Drug and Therapeutics Committee

Session 6. Evaluating the Cost of Pharmaceuticals

Introduction Adding medicines to the formulary involves

careful consideration of— Efficacy Safety Quality Cost

Cost factors are becoming more important Science of pharmacoeconomics is emerging

Objectives Define and understand the different types of cost

analysis methods relevant to choosing medicines for the formulary

Understand how to read and assess journal articles concerning an economic study

Apply session materials to conduct a basic cost analysis for a medicine being requested for the formulary

Outline Introduction Key Definitions Cost-Evaluation Methods

Cost-Minimization Analysis Cost-Effectiveness Analysis

Evaluating Pharmacoeconomic Studies Activities Summary

Key Definitions (1) Pharmacoeconomics—the description and analysis

of the cost of pharmaceutical therapy to health care systems

Cost—the total resources consumed in producing a good or service

Price—the amount of money required to purchase an item

Key Definitions (2) Medicine effectiveness—the effects of a medicine

when used in real-life situations

Medicine efficacy—the effects of a medicine under clinical trial conditions

Direct Costs of a Medicine Acquisition cost

Transportation cost

Supply management cost (i.e., storage facility cost)

Cost of supplies and equipment to administer medicines, such as syringes and needles

Personnel costs to prepare and administer such as physicians, pharmacists, and nurses

Other direct costs (e.g., ADRs, hospital room charges, laboratory fees)

Nonmedical cost (e.g., patient travel expenses)

Indirect Costs of a Medicine Indirect costs—examples

Cost of illness to the patient Lost time from work Time required to care for somebody

Intangible costs Costs associated with pain and suffering usually

incorporated into utilities assigned to health states which reflect quality of life

Cost-Minimization Analysis Of two medicines with equal effectiveness,

which is the least expensive?

Most used cost-evaluation method

Most accurate method when comparing cost between two therapeutically equivalent medicines

Cost-Minimization Analysis: Process Obtain acquisition price for each medicine and calculate

the price for the course of treatment to be compared—dose per day, number of days of treatment.

Calculate pharmacy, nursing, and physician costs associated with the use of each medicine.

Calculate equipment cost associated with each medicine. Calculate laboratory cost associated with each medicine. Calculate cost of any other significant factor. Calculate and compare total medicine costs for each

medicine.

Cost-Minimization Analysis: Example 1

Category Medicine A Medicine B Acquisition price USD* 8.00 USD15.00 Pharmacist salary 2.50 1.50 Nursing salary 2.50 2.00 Supplies 9.00 2.25 Laboratory services 4.00 1.00

Total USD 26.00 USD 21.75

*USD refers to U.S. dollar

Cost-Minimization Analysis: Example 2Cost Categories Ampicillin Ceftriaxone Gentamicin

(500 mg) (1 g) (80 mg)Acquisition price for one vial USD1.00 USD 8.00 USD 2.00Doses per day 4 1 3 Price per day USD 4.00 USD 8.00 USD 6.00Nursing salary atUSD 0.75 per injection USD 3.00 USD 0.75 USD 2.25Equipment: IV set at USD 1.00/set — USD 1.00 — _ Syringe/needle 0.50/set USD 2.00 — USD1.50Laboratory tests USD 2.00 USD 2.00 USD 4.00Total medicine costs/day USD 11.0 USD 11.75 USD 13.753,000 treatment-days/year 3,000 days 3,000 days 3,000 daysTotal medicine costs USD 33,000 USD 35,250 USD 41,250

Cost-Effectiveness Analysis (CEA) Of two medicines, A and B, with different

effectiveness, what is the cost per patient cured for medicine A versus medicine B?

Used to compare two or more medicines which are not therapeutically equivalent

Effectiveness of therapy according to predetermined therapeutic measure, for example— Patients cured Deaths averted; years of life saved Decreased blood pressure or glycosylated hemoglobin

CEA: Steps Define objectives—which medicine regimen is preferred to

achieve the desired clinical outcome (e.g., cure)?

List the different options (medicines and other treatments) to achieve the desired clinical outcome.

Identify and measure for each option: (1) cost and (2) clinical outcome.

Calculate the incremental cost-effectiveness ratio.

Perform sensitivity analyses. Adjust cost of variables and re-analyze to confirm or refute results.

Incremental Cost-Effectiveness Ratio

(Net costs treatment A – Net costs treatment B)÷

(Net effects treatment A – Net effects treatment B)

= Additional cost per additional benefit

Example of CEA: Medicine CostsCost/unit(USD)*

No. ofunits

No. ofpatients

Total cost(USD)

Medicine AMedicine cost

40 12 100 48,000

Lab cost 20 1 100 2,000Adverse event

50 2 100 10,000

Physician 25 2 100 5,000Total 65,000

Medicine BMedicine cost

25 12 100 30,000

Lab cost 20 2 100 4,000Adverse event

50 3 100 15,000

Physician 25 3 100 7,500Total 56,500

*USD equals U.S. dollar

Example of CEA: Benefits

Drug B

Cos t o f drug = $44.50 Cost o f drug $56.00

Effectiveness of drug = Average decrease in A1C = 1.5

Effectiveness of dr ug = Average dec rease in A1C = 0.8

Cos t-effective ratio$29.33/1 unit of A1C

Cost-effectiv e ra tio$70.00/1 unit of A1C

Effectiveness

Medicine A Medicine B25/100 patients 19/100 patients

Clinical outcome: number of patients with ≥ 1% decrease in glycosylated hemoglobin over one year

Example of CEA: Incremental Cost-EffectivenessComparison between medicines A and B for 100 patients for 1 year

Medicine A Medicine B

Net costs USD* 65,000 56,500

Effectiveness No. patients with ≥ 1% decrease in glycosylated hemoglobin 25 19

Incremental Cost Effectiveness Ratio =(65,000-56,500)/(25-19) = USD1,416.67 per extra patient with ≥ 1% decrease in glycosylated hemoglobin.

