Why to study Pharmacoeconomics?

• Expansion of medical knowledge

• Increase in the treatment options

• Burden on the health care professionals to provide effective

care efficiently.

• Medical insurance or reimbursement systems

• Regulatory mandate

What Does ‘Cost’ Include?

1. Health Care Cost

a) Variable Cost : Vary according to the patient number e.g. drug acquisition cost, cost of consumables (needles, syringes etc)

b) Fixed Cost : Does not vary with patient number atleast in short term (1 yr) (Overhead)

Eg. Capital Cost of building, equipment & staff salaries

2. Other financial CostsEg. Prescription charges, Travel expense, loss of productivity

3. Intangible Costs : difficult to value financiallyEg. Pain, anxiety, loss of energy, time given by the voluntary carers

Can also be classified as…

• Direct costs- directly associated with the health

care intervention.

- Medical

- Nonmedical

• Indirect costs - associated with reduced productivity due to illness, disability and death.

• Intangible costs- psychological costs associated with illness or treatment, such as pain and suffering

Direct Costs• Medical costs

– Drug acquisition costs– Treatment costs (hospital, physician visits)– Monitoring (labs, physician visits)– Treatment of adverse events

• Non-medical – Home modifications (e.g., wheelchair

ramp)

Indirect / Intangible Costs

• Lost productivity/time off work

• Value of lost productivity (lost income)

• Caregiver time

• Quality of life

• Pain and suffering

Opportunity Costs

• If a resource is used for one purpose, it cannot be used for another

• The benefits or opportunities foregone in the highest-

valued alternative use of resources

• Opportunity costs are the most appropriate means of assigning costs to resources

Health Care Program

Input(Cost)

Output(Consequences)

Whose perspective?

Model of Economic Analysis of Health Care

Cost• Labour• Equipment• Building• Consumable Eg. Drugs

Outcome measure• Monetary or non-monetary

Whose Perspective? Society – Most comprehensive view Providers (Hospital) – direct medical cost which affects

the budget Patient – Direct, indirect and intangible Third Party payer – Costs which pertain to the

reimbursement Pharmaceutical Industry

Measurement of outcomes

• Monetary ($)• Specific clinical outcomes• Quality of life

Types of Economic Evaluations

• Cost-Minimization Analysis (CMA)

• Cost-effectiveness Analysis (CEA)

• Cost-Benefit Analysis (CBA)

• Cost-Utility Analysis (CUA)

• Cost Consequence Analysis (CCA)

Increased complexity & sophistication

Cost-Minimization Analysis (CMA)

• Clinical evidences suggest equality of outcome

• Evaluation of input or cost only

• Useful for comparison of dosage forms of the same

drugs or two generically equivalent drugs

• Not commonly used for drug therapies or health

program

Example

Comparing two IV dosage forms of Clindamycin for prevention of infection in postoperative patients undergoing surgery for

perforated or gangrenous appendicitis.

A Clindamycin 900 mg 8 hrly + Gentamicin 1.5 mg/kg

8 hrly

B Clindamycin 600 mg 6 hrly + Gentamicin 1.5 mg/kg

8 hrly

Outcome: Safety, efficacy & PK of B was comparable with A

Cost : Total cost A > Total cost B (Annals Pharmacother,1989;23:980-3)

Cost-effectiveness Analysis

• Consequences identical for each alternatives• Measured in non-monetary terms• Expressed in natural units

e.g. cost per years of life saved, cases cured, lives saved

• Cost effectiveness ratio = Cost / Outcome• Choice is that of lower CER• Can be used to evaluate programs, therapies or

services.

Disadvantage – Can not compare 2 different alternatives

Not Always Least expensive Alternative

More expensive and additional benefit worth the cost

• Less expensive and at least as effective (non-inferior)

• Extra benefit is not worth the cost

Average cost-effectiveness ratios do not compare the costs and outcomes among health care alternatives, but instead reflect the cost per outcome of one alternative independent of other alternatives.

• Incremental cost-effectiveness

Change in costs and health benefits when one health care intervention is compared to an alternative one.

Eg. Outpatient surgery vs. short-stay surgery

ICER = Difference in the costs/ Difference in the effectiveness

Example

New Old

Cost (Rs per 100 pts treated)

10,000 6400

yrs of lives saved

10 8

CER (Rs per yr of life saved)

1000 800

ICER (Rs per additional life saved)

1800

ICER = Difference in the costs/ Difference in the effectiveness

Cost Benefit Analysis

• To compare alternative therapies where outcome is different. Eg. Prolonging life and quality of life

• Money - Common stable, consistent and plausible denominator

• Outcome = Benefit – Cost

• Most suitable when resources scarce and only one program can be implemented

Cost Benefit Analysis

• E.g. A hospital is considering either offering a diabetes counseling service or adding a MRI scan equipment section to the clinic. Assuming the following Rs. values for each alternative, which program will you choose?

Cost Benefit Analysis

Diabetes MRI scan

program equipment

Costs Rs.20,000 Rs.120,000

Benefits Rs.1,20,000 Rs.360,000

Net Benefits

(B-C) Rs.1,00,000 Rs.240,000

B/C Ratio 5 3

Controversial aspects of Cost-Benefit Analysis

• All outcomes can not be converted into monetary terms Eg. Loss of vision

• Costs and Benefits are distributed heterogeneously in the society.

E.g Kidney Transplantation

Patients with limited life expectancy

Patients with potential for productive life

Economical but not humanitarian

Discounting Future Cost and Benefits

• Positive value of time preference

People prefer to defer costs to the future and to acquire benefits sooner rather than later.

