Budget Impact Analysis: 

Methods & Data 

Neil Jordan, PhD 

July 2, 2014
CyberSeminar Objectives 

 To explain the purpose of a budget 

impact analysis (BIA) 

 To introduce the methods, data types, and 

data sources used in a BIA 

 To provide additional resources if you’d 

like to learn more about BIA

2 
Poll: What is your primary role 

where you work?

 Clinician

 Operations 

 Research 

 Other 

3 
Poll: Have you ever worked on a study 

that included a budget impact analysis? 

 Yes 

 No

 Don’t know 

 Haven’t worked on a research project 

4 
Budget Impact Analysis: Overview

 Analysis of expenditures for a program 

over a short period (often 1-3 years), 

including the effect of any offsetting 

savings 

– Evaluates a scenario rather than a single action

– Includes comparison to the status quo

– Includes sensitivity analysis
Budget Impact Analysis: Overview

 To estimate feasibility/affordability 

– For budgeting/forecasting 

– What are your partners asking?

 How much will this cost 

 Now – later – much later? 

6 
Budget Impact Analysis: Perspective

 BIA takes the buyer/provider/payer’s 

perspective. 
Budget Impact Analysis: Time 

Horizon

 BIA uses a short time horizon – usually a 

few years at most. 

– Long-term modeling is unnecessary. 

– Costs are not discounted.

– Savings in far future cannot offset 

initial/start-up or investment costs. 
Budget Impact Analysis: Utility

 BIA does not measure utility. 

– No need to survey patients

– No calculation of quality-adjusted life-years 

(QALYs) 

– Outcomes are assumed to be known
Budget Impact Analysis: 

Framework

 Estimating

– The cost of the intervention

– Changes in staffing, schedules, and use of 

technology

– Changes in patient access/throughput/demand

– Potential savings

– Cost to operate

10 
Estimation Framework

Current 

Environment 

Total 

Population 

Sick population

Target 

Population 

Resources, 

Utilization

Cost of Illness

11

Key Factors to 

identify

Incidence and 

prevalence 

% Diagnosed 

and %Treated

Current way of 

treatment 

Unit cost

Impacts on

Incidence (for 

preventive...) 

Diagnosis 

Treatment

Complex of 

services

+ New therapy 

or procedure

New 

Environment 

Total 

Population 

Sick population

Target 

Population 

Resources, 

Utilization

Cost of Illness
Reference Scenario/

Current Environment

 Population 

– How many patients are getting care?

 Who gets care? 

– essential: clinical characteristics 

– advanced: enrollment priority, VERA category

 What is the size of the target population?
Reference Scenario/ 

Current Environment

 What treatment(s) are the current 

population getting?

 What other healthcare resources are the 

current population getting?

13 
Reference Scenario – 

The Intervention(s)

 What is “the intervention”?

– Where is it provided?

– How often is it provided?

– Who provides the care?

 What do the providers do when they are 

“providing the care”? 

– What resources, technologies, etc are used?
Comparison Scenario

 Relative to reference scenario, how will these 

change?

 

– Demand for care (number of patients seeking care)

– will new patients be drawn into the system?

– will new patients become eligible for contract care, 

home care, anything else outside VA?

– is the incidence or prevalence changing?

– Future need for care, within BIA horizon

– Copayments collected, VERA payments received
Comparison Scenario

 Relative to reference scenario, how will these 

change?

– Staff mix & consequent costs

– mix of MDs, NPs, RNs

– how will staff changes affect costs?

– Space and other overhead costs

– clinical space requirements

– will new space be rented, purchased, or built?

– Technology purchase/repair costs 
Costing in the BIA

 Using the perspective of VA:

– VA’s costs: yes

– Patient’s costs: no (earnings, transportation, time)

– Society’s costs: no (other payers, employer, 

caregivers)

 Estimate the change in units/type of care

 Estimate the change in cost per unit of care
Cost Data Sources: Encounters

 Decision Support System (DSS) National Data 

Extracts (NDEs)

– Inpatient files 

– discharge (one record per stay) 

– bedsection (one record per bedsection segment of the 

stay)

