Pharmacoeconomics

Cost Benefit Analysis

Lecturer: Enas Abu-Qudais
Incremental net benefit Analysis using CUA
• When comparing Two drugs using the CUA, we have to look
at both the price and the QALY
• We consider the new one is dominant if:
-The Price is lower than the standard
-The QALY is higher than the standard

In the example above, When comparing drug A with B, Drug A is lower in

cost and higher in QALY, therefore A is dominant
 20,000
10,000

When comparing A with B and In case drug A was 20000$ and Drug B 10,000 $

Drug A is higher in cost and higher in QALY , therefore we need to conduct INB analysis

INB = (λ x QALY) - Cost

If INB > 0 then New one is Dominant

If INB <0 then the standard one is dominant

CBA

Cost ($)
Cost ($) Rx Monetary Value

Advantages: Many Different Outcomes can be compared under Monetary Value

Disadvantage: Placing an economic value on Medical outcomes is not an easy task

to do.
Comparison of CE ratios and CB ratios

Costs/ Effectiveness

Lower ratios indicates lower costs and it’s the preferred option

Benefit to cost Ratio : Cost/Benefit

Ratios higher than 1 indicates that the option is cost Beneficial
Higher ratios indicates higher Benefits
Conducting a CBA
1) Determine the type of program or intervention

2) Identify Alternatives:

- Do nothing (comparing the costs and benefits of having an asthma clinic with
not having an asthma clinic )

- Implementing a similar program that is smaller or larger in scale an asthma clinic

(Comparing implementing for an alternative for all persons who had an asthma
related emergency department visit )

-Or implement a different program (comparing implementing an asthma clinic with

implementing diabetes clinic)
Components of cost-benefit analysis
Differences between costs and Benefits
• Both costs and benefits are measured in monetary values.

• Costs: Direct Medical and Direct nonmedical

• Potential confusion due to benefits being “cost savings” or “costs

avoided”.

• eg. the asthma program: – A cost to the program could be an

increase in medical costs related to visits to the pharmacy. – A
“cost saving” or benefit as a result of the program could be a
reduction in medical costs for asthma-related emergency
department visits.
Types of benefits
CBA can incorporate as few as one category or as
many as all three of the benefit categories

- Direct benefits : Medical and nonmedical related

benefits

- Indirect benefits: Increased the productivity

- Intangible benefits: Patient preferences, decreased

Pain and suffering
Calculating Results of costs and benefits

• All costs and benefits have been identified and

quantified.

• Then, the results of the analysis must be presented

in ways that help decision makers understand the
value of the program or intervention.
Presentation of CBA results in three formats

1. Net benefit calculations

2. Benefit-to-cost ratios

3. Internal rate of return

Net Benefit and net cost
• Net Benefit = Total Benefits – Total Costs

• Net Costs = Total Costs – Total Benefits

•Interventions would be considered to be cost beneficial if

Net Benefit > 0 or Net Cost < 0
Benefit-to-cost ratios

Benefit-to-Cost Ratio= Total Benefits/Total Costs

Cost-to-Benefit Ratio= Total Costs / Total Benefits

Interventions would be considered to be cost beneficial if

Benefit-to-cost ratio > 1 or Cost-to-benefit < 1

Example

Looking at the table above it is apparent that both programs are cost beneficial
Results
• Net calculations:
Proposal B is more cost-beneficial
• $2,500 vs. $1,000

• Ratio calculations:

Proposal A is more cost-beneficial

2 vs. 1.5
• Other factors to be considered by the decision maker when
both programs are considered cost beneficial
The amount of money available for investment
• $1,000 (A) vs. $5,000 (B)
The return on investment
2:1 (A) vs. 1.5:1 (B)
The actual net benefit amount
• $2,500 (B) vs. $1,000 (A)