• Discounting reflects the present value of a cost or health benefit that will occur at some future date.

• The effect of discounting is to give future costs and health benefits less weight in an economic analysis.

• Both costs and benefits should be discounted

• Most appropriate discount rate debatable

Discounting Future Cost and Benefits

Example Benefits in terms of QOL

Rx of Hypertension Vs Rx of CHF Short term decrease in QOL Short term increase in QOL Long term increase in QOL

Appears more attractive Discounted

“Not useful for programs with preventive intention”

Cost Utility Analysis

• Utility is desirability for a particular state of health

• Basic purpose is to improve Quality of life in patients

• Accounts for physical, social and psychological well being.

Patient satisfaction• Quality – Adjusted Life Year (QALY)• Disability – Adjusted Life Year (DALY)

Qualityof Life

Physical Function

Social & RoleFunction

Psychological Function

General well-being

Multiple dimensions of HrQoL

AFFECT

FUNCTION

How to measure QOL?

• Difficult – lacks precision and clarity; too broad

• Health related quality of life (HRQOL)

a) Generic instruments – for all diseases and patient groups

Eg. Sickness impact profile

Nottingham health profile

SF-36

b) Specific instruments – Eg. Hospital anxiety depression scale

Arthritis impact measurement scale• Desirable properties – Reliability, validity, sensitivity

Sensitive to value judgment

Quality – Adjusted Life Years (QALys)

QALYs = number of years lived x utility*

• Patient 1:•Utlity – 0.9•Number of years = 10•QALYs = 0.9 x 10 = 9 QALY

•Patient 2:•Utlity – 0.6•Number of years = 15•QALYs = 0.9 x 10 = 9 QALY

*Utility can be ranged from 0 (worst health state) to 1 (best health state / healthy)

Quantity of LifeQuality weight that represents

HRQOL

Disability – Adjusted Life Year (DALY)

• DALY captures the impact of morbidity and mortality in a common unit of measurement

• DALY was developed primarily to compare relative burdens among different diseases and among different population

• DALY measures disease impact rather than measuring impact of the interventions to improve health.

QALY and DALY

• QALY = number of years lived x utility = 0.7 X 60 = 42 years

• DALY = numbers of years lived X disability + number of years lost (perfect health)

= 0.3 X 60 + 20 = 38 years

QALY

DALY

Disability Utility Health

Weighting state

0 1 Perfect

1 0 Death

0.3 0.7 CHF

6080

Cost Consequence Analysis (CCA)

• Definition: An analysis in which resources and outcomes are calculated but not aggregated into cost-outcome ratios

• Characteristics – Resources are measured in monetary units – Outcomes are measured in multiple ways– Results are presented in a tabular format

• Objective: To assist decision makers for choosing the most relevant resource-outcome ratio

CCA

• Advantages– Transparency– Flexibility– Conceptually the simplest– Avoids controversies– Most comprehensive

• Limitations:– Labor/resource intensive

Summary of PE Methodologies

• “It is cost minimization when I stand at the bar and choose the cheapest beer available

• When I compare the price per liter to see which one satisfies my thirst for the least money this is a cost-effectiveness analysis

• When I also take into account the flavor and alcoholic strength to decide which beer I prefer overall, I am performing a cost-utility study

• When I decide whether to buy a beer at all, to buy something else entirely, or save my money, and take into account the effect of the drink on my productivity the next day, that is a cost-benefit analysis” 

Thornton JG. Br J Hosp Med 1997; 58(11): 547-550

Types of Economic Analyses Analytic Method

Input (Cost) Consequences Primary Concern

Cost - benefit (CBA)

Monetary Monetary Maximal increment in benefit for limited

resources Cost-

effectiveness (CEA)

Monetary Clinical: life-year gained, % patients

reaching goal

Least costly way to achieve objective;

compare alternatives within 1 therapeutic

category Cost-utility

(CUA) Monetary Quality-adjusted

life-year (QALY) gained

Societal allocation; compare alternatives across therapeutic

categories Cost-

minimization (CMA)

Monetary Equal benefit ASSUMED

Efficiency (e.g., generic, therapeutic

substitution) Cost-of-illness Monetary Total cost

identification

Applications of Pharmacoeconomics

Industry

• Decision making during drug development

Early stages - Go/ not to go decisions

Later stages - Rational prescribing and utilization

• Pricing a new medicine/ repricing an existing medicine

• Convincing the regulatory authorities for marketing

approval

Applications of Pharmacoeconomics

Health Policy Makers

• Implied value and incremental cost effective analysis are crucial while making health policy decisions.

• Economic analyses are used while programming

budget. The more cost effective alternatives are replaced for the less cost effective ones.

OR in India

• POST–GRADUATE DIPLOMA IN HEALTH ECONOMICS, HEALTH CARE FINANCING AND HEALTH POLICY

Indian Institute of Public Health (IIPH), Delhi

• TRAINING COURSE ON BASIC HEALTH ECONOMICS AND

FINANCING, National Institute of Health & Family Welfare

ISPOR in India

• International Training Course on Promoting Rational Drug Use in the Community

• International Training Course on ARV Drugs Supply Chain management in resource poor settings

• September/October ISPOR–India Annual meeting

Pharmacoeconomics Research Information Cost Effectiveness

VALUE

• Is a pharmaceutical product worth its price?

• In which patients does it produce the optimal benefit (both cost and quality) ?