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# Cost minimisation analysis of provision of oxygen at home: are the Drug Tariff guidelines cost effective?

BMJ 1999; 319 (Published 03 July 1999) Cite this as: BMJ 1999;319:19
1. Liam G Heaney, senior registrara,
2. Denise McAllister, professorb,
3. Joseph MacMahon, consultant physiciana
1. a Department of Respiratory Medicine, Belfast City Hospital, Belfast BT9 7AB
2. b School of Public Policy and Law, University of Ulster, Jordanstown, Belfast
1. Correspondence to: Dr Heaney
• Accepted 26 March 1999

## Abstract

Objectives: To determine the level of oxygen cylinder use at which it becomes more cost effective to provide oxygen by concentrator at home in Northern Ireland, and to examine potential cost savings if cylinder use above this level had been replaced by concentrator in 1996.

Design: Cost minimisation analysis.

Setting: Area health boards in Northern Ireland.

Main outcome measures: Cost effective cut off point for switch to provision of oxygen from cylinder to concentrator. Potential maximum and minimum savings in Northern Ireland (sensitivity analysis) owing to switch to more cost effective strategy on the basis of provision of cylinders in 1996.

Results: In Northern Ireland it is currently cost effective to provide oxygen by concentrator when the patient is using three or more cylinders per month independent of the duration of the prescription. More widespread use of concentrators at this level of provision is likely to lead to a cost saving.

Conclusions: The Drug Tariff prescribing guidelines, advocating that provision of oxygen by concentrator becomes cheaper when 21 cylinders are being used per month—are currently inaccurate in Northern Ireland. Regional health authorities should review their current arrangements for provision of oxygen at home and perform a cost analysis to determine at what level it becomes more cost effective to provide oxygen by concentrator.

#### Key messages

• The current Drug Tariff prescribing guidelines are not cost effective for provision of oxygen at home in Northern Ireland

• Individual prescriptions detailing frequency of usage and delivery costs should be recorded

• A switch to a more cost effective strategy is likely to result in a cost saving

• Regional health authorities should examine current arrangements for provision of oxygen at home and should perform cost analyses

## Introduction

In the United Kingdom, the provision of oxygen at home can be prescribed either in cylinders (capacity of 1360 litres) or by concentrator (oxygen extracted from air). Oxygen is prescribed either for treating symptoms or as long term oxygen therapy, when it is used to prolong survival in patients with hypoxaemic respiratory failure.1 2 For patients prescribed oxygen, it is more practical and cost effective to provide a concentrator if a large number of cylinders are used per month. The Drug Tariff prescribing guidelines and the Monthly Index of Medical Specialities advocate a change from cylinders to concentrator when monthly usage exceeds 21 cylinders,3 a figure reiterated in a recent review of provision of oxygen at home.4

We used economic appraisal to determine the level of cylinder use at which it becomes more cost effective to provide oxygen by concentrator at home in Northern Ireland, and to examine the potential cost savings if cylinder use above this level had been replaced by concentrator in 1996.

## Subjects and methods

Economic evaluation is concerned with comparing the consequences of healthcare interventions with their costs. The four main types of economic evaluation all deal with costs but differ in the way the consequences of an intervention are measured and valued.5 As there was no reason to presume that medical effectiveness was altered between the two modes of provision of oxygen, we chose cost minimisation analysis. This form of cost effectiveness analysis is used when the consequences of the alternatives are deemed to be equivalent.5 In this context, we defined the more cost effective intervention by cost alone.

### Costing methodology

We considered the costs of provision of oxygen only. We excluded other costs such as drugs, attendances to a doctor, and hospital admission, as there was no reason to presume they would differ between modes of provision. We identified two categories of cost for each type of provision: fixed costs, which are incurred independent of use—for example, installation cost and variable costs, which are dependent on use such as electricity costs. Costs were not discounted as the analytic horizon was 1 year.

The provision of concentrators is funded regionally and not from the prescribing budgets of fundholders or regional health boards. Concentrators are installed and serviced by a single contract holder. Each concentrator has a meter to measure use, and the running costs can be reclaimed by the user. The back-up cylinder is provided by the contract holder at an agreed rate as part of the contract.

Table 1 shows the individual component costs for provision of oxygen by concentrator and cylinder. The ingredient cost of a single delivered oxygen cylinder represents 15% of the total cost. Both modes of provision are exempt from value added tax.

Table 1.

Individual fixed and variable costs in provision of oxygen by concentrator and cylinder at current costs

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As fixed costs do not vary, the level of oxygen usage at which it became cost effective to change delivery mode was dependent on variable costs. In effect, the duration of the oxygen prescription and oxygen usage per day (both flow rate and duration of use) were the key determinants. We performed costings for two hypothetical but not atypical clinical scenarios to illustrate the costing methodology and to show how prescription duration and daily usage affected total cost. We undertook threshold analysis to indicate the values of key variables that would justify revision of prescribing guidelines. For all costings we assumed there were no concentrator breakdowns (an unusual event) and that all deliveries, comprising three cylinders per delivery, were within 6 miles.

