This document discusses pharmacoeconomics and provides an overview of key concepts. It defines pharmacoeconomics as identifying, measuring, and comparing the costs, risks, and benefits of drug therapies to determine the most cost-effective option. The document outlines different types of economic evaluations including cost-effectiveness analysis, cost-utility analysis, and quality-adjusted life years. It also discusses the current state of pharmacoeconomics in India and its potential to help inform healthcare decisions by considering both clinical and economic outcomes of drug therapies.

1. Dr. Harsh Yadav,Dr.Gopal jhalani
Resident Doctor,
Department of Pharmacology,
SMS Medical College , Jaipur
28th November 2013

2. Science of distribution of wealth and
resources in a balanced way so that
everyone is benefited with available
resources and finances.

3. Pharmacoeconomics
is the process of
 identifying, measuring, and comparing the
costs, risks, and benefits of programs,
services, or therapies
 & determining which alternative produces
the best health outcome for the resource
invested.
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4.  Pharmacoeconomics identifies, measures, and
compares the costs and consequences of
pharmaceutical products and services.
 It involves economic evaluation of drug development,
drug production, and drug marketing
 i.e., all the steps that take place from the time the
drug is manufactured to when it reaches the patients.
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5.  Doctors prescribe
 patients consume
 third purchasing parties (government insurance
companies) pay the bill
 with money that they have obtained from increasingly
reluctant healthy members of the public". [
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6.  In terms of production, the India pharma industry ranks 3
rd on a global scale
 whereas in terms of turnover worth, it ranks 14 th
 Medication prices are among the lowest prices in the
world.
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7.  The Indian pharmaceutical industry is a hub where
medications can be produced at a low price and still be of
international quality.
 It witnessed a robust growth from the production turnover
of about 1.14 billion dollars in 1990 to over 22.73 billion
dollars in 2009-10, comprising about Rs, 14 billion dollars
of domestic market and 9 billion dollars of exports.
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8.  Although India is a producer of abundance of quality
drug at low cost
 only one third of its population has access to essential
medicines
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9. P.E. STUDY USEFUL IN
 Fixing the price of a new drug and re-fixing the price
of an existing drug
 Finalizing a drug formulary
 Compliance of requirement for drug license.
 Including a drug in the medical/insurance
reimbursement schemes.
 Introduction of new schemes and programs in hospital
pharmacy and clinical pharmacy.
 Drug development and clinical trials
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10. How to do PE Study
1. Perspective
2. Costs
3. Consequences
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11. Perspective
Patient Perspective
Provider Perspective
Payer Perspective
Societal Perspective
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12. Cost : The value of the resources consumed by a
program or drug therapy of interest
 Direct medical costs
 Direct nonmedical costs
 Indirect costs
 Intangible costs
 Opportunity costs
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13. Direct medical costs Medications
Supplies
Laboratory tests
Healthcare professionals' time
Hospitalization
Direct nonmedical costs Transportation
Food
Family care
Home aides
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Cost

