Pharmacoeconomics

1. PHARMACOECONOMICS

2. HISTORY
• Economic evaluations in the field of pharmacology started about 30
years ago.
• In 1978 McGhan , Rowland & Bootman , from the university of
Minnesota, introduced the concepts of cost-benefit & cost-
effectiveness analyses.
• Crude parameters were used to evaluate e.g. increased labour
production.
• The term pharmacoeconomics was used on a public forum for the
first time in 1986 by Townsend.
“the description and analysis of the costs of drug
therapy to health systems and society”

3. INTRODUCTION
Pharmacoeconomics
• Health economics is the science of assessing cost and benefits
of health care.
• Pharmacoeconomics is a branch of health economics which
compares the value of one drug or a drug therapy to another.
Pharmacoeconomics is the application of economic analysis to
the use of pharmaceutical products, services and programs,
which frequently focuses on the costs (inputs) and consequences
(outcomes) of that use.
- Drug

4. WHAT IS PHARMACOECONOMICS
Input costs Output costs
HEALTH CARE

5. WHO PAYSFOR MEDICAL BILLS ?
1. Government.
2. Insurance Companies.
3. Patient.
Dr.SALIM SHEIKH, VMMC & SAFDARJUNG
HOSPITAL

7. DRUG BILL
• It a document of a government which states the various
policies of that government that it has made for health care
improvement in the country.
• It gives the percentage of GDP that particular countryhas
allotted for HEALTH CARE of the country.
• Generally the health care bill is 10 to 15% of total GDP.

8. REASONS FOR EVALUATION
• Size of drug bill.
• Easy to measure pharmaceutical costs.
• Evidence of wasteful prescribing.
• Perception that pharma companies work for profits.

9. Ten Steps of Performing An
Economic Evaluation Study
 Establish the perspective.
 Describe or specify the alternatives.
 For each alternative, specify the possible outcomes and the
probability of their occurrence.
 Specify and monitor the health-care resource consumed in
each alternative.
 Assign dollar values to each resource consumed.

10.  Specify and monitor non-medical resources consumed by each
alternative.
 Specify the unit of outcome measurement.
 Specify other non-economic attributes of the alternatives, if
Appropriate.
 Analyze the data.
 Conduct a sensitivity analysis.

11. COSTS
• The value of the resources consumed by a program or drug therapy,is
defined as Cost.
• Direct Medical Costs -
-Drugs,
-medical supplies and equipment,
-laboratory and diagnostic tests,
-hospitalizations,
-physician visits.
Direct Non-medical Costs –
-Transportation to and from healthcare facilities,
-extra trips to the emergency department,
-child or family care expenses,
-special diets,
-various other out-of-pocket expenses.

12. • Indirect Non-medical Costs –
Morbidity cost – Loss of productivity.
Mortality – Loss of years of service due to premature death.
• Intangible Costs –
Non-financial outcomes of disease and medical care such as pain,
suffering, inconvenience, and grief.
• Opportunity Costs –
Value (economic benefit) of the alternative therapy that was forgone.
• Incremental Costs –
The extra costs required to purchase an additional unit ofeffect.
Direct Costs = Direct Medical Costs + Direct non-medical cost
Indirect Costs = Morbidity costs + Mortality costs
Total costs = Direct costs + Indirect costs + Intangible costs

13. CONSEQUENCES
Positive Consequences-
-Life-years gained
-Improved health related quality of life
Negative Consequences-
-Adverse effects
-toxicity

14. METHODOLOGIES
Humanistic evaluation
-Health Regulated Quality of Life (HRQOL)
-Patient preferences (PRO)
-Patient satisfaction (PRO)
Economic evaluations
Partial economic evaluations
-Cost consequence analysis(CCA) or Cost outcome
analysis(COA)
-Cost of illness(COI) evaluation
Full economic evalulations.

15. Partial economic evaluations
-Include simple descriptive tabulations of outcomes or
resources consumed.
-Require a minimum of time and effort.
Cost-Consequence Analysis (CCA)
• A cost-outcome or cost-consequence analysis(CCA)
-describes the costs and consequences of an alternative.
-does not provide a comparison with other treatment options.

16. Cost of Illness (COI) evaluation
• COI identifies and estimates the overall cost of a particular
disease for a defined population.
• COI evaluation method is also known as burden of illness.
• It involves measuring the direct and indirect costs attributable
to a specific disease such as diabetes, mental disorders, or
cancer.
• COI evaluation is not used to compare competing treatment
alternatives but to provide an estimation of the financial
burden of a disease.

17. Full economic evaluations

18. Cost Minimization Analysis (CMA)
• Cost-minimization analysis is the most basic technique.
• CMA involves the determination of the least costly alternative.
• For example, if drugs A and B are antiulcer agents equivalent
in efficacy and adverse drug reactions (ADRs), then the costs
of using these drugs could be compared using CMA.