CEA of Two Thrombolytics in Acute Myocardial Infarction (MI) in Australia (1)

Cost of treatment and mortality rates Usual care (UC) of MI: 3.5 million Australia dollars

(AUD)/1,000 cases, 120 die UC+ Streptokinase (SK): AUD 3.7 million /1,000

cases, 90 die UC + tissue plasminogen activator (tPA): AUD 5.5

million /1,000 cases, 80 die

Source: Australian Prescriber, 1996, 19(2): 52–54.

CEA of Two Thrombolytics in Acute MI in Australia (2)

Comparison of the Treatments

1. Difference between UC + SK and UC of MI:

Cost of treatment = AUD 3.7 – 3.5 million/1,000 cases = AUD 0.2 million/1,000 cases = AUD 200/case

Number of deaths prevented= 120 – 90 = 30 deaths/1,000 cases treated

Incremental cost effectiveness of SK compared with UC= AUD 0.2 million/30 lives = AUD 6,700/life saved

CEA of Two Thrombolytics in Acute MI in Australia (3)

2. Difference between UC + tPA and UC of MI:

Cost of treatment = AUD 5.5 –3.5 million/1,000 cases = AUD 2.0 million/1,000 cases= AUD 2,000/case

Number of deaths prevented = 120 – 80

= 40 deaths/1,000 cases treated

Incremental cost effectiveness of tPAvs. UC= AUD 2.0 million/40 lives= AUD 50,000/life saved

CEA of Two Thrombolytics in Acute MI in Australia (4)

3. Difference between tPA and SK treatments for

MI:

Cost of treatment = AUD 2.0 - 0.2 million/1000 cases = AUD 1.8 million/1000 cases= AUD 1,800/case

No. of deaths prevented = 90 - 80 = 10 deaths/1,000 cases treated

Extra cost effectiveness of tPA over SK = AUD 1.8 million/10 lives = AUD 180,000/life saved

CEA of Two Thrombolytics in Acute MI in Australia (5)

If one has a budget of only AUD 500,000—

For SK = 500,000 ÷ 200 = 2,500 cases

Number of lives that can be saved = (30 ÷ 1,000) × 2,500 = 75 lives

For tPA = 500,000 ÷ 2,000 = 250 cases

Number of lives that can be saved = (40 ÷ 1,000) × 250 = 10 lives

Which regimen should the DTC choose?

CEA of Two Thrombolytics in Acute MI in Australia (6)

The study concluded that although tPA had slightly better efficacy and saved marginally more lives, when cost was taken into account, more patients could be treated and more lives saved using SK.

Other Controversial Cost AnalysesCost-Utility Analysis—a type of cost-effectiveness

analysis in which the desired clinical outcome or benefit is measured in utilities, for example, in quality-adjusted life years (QALYs) and disability-adjusted life years (DALYs)

Cost-Benefit Analysis—a comparison of the costs and benefits of an intervention by translating the health benefits into a monetary value, so that both the costs and benefits are measured in the same monetary unit

Sensitivity TestingUsed to measure how different assumptions made in a particular cost analysis will affect the conclusions

Method—Change the assumptions concerning the cost of different variables, and repeat the cost-analysis study to see if the results supporting the original conclusion change.

Examples of variables used in a cost analysis studies that can be varied in a sensitivity analysis: cost of physician visits, price of medicines, cost estimate of ADRs, number of ADRs experienced, laboratory tests required

Discounting Used in cost evaluations to account for a future cost of a

benefit from the medicine (or intervention) Method to account for effects of the medicine (or

intervention) over prolonged periods of time (because of the effects of inflation)

The discount rate must be tied to the economics of the country where the medicine or intervention would be provided—5% in the United States; treasury rate in the United Kingdom

The discount rate is not known for sure in any pharmacoeconomic study and any arbitrary rate used will have a dramatic effect on the results of the economic study

Evaluating Pharmacoeconomic Studies (1)Important new area but difficult to evaluate

Study may not be relevant to the reader’s country

No “gold standard” for pharmacoeconomic studies

Quality of studies varies widely

Bias of many studies to support sponsor

Negative outcome research seldom gets into the literature

Evaluating Pharmacoeconomic Studies (2)Key questions to ask in reading an article Is patient selection in the study similar to those in your

community?

Is the study applicable to your setting?

Are costs of medicines fully described?

Are costs of benefits or assumptions of effectiveness fully disclosed?

Has a sensitivity analysis be done?

Who is the sponsor?

Evaluating Pharmacoeconomic Studies (3)Key questions to ask (continued)

Are all the costs associated with medicine treatment, including good and bad outcomes described (not just prices)? Costs associated with nonpharmaceutical treatments

(equipment) and negative outcomes (side-effects) may be missing

Has discounting been used to reflect the costs of any future benefits or consequences in present day values? Different discounting rates for medicine costs and future

benefits may be used to emphasize a medicine’s cost-effectiveness ratio

Activities Activity 1—Cost Minimization Analysis of

NSAIDs

Activity 2—Cost-Effectiveness Analysis of Two Antimalarial Treatments

Summary Cost analysis of medicines is becoming much more

important.

Comprehensive analysis of medicines is necessary to fully assess the real cost of medicines and the benefits from medicine use.

Pharmacoeconomic studies are very difficult to assess. Appropriate analyses should— Rely on data from clinical trials or reasonable extrapolations of

these trials Use basic verifiable costing—cost minimization and cost

effectiveness whenever possible