14. Costs
Indirect costs Lost wages (morbidity)
Income forgone because of premature
death (mortality)
Intangible costs Pain
Suffering
Inconvenience
Grief
Opportunity costs Lost opportunity
Revenue forgone
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15. Consequences : is defined as the effects,
outputs, or outcomes of the program or drug
therapy of interest.
 Economic outcomes(direct, indirect, and intangible
costs compared with the consequences of medical
treatment alternatives)
 Clinical outcomes (e.g., safety and efficacy end
points).
 Humanistic outcomes-quality of life along several
dimensions (e.g., physical function, social function,
general health and well-being, and life satisfaction)
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16. Positive versus Negative
Consequences
 Positive outcome is a desired effect of a drug (efficacy
or effectiveness measure)
 A negative outcome is an undesired or adverse effect
of a drug, possibly manifested as a treatment failure,
an adverse drug reaction (ADR), a drug toxicity, or
even death.
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17. Economic Evaluation Methods
 Cost-of-Illness Evaluation
 Cost-Minimization Analysis
 Cost-Benefit Analysis
 Cost-Effectiveness Analysis
 Cost-Utility Analysis
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18. Cost-of-Illness Evaluation
identifies and estimates the overall cost of a particular
disease for a defined population.
This evaluation method is often referred to as burden of
illness and involves measuring the direct and indirect
costs attributable to a specific disease
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19. Cost-Minimization Analysis
 determination of the least costly alternative when
comparing two or more treatment alternatives.
 With CMA, the alternatives must have demonstrated
equivalency in safety and efficacy (i.e., the two
alternatives must be equivalent therapeutically)
 The least expensive agent, considering all these costs,
should be preferred.
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20. Cost-Benefit Analysis
 Both the costs and the benefits are measured and
converted into equivalent dollars in the year in which
they will occur.
 These costs and benefits are expressed as a ratio (a
benefit-to-cost ratio)
 If the B:C ratio is greater than 1, the program or
treatment is of value.
 If the B:C ratio is less than 1, the program or treatment
is not economically beneficial.
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21. Cost-Effectiveness Analysis
 CEA involves comparing programs or treatment
alternatives with different safety and efficacy profiles
 a way of summarizing the health benefits and
resources used by competing healthcare programs so
that policymakers can choose among them.
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22.  Cost : measured in dollars
 Outcomes: measured in terms of a specific therapeutic
outcome.
 e.g., lives saved,
cases cured,
life expectancy,
drop in BP
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23. Average Cost-Effectiveness Ratio
(ACER)
 ACER = HEALTH CARE COST(IN RS.)
CLINICAL OUTCOME(NOT IN RS.)
 Using this ratio, the clinician would choose the
alternative with the least cost per outcome gained
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24. Incremental Cost- Effectiveness
Ratio (ICER)
 ICER = COST A(IN RS.) COST B(IN RS)
EFFECT A(%) EFFECT B(%)
 This formula yields the additional cost required to
obtain the additional effect gained by switching from
drug A to drug B.
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25.  Experts differ over which ratio, ACER or ICER, is the
most appropriate and useful.
 ACER reflects the cost per benefit of a new strategy
independent of other alternatives.
 ICER reveals the cost per unit of benefit of switching
from one treatment strategy (that already may be in
place) to another.
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26. Cost-Effectiveness Plane
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cost
cost
effecteffect
NE quadrant:
more costly,
more effective
NW quadrant:
more costly,
less effective
SW quadrant:
less costly,
less effective
SE quadrant:
less costly,
more effective
PERFORM
CEA
PERFORM
CEA
DOMINATED
DOMINATES
Adapted from: Smith KJ et al. In: Arnold, RJG, editor. Pharmacoeconomics from theory to practice. Boca Raton: CRC Press; 2010. p. 95-108.

