Pharmacoeconomics introduction methodologies perspectives

1. PHARMACOECONOMICS
Presenter:
Dr. Roohana Hasan
Moderator:
Dr.Afroz Abidi

2. Overview
•Introduction
•History
•Components
•Need
•Costs
•Perspectives
•Outcomes
•Methodology
Cost-minimization analysis (CMA)
Cost-effectiveness analysis (CEA)
Cost-utility analysis (CUA)
Cost-benefit analysis (CBA)
•Applications
•Challenges
•Indian scenario
•Conclusion

3. DEFINITIONS
• Economics is the study of the allocation of limited resources or inputs among
alternative users to satisfy unlimited wants for outputs as follows.
• Health economics ‘The field of study that evaluates the behaviour of
individuals, firms, and markets in health care, and that usually focuses on the
cost (inputs) and consequences (outcomes) of health care interventions, such
as the use of drugs, devices, procedures, services and programs’.
The International Society for Pharmacoeconomics and Outcomes Research (ISPOR) defines the terms
health economics and pharmacoeconomics

4. • Pharmacoeconomics can be defined as the branch of economics that uses
cost-benefit, cost-effectiveness, costminimization, cost-of-illness and cost-
utility analyses to compare pharmaceutical products and treatment strategies
• It is the part of health economics that focuses on the economic evaluation of
pharmaceuticals.
• Health outcomes research, and patient-reported outcomes (PRO) in
particular, aim at understanding patient value in terms of impact of disease
and its treatment on physical functioning and psychosocial wellbeing, known
also as “health-related quality of life” (HRQL).

5. 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.
• 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”

6. • Pharmacoeconomics developed its roots in
1970s.
• The first book on health economics was
published in 1973 and in 1978.
• In 1992, a journal named “Pharmacoeconomics”
was launched.

7. Componen
ts of
Pharmacoe
conomics
Health
Economic
s
Burden of
Illness
Health
policy
research
Health
economics
delivery
research
Health
technolog
y
assessme
nt
Health
economics
researchDisease
Models
Component
s

8. • Since 1961, pharmaceuticals are fallen under price
regulation in India.
• A total of 343 drugs accounting for, 85% of the drug
market was under price control in 1979.
• With successive polices, the number diminished and now
a mere 15 - 20% of the drug market is under price control.
• Therefore drug prices are quickly spinning out of reach of
the common man.

9. • Pharmacoeconomics adopts and applies the
principles and methodology of health economics
to the field of pharmaceutical policy
• Pharmacoeconomic evaluation therefore makes
use of the broad range of techniques used in
health economics evaluation to the specific
context of medicines management

10. DRUG BILL
• It a document of a government which states the various
governmental policies that it has made for health care
improvement in the country.
• It gives the percentage of GDP of that particular country
has allotted for HEALTH CARE of the country.
• Generally the health care bill is 10 to 15% of total GDP.
• In 2018, Indian health care budget is 0.3% of the GDP.

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

12. MULTI-FACTORIAL VARIABILITY OF DRUG PRICING
• The sector in which medicines are purchased: The price is
often higher in the private sector due to distilentor’s costs and
profiteering.
• The types of procurement agent: e.g. different prices may
be paid for the same product by a public sector purchaser,
such as Ministry of Health.
• The distribution route- A patient who purchases a medicine
at a hospital pharmacy may have to pay more if the hospital
pharmacy purchased the product from a local wholesaler than
if it has been purchased by tender and supplied through
public health sector distribution system.

13. • The patient status: The price of patented medicine is often
higher than that of their generic equivalent at least while the
patient is in force.
• Many other factors influence the total cost of drugs is as
follows:
 Prices of patented, non-patented and generic
drugs
Retail and wholesale mark-ups
Pharmacists' professional fees
Changes in the composition of total
populatione.g. proportion of older persons
Changes in prescribing habits of physicians
Changes in the utilization of drugs, i.e. number
of drugs used per patient
Trends towards using newer drug therapy
instead of other treatments

14. NEED OF PHARMACOECONOMICS
• Basically the pharmacoeconomics is needful in
following manner:
In Industry- Deciding among specific research and
development alternatives.
In Government- Determining program benefits and
prices paid.
In Private Sector- Designing insurance benefit
coverage.

15. TARGET HEALTH CARE SECTOR
FOR PHARMACOECONOMIC
EVALUATION
Resources
consumed
Other Sectors
Health Care
Programs
Patient and
Family

16. NATURE OF PHARMACOECONOMIC
ASSESSMENTS

17. COSTS
• The value of the resources consumed by a program or
drug therapy, is defined as Cost.
Direct costs- Medical and Nonmedical
Indirect costs
Intangible costs
Opportunity costs

18. Direct Medical
costs
Direct Non-Medical
Costs
Drugs
medical supplies and
equipment
laboratory and
diagnostic tests
Hospitalizations
physician visits.
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.

