comparator, big.mark = ","), "\n")
    #> + Savings from replacing old test: INR 500
    cat("= Total Headroom: INR", format(c_max, big.mark = ","), "\n")
    #> = Total Headroom: INR 2,500
    cat("- Nurse time: INR", format(c_associated, big.mark = ","), "\n")
    #> - Nurse time: INR 200
    cat("= Maximum Justifiable Price: INR", format(p_max, big.mark = ","), "\n")
    #> = Maximum Justifiable Price: INR 2,300

### What If You Price Above the Headroom?

    proposed_price <- 3000
    overpriced_by <- ((proposed_price - p_max) / p_max) * 100

    if (proposed_price > p_max) {
      cat("At INR", format(proposed_price, big.mark = ","),
          "the product is", round(overpriced_by, 1), "% above the maximum justifiable price.\n")
      cat("Recommendation: Reduce price by INR",
          format(proposed_price - p_max, big.mark = ","), "\n")
    } else {
      cat("Price is within the cost-effective range.\n")
    }
    #> At INR 3,000 the product is 30.4 % above the maximum justifiable price.
    #> Recommendation: Reduce price by INR 700

## References

- Drummond MF, et al. Methods for the Economic Evaluation of Health Care Programmes. 4th ed. Oxford University Press; 2015.
- Cosh E, et al. The value of ‘innovation headroom’. Value in Health. 2007;10(4):312-315.
- HTAIn Methods Guide. Department of Health Research, Ministry of Health & Family Welfare, Government of India.