– Outpatient files

– Encounters: one record per person-clinic-day

– Pharmacy: one record per prescription
Cost Data Sources: Encounters

 HERC Average Cost data

– Inpatient files 

– discharge: can be linked to PTF discharge files 

– med/surg discharges and non-med/surg discharges: can be 

linked to PTF bedsection files

– Outpatient files

– encounters: can be linked to OPC

– pharmacy: none except when delivered in clinic 

(use DSS or PBM pharmacy data)
Cost Data Sources: Encounters

 HERC Average Cost data vs. DSS

– Uses Medicare relative value units (RVUs), not DSS 

RVUs

– Less granularity = more similarity in costs across 

encounters 

 For comparison to DSS costs, see HERC 

publications:

– Go to HERC intranet web site

– Choose Publications 

– Choose Technical Reports
Cost of the Intervention

 Direct measurement

– Observe/track activities and assign a cost

 Pseudo bill 

– Use billing codes/services and assign costs

 Cost regression 

– When costs of care are known

– Estimating the marginal costs

21 
Direct Measurement

 Identify all elements of the intervention 

 Observe or track activities 

 Summarize time/materials and supplies

 Use VA labor costs to estimate the value 

of the time (time x $)

22 
Pseudo bill

 Use CPT or other utilization codes to 

estimate the intervention costs

– When CPT coding is specified and has face 

validity (and consistently employed)

– Use Medicare or other payment schedules

23 
Micro-costing the Intervention

 Cost regression 

– Estimate marginal costs using statistical 

techniques

– Use to estimate marginal effect of an 

intervention

– Use when data exists for current practice

– Not for new technology or when accounting 

cost is not known

24 
Cost Data Sources: Staff time

 Average hourly staff cost for 70+ occupation 

categories can be figured using either of two 

sources:

– DSS Account Level Budgeter Cost Center (ALBCC)

– Financial Management System

OR

 Use HERC technical report #12 supplement, 

which has figured them for FY2001-FY2008. 
Cost Data Sources: Supplies, Machines

 National Prosthetics Patient Database (NPPD)

– records purchase price of all items ordered through the 

VISTA Prosthetics and Sensory Aids package 

– includes nearly all medical items for internal and external 

use, not just prosthetics or sensory aids (e.g., hearing aids)

– stored and handled by NPPD data manager at Hines 

VAMC

 Your local Acquisition & Material 

Management Service (A&MMS) purchasing 

officer
Sensitivity Analyses

 Purpose: to test the robustness of your results 

 Method: change assumptions in your model and see 

how the final outcome changes

 Univariate: change one at a time

– Easy, but possibly misleading

– Not considered state-of-the-art

 Multivariate: change multiple assumptions at once

– Probably will require software and/or a formal model

– High credibility

– Allows useful graphing 
 Budget impact analysis provides information about 

the expected changes in expenditures for a health care 

provider or system after implementing a new 

intervention

 The VA (and other payors) are increasingly interested 

in understanding costs of implementing new 

interventions

 Guidelines for conducting BIA are well developed

 VA has lots of useful data sources for conducting 

BIA

Summary
Resources

 HERC web site (www.herc.research.va.gov)

– Guidebooks [most on intranet site only]

– Technical reports [most on intranet site only]

– FAQ responses

– Slides from training courses (cyber-seminars)

 VIREC web site (www.virec.research.va.gov)

– Research user guides (RUGs) on DSS, PTF, OPC

– Technical reports (pharmacy)
 Many articles on budget impact analysis 

and related methods (e.g., decision 

modeling, discrete event analysis) appear 

in these journals: 

– Medical Decision Making

– Health Economics 

– Value in Health

Resources
 ISPOR recommendations on BIA:

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 2014;17:5-14.

 VA-funded literature review on budget 

impact analysis:

Luck J, Parkerton P, Hagigi F.

What is the business case for improving care for patients with complex 

conditions?

Journal of General Internal Medicine 2007;22(Suppl 3):396-402

Resources
Cost Data Sources: Indirects

 PG Barnett, M Berger. Indirect Costs of Specialized 

VA Mental Health Treatment. HERC Technical 

Report #6. (on HERC web site)

 Rosenheck R, Neale M, Frisman L. Issues in 

estimating the cost of innovative mental health 

programs. Psychiatric Quarterly 1995;66(1):9-31
Next HERC Course

“How can Cost Effectiveness Analysis be 

Made More Relevant to US Health 

Care?” 

Paul Barnett, PhD

July 9, 2014

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