19. Indirect Costs
-costs from the perspective of society as a whole: for
example, these might include
loss of earnings
loss of productivity
loss of leisure time
due to the illness
cost of travel to hospital etc
This would include not just the patient themselves but also
their family and society as a whole.

20. Intangible
-the pain, worry or other distress; which a patient or their family might
suffer.
These may be impossible to measure in monetary terms, but are
sometimes captured in measures of quality of life.
The cost can be measured in following ways:
Cost / unit
Cost / treatment
Cost / person
Cost / person / year
Cost / case prevented
Cost / life saved
Cost / DALY (disability-
adjusted life year)

21. Opportunity costs
• The amount lost by not using economic resources in
its best alternative use (labour, capital, building,
management etc.)
• Resources invested in one area will be at expense of
loss of another opportunity

22. PERSPECTIVES

23. PATIENT PERSPECTIVE
• All the relevant cost and consequences experienced by the
patient
• Included costs:
Direct
Indirect
Intangible

24. PROVIDER PERSPECTIVE
• One of the primary uses of pharmacoeconomics in
clinical practice is to aid clinical and policy decision
making.
• Complete pharmacotherapy decisions should
contain three basis evaluation components; clinical,
economic, and humanistic outcomes.
• Concerned with the expenses of providing products
or services
• Included costs:
• Direct costs only

25. PAYER PERSPECTIVE
• Social Security/Government, third party payers eg.
private insurance companies and employers
• Included costs:
Direct costs
Indirect costs relevant to employers lost workdays lost
productivity at work

26. SOCIETAL PERSPECTIVE
• The broadest of all perspectives that comprehensively evaluates all
costs and consequences
• Considers the benefits to society as a whole
• Included costs:
Direct-overall cost of providing care
Indirect-loss of productivity

27. OUTCOMES RELATIONSHIP

28. • Clinical
As a result of disease or treatment – cure, confort,
survival / mortality -morbidity
• Economic-
Costs -Expense, saving, cost avoidance
• Humanistic
Patient preferences
Utilities -Quality of life
Physical, emotional, social function
 Performance

29. The expected benefits outcomes might be measured in:
• “Natural” units e.g. years of life saved, strokes prevented, and
peptic ulcers healed etc.
• “Utility” units -
Utility estimates can be obtained through direct measurement (using
techniques such as time trade off or standard gambles, or by imputing
them from the literature or expert opinion.
 They are often informed by measures of quality of life in different
disease states.

30. METHODOLOGIES
• Humanistic evaluation
• Economic evaluations
•Health Regulated
Quality of Life (HRQOL)
•Patient preferences
(PRO)
•Patient satisfaction
(PRO)
Partial economic
evaluations
•Cost consequence
analysis(CCA) or Cost
outcome analysis(COA)
•Cost of illness(COI)
evaluation
Full economic evalulations
•Cost-minimization analysis
(CMA)
•Cost-effectiveness analysis
(CEA)
•Cost-utility analysis (CUA)
•Cost-benefit analysis (CBA)

31. COST-OF-ILLNESS 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.

32. • By successfully identifying the direct and indirect costs of
an illness, one can determine the relative value of a
treatment or prevention strategy
• example by determining the cost of a particular disease to
society, the cost of a prevention strategy could be
subtracted from this to yield the benefit of implementing
this strategy nationwide.
• COI evaluation is not used to compare competing
treatment alternatives but to provide an estimation of the
financial burden of a disease.
• Thus the value of prevention and treatment strategies can
be measured against this illness cost.

33. COST-MINIMIZATION ANALYSIS
(CMA)
• Cost-minimization is applied when comparing multiple
drugs of equal efficacy and equal tolerability.
• This is done when the outcomes are the same for the two
interventions.
• In this, only the input, i.e. the cost, is considered.
• The objective of this method is to select the least costly
among multiple equivalent interventions.
• It cannot be used to evaluate programmes or therapies
that lead to different outcomes.