Table 2.

Fixed and variable costs for 5 hours' oxygen usage per day for 1 month at a flow rate of 2 l/min for both concentrator and cylinder

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Individual concentrator prescriptions are issued from a regional department but cylinder prescriptions are not collated centrally. The only data available were the total ingredient cost and total number of prescriptions in Northern Ireland. The cost of this service varies substantially depending on individual prescription, frequency of deliveries, and distance delivered, and thus it was impossible to determine the actual cost of provision of oxygen. We used sensitivity analysis to provide a range of estimates on the basis of the assumptions about the values that particular variables were likely to take, and we used this to give an estimate of the potential savings.

## Results

### Scenario 1

A patient with terminal lung cancer receives palliation from oxygen, which was prescribed for 1 month (31 days) at a flow rate of 2 l/min for 5 hours per day (14 cylinders over 1 month). After 1 month the patient dies.

Table 3.

Fixed and variable costs for 90 minutes' oxygen usage per day for 2 years at a flow rate of 2 l/min for both concentrator and cylinder

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Table 2 shows the costs associated with this scenario. At this usage a concentrator is a more cost effective option than cylinders. As usage falls the total costs for each mode of provision approximate, but it would require a reduction in cylinder usage to three for the month (flow rate 2 l/min) before the concentrator became more expensive £66.26 ($106.02) v £59.62 ($95.39)). Using four cylinders for the month at 2 l/min flow rate, the cylinder would cost £84.58 ($135.33) whereas the concentrator would cost £67.05 ($107.28). Thus three cylinders used for 1 month at a flow rate of 2 l/min represent the cost effective cut off point beyond which the provision of oxygen will always be cheaper by concentrator.

### Scenario 2

A patient with chronic obstructive pulmonary disease with a resting arterial oxygen pressure of 8.0 kPa on room air finds oxygen usage at a flow rate of 2 l/min during and after moderate exertion useful. Average use is for 15 minutes six times per day (approximately one cylinder per week). After 2 years he dies suddenly from a myocardial infarction.

Table 3 shows the costs associated with this scenario. With this amount of use a concentrator is more cost effective than cylinders. Again, as usage falls the total costs for each mode of provision approximate, but it would require a reduction in oxygen usage to four cylinders every 3 months over the 2 years before the concentrator became more expensive than cylinder provision (£573.53 ($917.65) v £486.23 ($777.97)). The cost of provision of five cylinders every 3 months is £596.01 ($953.62) and similar concentrator usage would cost £579.87 ($927.79). Thus, with oxygen usage over a longer period, cylinder usage becomes more expensive and the cost effective cut off point relates to a smaller number of cylinders used per month, indicating the importance of duration of prescription.

If the duration of prescription is unknown (which is generally the case at prescription issue) it is still possible to determine a cost effective cut off point on the basis of oxygen usage per month. The cut off point for provision of two cylinders per month at a flow rate of 2 l/min is 6 months (concentrator £186.81 ($298.90) (including 6 month service as provision is ongoing) v cylinder £186.03 ($297.65)) since again beyond this it is always cheaper to provide equivalent oxygen usage by concentrator.

This cut off point for total cylinder usage is also dependent on flow rate, as at lower flow rates and similar cylinder usage per month the running costs of the concentrator for the same provision of oxygen rises. Thus, given the usage of two cylinders per month at a flow rate of 1 l/min the cost effective cut off point is 12 months (concentrator £344.63 ($551.41) v cylinder £353.29 ($565.26)). In annual terms, a concentrator is always cheaper if more than 22 cylinders are being consumed per year (annual cost of 22 cylinders or concentrator equivalent: concentrator £341.46 ($546.34) v cylinder £339.33 ($542.93)).

We conclude that if more than three cylinders per month are being used, independent of flow rate or duration of prescription, it is always cheaper to prescribe a concentrator. If the duration of prescription is likely to be 12 months or longer it is always cheaper to prescribe a concentrator when two or more cylinders are being used per month whatever the flow rate.