27. QALY and HRQOL
 HRQOL(HEALTH RELATED QUALITY OF LIFE)-
 A persons perception of how health impacts his
physical, social and psychological functioning of well
being
 Measurement of HRQOL is achieved by use of patient
completed questionnaires
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28. Terminology
 Utility
 Numerical estimate of quality of life (QOL) associated with
a disease state or treatment
 Perfect health = 1, Dead = 0
 Anything else…somewhere in between
 Measured using questionnaires
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29. Terminology
 Quality-Adjusted Life-Year (QALY)
 Life expectancy adjusted based on utility
 QALY = time in health state × utility of state
 If patient remains in the state for the remainder of their life,
we can use life expectancy for time
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30. QALY Example
 Consider 2 hypothetical chemo drugs
 Standard of care vs. new therapy
 Both prolong life
 Both cause side effects which reduce QOL
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31. QALY Example
 Standard of care treatment:
 Prolongs life by an average of 1 year
 Estimated utility of 0.65 due to side effects
 New treatment:
 Prolongs life by an average of 1.5 years
 Estimated utility of 0.5 due to side effects
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32. Standard of Care QALYs
QALY = Life expectancy × utility
= 1 year × 0.65 utility
= 0.65 QALYs
The standard of care is expected to add 0.65 quality-
adjusted life-years to our patient’s life.
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33. New Treatment QALYs
QALY = Life expectancy × utility
= 1.5 years × 0.5 utility
= 0.75 QALYs
The new treatment is expected to add 0.75 quality-
adjusted life-years to our patient’s life.
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34. Cost-Utility Analysis
 Pharmacoeconomists sometimes want to include a
measure of patient preference or quality of life when
comparing competing treatment alternatives.
 Cost-utility analysis (CUA) is a method for comparing
treatment alternatives that integrates patient
preferences and HRQOL.
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35.  Cost is measured in dollars, and therapeutic outcome is
measured in patient-weighted utilities rather than in
physical units.
 Results of CUA are also expressed in a ratio, a cost-utility
ratio (C:U ratio). Most often this ratio is translated as the
cost per QALY gained or some other health-state utility
measurement. The preferred treatment alternative is that
with the lowest cost per QALY (or other health-status
utility).
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36. CUA is the most appropriate method to use
 when comparing programs and treatment alternatives that
are life extending with serious side effects (e.g., cancer
chemotherapy)
 those which produce reductions in morbidity rather than
mortality (e.g., medical treatment of arthritis)
 and when HRQOL is the most important health outcome
being examined.
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37.  Proper application of pharmacoeconomics will
empower the pharmacy practitioners and
administrators to make better and more informed
decisions regarding products and services they
provide.
 Pharmacotherapy decisions traditionally depended
solely on clinical outcomes like safety and efficacy, but
pharmacoeconomics teaches us that there are three
basic outcomes to be considered clinical, economic,
and humanistic in drug therapy.
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38.  Australia was the first country to form evidence based
guidelines about medication reimbursement on the basis
of cost-effectiveness research. Since 1993
 Food and Drug Administration (FDA) in United States
and Central Drug Standard Control Organization
(CDSCO) in India do not require an economic analysis for
Drug approval.
 A new drug has to be approved for a program based on
pharmacoeconomic analysis.
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39.  The development of pharamcoeconomics is at an infancy
stage in India at the moment, despite the rapid growth of
clinical research.
 In India Chapter of SPOR-INDIA ( Society of
Pharmacoeconomics and Outcomes Research India )has
been formed, but it needs to develop the platform for
pharmacoeconomics.
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40.  We hope in India clinical pharmacists including
doctors with knowledge of P.E. be more beneficial
than conventional doctors as they can implement the
principles of economics in daily basis practice in
community and hospital pharmacy.
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41. Questions?
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42. References
 Assesspharmacy:principles of pharmacoeconomics chapter 1
 The role of pharmacoeconomics in current Indian healthcare
system(Akram Ahmad1, Isha Patel2, Sundararajan Parimilakrishnan1,
Guru Prasad Mohanta1, HaeChung Chung3, Jongwha Chang3)journal
of research in pharmacy practice, review article, volume 2 ,issue 1
 Ahuja J, Gupta M, Gupta AK, Kohli K. Pharmacoeconomics. Natl Med J
India 2004;17:80-3
 Drummond MF, Sculpher MJ, Torrance GW. Critical Assessment of
Economic Evaluation. Methods for the Economic Evaluation of Health
Care Programmes. 3 rd ed. Oxford: Oxford University Press; 2005
 Bennett PN, Brown MJ. Topics in drug therapy. Clinical Pharmacology.
9 th ed. Edinburgh: Churchill Livingstone; 2003. p. 24.
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43. Cost-Effective ≠ Cost-Saving!!!
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44. Cost-Saving vs. Cost-Effective
 Cost-saving
 An intervention that has a lower total cost than an
alternative intervention
 Cost-effective
 An intervention that is sufficiently effective relative to
its total cost when compared with an alternative
intervention
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45. Calculating ICER
ICER = difference in cost
difference in effectiveness
Or…
ICER = C2 – C1 $’s
E2 – E1 QALYs
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46. USE OF P.E. IN INDIA
 1. To find the optimal therapy at the lowest price.
 2. Numerous drug alternatives and empowered
consumers also fuel the need for economic evaluations
of pharmaceutical products.
 3. The use of economic evaluations of alternative
healthcare outcomes.
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