34. • The option that has the least cost is selected,
e.g. if a hospital decides to introduce compulsory prescribing
of generic names of drugs instead of their brand names, then
the pharmacoeconomic evaluation of this would be done by
CMA.
Ex. 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.
• CMA is a relatively straightforward and simple method for
comparing competing programs or treatment alternatives .
• If no evidence exists to support this, then a more
comprehensive method such as costeffectiveness analysis
should be employed

35. COST-EFFECTIVE ANALYSIS
• CEA is a technique designed to assist a decision-maker in identifying a
preferred choice among possible alternatives.
• Cost-effectiveness is defined as a series of analytical and
mathematical procedure that aid in the selection of a course of action
from various alternative approaches.
• CEA evaluates multiple drug treatments for the same condition.
• The cost of the drug treatments are weighed against the effectiveness
of the drug.
• The costs of drug treatments include acquisition costs, physician
involvement, and nursing costs for administration of the drug.

36. • The effectiveness of drug treatment is measured in
tangible measures such as length of hospital stay,
duration of treatment required, and mortality rate.
• The results of a CEA are expressed as cost/outcome for
both therapies.
• Pharmacoeconomic analysis should be incorporated in
the clinical trial itself.
• However, for the majority of drugs, CEA is done on the
basis of pre-existing data available in the medical
literature.
• CEA is the most commonly applied form of economic
analysis in the literature, and especially in drug therapy.

37. • It does not allow comparisons to be made between two
totally different areas of medicine with different outcomes.
• The key measure of these evaluations is the incremental
cost effectiveness ratio (ICER), which can be determined
as follows:
• Incremental cost effectiveness ratio= Cost of drug A - Cost of drug B
Benefits of drug A - Benefits of
drug B

38. COST BENEFIT ANALYSIS (CBA)
• CBA is the most comprehensive and the most difficult of all
economic evaluation techniques.
• In this technique, the benefits are also assigned a monetary value
so that costs and benefits can be easily compared.
• Thus, totally different interventions can be compared, making it a
useful tool (like CUA) for resource allocation by policy-makers.
• It is a basic tool that allows for the identification, measurement,
and comparison of the benefits and costs of a program or
treatment alternative.

39. • To determine if it is a sound investment/decision
(justification/feasibility),
• To provide a basis for comparing projects. It involves
comparing the total expected cost of each option
against the total expected benefits, to see whether the
benefits outweigh the costs, and by how much.
CBA has 2 purposes

40. • CBA should be employed when comparing treatment alternatives in
which the costs and benefits do not occur simultaneously.
• CBA also can be used when comparing programs with different
objectives because all benefits are converted into dollars and to
evaluate a single program or compare multiple programs.
• The benefits realized from a program or treatment alternative are
compared with the costs of providing it.
• Both the costs and the benefits are measured and converted into
equivalent dollars in the year in which they will occur.
• Future costs and benefits are discounted or reduced to their current
value.
• These costs and benefits are expressed as a ratio (a benefit-to-cost
ratio), a net benefit, or a net cost.
Net cost or benefit = benefit – cost

41. • If the B:C ratio equals 1, the benefits equal the cost.
The benefits realized by the program or treatment
alternative are equivalent to the cost of providing it.
• If the B:C ratio is less than 1, the program or treatment
is not economically beneficial. The cost of providing
the program or treatment alternative outweighs the
benefits realized by it.

42. • The most difficult and challenging part of CBA lies in
calculating the benefits in economic terms.
• Some benefits are easy to convert, others need
subjective judgment.
• CBA may ignore intangible benefits (pain, anxiety,
stress) that are difficult to express in monetary terms.

43. COST UTILITY ANALYSIS (CUA)
• CUA is a type of evaluation in which drugs/interventions with different
outcomes can be compared.
• 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.
• CUA is employed less frequently than other economic evaluation
methods because of a lack of agreement on measuring utilities,
difficulty comparing QALYs (quality adjusted life years) across
patients and populations, and difficulty quantifying patient
preferences.

44. • Sometimes it can be used to measure patient preference
or quality of life when comparing competing treatment
alternatives.
• CUA is a method for comparing treatment alternatives
that integrates patient preferences and HRQOL.
• CUA can compare cost, quality, and the quantity of
patient-years.
• Cost is measured in dollars, and therapeutic outcome is
measured in patient-weighted utilities rather than in
physical units.

45. • Often the utility measurement used is a quality-adjusted
life year (QALY) gained.
• QALY is a common measure of health status used in
CUA, combining morbidity and mortality data.
• 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).
• QALYs represent the number of full years at full health
that are valued equivalently to the number of years as
experienced.

46. • For example, a full year of health in a disease free patient would equal
1.0 QALY, whereas a year spent with a specific disease might be
valued significantly lower, perhaps as 0.5 QALY, depending on the
disease

47. ANALYSIS OF RESULTS IN
PHARMACOECONOMIC
EVALUATION
• Health economics, and particularly its branch precision
health economics, help us choose between two
alternatives, which we compare with regard to their
clinical benefit on one hand and their cost on the other.
• Health benefits and costs can be accessed from a
different viewpoint called "perspective".