19. Cost-Minimization Analysis
comparing an generic drug to its brand name equivalent
comparing the cost of a multiple dose schedule to a once
daily schedule that is equally safe and effective
Not same chemical entity but belong to same therapeutic
category
analyzing the cost of administering and monitoring the
same drug in two different settings

20. Cost Benefit Analysis (CBA)
• Measures costs and benefits in monetary
terms.
• Estimates the strengths and weaknesses of
alternatives.
• Both the costs and the benefits are
measured and converted into equivalent
dollars in the year in which they will occur.
• The costs and benefits are expressed as a
ratio (a benefit-to-cost (B:C) ratio).
• Many CBAs measure and quantify direct
costs and direct benefits only due to
difficulties in measuring indirect and
intangible benefits.
• This approach is not widely used in health
economics.

21. Cost Effectiveness Analysis (CEA)
• The most commonly employed method is cost-effectiveness analysis.
• Measures effectiveness (health benefit) in natural units (eg. years oflife
saved, ulcers healed) and the costs in money.
• It compares therapies with qualitatively similar outcomes in a particular
therapeutic area. For instance, in severe reflux oesophagitis, using a proton
pump inhibitor compared to using H2 blockers.
• CEA does not allow comparisons to be made between two totally different
areas of medicine with different outcomes.
• The results of CEA are expressed as aratio
-average cost-effectiveness ratio (ACER)
-incremental cost effectiveness ratio (ICER).

22. Cost Effectiveness Analysis (CEA)
• An ACER represents the total cost of a program or treatment alternative
divided by its clinical outcome to yield a ratio representing the dollar cost
per specific clinical outcome gained, independent of comparators.
Average cost effectiveness (ACER) = Net Cost / Net Health Benefit
• The key measure of CEA is the incremental cost effectiveness ratio (ICER).
• Incremental Cost Effectiveness Ratio
ICER = Difference in costs (A-B) / Difference in benefits (A-B)
• CEA is being used to set public policies regarding the use of
pharmaceutical products (national formularies) in countries such as
Australia, New Zealand, and Canada.

23. Cost-Effectiveness Plane

24. Cost Utility Analysis (CUA)
• Comparing treatment alternatives that integrates patient preferences and
Health Regulated Quality of Life (HRQOL) .
• HRQOL measure is an utility, having value between 1.0 (perfecthealth)
and 0.0 (death).
• Quality-adjusted life years (QALYs) are then derived by multiplying the
time in a health state by the appropriate utility score.
• In CUA, Cost is measured in dollars, and therapeutic outcome is measured
in patient-weighted utilities rather than in physical units.
• This method is well suited to the evaluation of chronic diseases that have
deleterious effects on HRQOL.

25. Cost Utility Analysis (CUA)
• Differences between treatments are expressed as the incremental cost per
QALYgained.
• CUA can compare cost, quality, and the quantity of patient-years.
• Results of CUA are expressed in a ratio, a cost-utility ratio (C:Uratio).
• CUA is complex and can be limited in scope of application from ahospital
or MCO perspective. CUA is employed less frequently
-lack of agreement on measuring utilities,
-difficulty comparing QALYs across patients & populations
-difficulty quantifying patient preferences.
• In CEA, the costs are measured in money and there is a defined outcome.
But in CUA, the outcome is an unit of utility (e.g. a QALY).

28. RESULTS OF PE EVALUATION
I
IIIII
IV

29. Applications Of Pharmacoeconomics
Phase
Phase II Phase III Regulatory Marketing
Phase
Pharmacoeconomic Studies
Research and
Development
Strategy
Pricing and
Reimbursement
Strategy
Communication
to Physicians
and Patients

30. Drug Therapy Evaluation
• Pharmacoeconomics principles and methods have been applied to
assist clinicians and practitioners in making more informed and
complete decisions regarding drug therapy.
• Selecting the most cost effective drug for an organizational formulary
is important.
• It is equally important to determine the most appropriate way to use
and prescribe these agents.
• It is also useful for making a decision about an individual patient ‘s
therapy.
• Evaluating the impact a drug has on patient’s health related quality of
life can be useful when deciding between two agents for customizing a
patient’s pharmacotherapy.

31. Limitations of Pharmacoeconomics
• Pricing decisions for pharmaceuticals usually follow a two-step
process.
• A final economic evaluation needs to be based on a prior
clinical-pharmacological evaluation of a new drug in light of
therapeutic alternatives.
• However, major limitations for this evaluation process may be
encountered. Most notably a lack of

32. Limitations of Pharmacoeconomics
 evidence-based data,
 clinical endpoint data
 direct comparator studies
 an impaired "assay sensitivity" may cause uncertainty about the
appropriate value of a new drug.
 precedents in case of innovations
 obvious "efficacy-effectiveness gaps" may pose challenges in the
pricing decision process for pharmaceuticals.

33. International Society of Pharmacoeconomics
& Outcomes Research
• The mission of ISPOR is to increase the efficiency,
effectiveness, and fairness of health care to improve health.
• ISPOR is recognized globally as the authority for outcomes
research and its use in health care decisions towards improved
health.
• The ISPOR scope and sphere of influence includes outcomes
researchers, health technology developers and assessors,
regulators, health economists, health care policy makers,
payers, providers, patients, populations, and society as a whole.