### Potential cost savings in Northern Ireland

Table 4 shows the total ingredient cost and number of prescriptions for provision of oxygen at home in Northern Ireland in 1996. No system collates individual prescriptions, thus cylinder provision per patient is unknown. At one extreme, 1384 patients could have each received 22 cylinders and 1543 patients could have each received 24 cylinders per year (option 1); at the other extreme, if some patients were receiving long term oxygen therapy (defined as 2 l/min for 15 hours per day) then hypothetically 2793 patients could have each received one cylinder per year and 134 patients could have each received long term oxygen therapy (option 2). Although both these options are unlikely, they allow determination of the range of potential cost savings. On the basis of these costings (annual efficiency cut off point of 22 cylinders per year), option 1 represents the most efficient distribution of oxygen at home in Northern Ireland in 1996 given the total cylinder usage and number of prescriptions. With this option the potential cost savings would be at their minimum. Option 2 determines the maximum possible cost savings, as it involves transference to the cheapest scenario of distribution of oxygen given the defined levels of usage. Table 5 shows the costs of provision of oxygen at home in 1996, assuming 23 cylinders per patient and using current prices and the alternative options. In the case of option 1, patients using 22 cylinders per year would continue to use oxygen in this form (as it is cost effective) but those using 24 cylinders per year would transfer to a concentrator yielding a saving of £13 363 ($21 381). In option 2, again based on the above costings, the 134 patients receiving long term oxygen therapy by cylinder would be transferred to concentrator, and the remaining patients would continue to use one cylinder per year. The saving would be £794 798 ($1 271 677) (78% of the cost of provision of cylinders in 1996). The actual saving would lie somewhere between these values depending on the individual oxygen prescriptions dispensed.

Table 4.

Number of patients, total number of oxygen cylinders prescribed in Northern Ireland for 1996 and total ingredient cost at current price

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Table 5.

Costing of cylinder provision in 1996 (assuming 23 cylinders per patient using current costs) and two alternative provision options on basis of actual cylinder usage and number of prescriptions in 1996. Costs are in £

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## Discussion

Our study shows that in Northern Ireland it is currently cost effective to provide oxygen by concentrator when the patient uses three or more cylinders per month, independent of the duration of the prescription. If the period of oxygen usage exceeds 12 months, it is more cost effective to provide oxygen by concentrator when the patient uses two cylinders per month. The current Drug Tariff prescribing guidelines, advocating that provision of oxygen by concentrator becomes cheaper when 21 cylinders are being used per month, are therefore inaccurate in Northern Ireland.

We examined the range of potential savings in Northern Ireland. We showed that current information on cylinder prescription was insufficient as individual oxygen prescriptions, frequency of oxygen usage, and delivery costs for oxygen rather than a crude average and ingredient cost, were crucial in determining the savings (or costs) that could be achieved by more widespread prescription of concentrators. There should be little resistance from general practitioners to prescribing more concentrators as this service is funded centrally, and fundholding practices may make substantial savings. Pharmacists may, however, be disappointed as a move to more concentrators is likely to cause some loss of income.

Concentrators are unobtrusive, reliable, and convenient and can be used in multiple outlets in the home. Patients generally prefer this mode of provision of oxygen, although for some the absence of regular deliveries by the pharmacist may increase feelings of isolation. The alternatives we examined were those available for provision of oxygen in the home in the United Kingdom on NHS prescription. Liquid oxygen is not available on the NHS, and although it is a more flexible source of oxygen at home owing to its portability it can only be obtained if purchased by the patient. The costs of contracts for provision of concentrators are similar throughout the United Kingdom and are equivalent to other European countries.

The major assumptions in our cost analysis were that pharmacists transported three cylinders per delivery and that all deliveries were within 6 miles. The delivery of three cylinders is advocated in the Drug Tariff prescribing guidelines: “GPs are asked to cooperate in an effort to make this part [supply] of the oxygen service more cost effective. If more than one or 2 (cylinders) are regularly required for a particular period, prescribing in multiples of 3 cylinders would reduce savings by reducing the number of journeys.” Delivery of three cylinders by pharmacists would seem to be standard practice (personal communication). A pharmacist could deliver more cylinders, which would affect the cost of the service. However, even if six cylinders were provided with each delivery in scenario 2, it would still be a more expensive option. It is also possible that the delivery service could cost more if one cylinder were delivered on each occasion. The assumption that all cylinders are delivered within a 6 mile radius is almost certainly inaccurate, particularly in rural parts of Northern Ireland. The effect of this assumption was to reduce the cost of provision of cylinders making our conclusions more robust.

The cost of concentrator usage was based on the contract of the current provider. More widespread use of concentrators would have an effect on contract price, which would probably fall, altering the cost effective cut off point to fewer cylinders used per month.

## Conclusion

Our study identified a level of cylinder usage whereby it becomes cost effective to provide oxygen by concentrator at home in Northern Ireland. A more widespread provision of concentrators is likely to represent a cost saving. We would advocate that regional health authorities review their current arrangements for provision of oxygen at home and perform a cost analysis to determine at what level it becomes more cost effective to provide oxygen by concentrator.

## Acknowledgments

Contributors: LGH had the original idea for the study, retrieved the data, performed the costings, and wrote the paper; he will act as guarantor for the paper. DMcA assisted in performing the costings and contributed to writing the paper. JMacM contributed to data interpretation and writing the paper.

## Footnotes

• Funding None.

• Competing interests None declared.

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