48. • There are three common types of perspectives in
economic studies: a producer's perspective, a payer's
perspective and a social perspective.
• The perspective of an economic assessment is
important. In general, the social perspective is the
broadest and most appropriate for making financial
decision because it leads to optimal decisions but other
perspectives are also valid.

49. DIFFERENCE IN COSTS

50. APPLICATIONS OF
PHARMACOECONOMICS
• To aid clinical and policy decision making. Complete
pharmacotherapy decisions should contain assessments of
three basic outcome areas whenever appropriate:
economic, clinical, and humanistic outcomes (ECHO).
• To support various clinical decisions, ranging from the
level of the patient to the level of an entire healthcare
system. For discussion purposes, the application of
pharmacoeconomics to decision making is divided into two
basic areas: drug therapy evaluation and clinical pharmacy
service evaluation.

51. DECISIONS FOR PHARMACOECONOMIC
APPLICATIONS
Macro
Resource Allocation
Disease management
Drug use
policy/guidelines
Formularly
management
Clinical
decision
Micro

52. • Assessing the value of a new agent
• Drug policy decisions, treatment guidelines & Justify the
addition of new clinical service
• Pricing in pharmaceutical industry
• Decision on reimbursement
Third-party; payers use such information to decide
whether to pay for a particular treatment, or to determine
what price they are willing to pay

53. GENERAL STEPS IN DESIGNING
AN ECONOMIC EVALUATION
• Define the problem
• Determine the study’s
perspective
• Determine specific treatment
alternatives and outcomes
• Select the appropriate
pharmacoeconomic model
• Measure inputs and outcomes
• Identify the resources
necessary to conduct the
analysis
• Establish the probabilities for
the outcomes of the treatment
alternatives
• Construct a decision tree
• Conduct a sensitivity analysis
• Present the results

54. 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.

55. PHARMACOECONOMICS –
INDIAN SCENARIO
• The Indian pharmaceutical industry (IPI) is the world’s
fourth-largest by volume and is likely to lead the
manufacturing sector in India.
• The Indian Patent Act in 1970 played a major role in
developing a base for the manufacturing unit in India.
• The change in law in 2005 has created opportunities for
both international firms and local Indian companies for
sharing expertise.

56. • As fourth largest producer of drugs by volume, Indian
pharmaceutical industry has diversity of medicines; yet,
brand name prescriptions are the rule of the day.
• Formulary system is very weak and treatment protocols
exist only in theory.
• The resources are scarce and competing programs are
plenty in healthcare.
• The concept of healthcare insurance is yet to be
popularized in the country.

57. CHALLENGES
Establishing guidelines or standards of practice.
Creating a cadre of trained producers and consumers of
pharmacoeconomic work.
Continuing education on the relevant features of this
discipline for practitioners, government officials, private sector
executives.
Stable funding to support applied pharmacoeconomic
research.
Lack of full appreciation of the potential importance and
application of Pharmacoeconomics studies.
Poor technical skills of healthcare professionals, especially
of pharmacists.
Lack of appropriate database of the healthcare system in
order to bring about research adaptation from another country

58. CONCLUSION
• Pharmacoeconomics evaluation has become an
important area of interest to find the optimal therapy at
the lowest price as healthcare resources are not
easily accessible and affordable to many patients.
• Numerous drug alternatives and empowered
consumers also fuel the need for economic
evaluations of pharmaceutical products

59. • In our developing economy, India, the words
“pharmacoeconomics” and “outcomes research” are new
to health care practitioners, but we are determined to
familiarize ourselves with these concepts and put them into
practice.
• In most developing countries, the patients continue to
suffer due to an ignorance about information, and practice
and resources being overburdened.
• There is a universal need to optimize both, which is
possible by adopting the practice of pharmacoeconomics,
outcomes research, and Health Technology Assessment.

60. • PE guide choices among alternative medications, treatment regimens
and services based on a combination of costs and outcomes.
• Results and interpretation of pharmacoeconomic studies are
influenced by the perspective of the study—there is no one “right”
answer.
• Time and money can only be spent once- choice is inevitable.
Whether done unconsciously or with a consistent process, health care
professionals are constantly evaluating patient care choices & acting
on them.
• Enhance the quality of your practice by strengthening your evaluation
process and increasing the probability that you deliver better value in
patient care.

62. AN IDEAL APPROACH OF
PHARMACOECONOMIC EVALUATION
various decisions that can be supported
using pharmacoeconomics, including