PHA 6806 Pharmacoeconomic Modeling

3 Semester Credit Hours

Course Purpose:
This course provides an introduction to methods and techniques for conducting pharmacoeconomic
studies. The course covers a wide range of topics, including classifying disease, identifying
pharmaceutical products from prescription claims, risk adjustment, practical decision analysis, Markov
modeling, and indirect treatment comparisons. The class will involve numerous exercises from building
simple decision trees to complex Monte-Carlo Markov models. Exercises will be conducted using
Microsoft Excel, although only a rudimentary knowledge of the program is required.

Course Faculty and Office Hours

Vary

Office Hours
Presenters and the course coordinator can be reached by email. Virtual office hours are held by
appointment only. If you need to speak with an instructor please arrange a meeting via email.

Place and Time of Class Sessions

Vary

Course Objectives
Upon completion of this course, the student will:
1. Understand ICD-9 and NDC codes for health care products and services;
2. Understand the reasons for risk adjustment and be able to compare diagnosis and
pharmacy-based risk adjustment tools;
3. Understand concepts of risk and odds ratios;
4. Know where to find prices for health care services;
5. Understand fundamental concepts of decision analysis and Markov analysis;
6. Be able to construct an cost-effectiveness analysis;
7. Be able to construct a probabilistic decision analysis in Excel;
8. Be able to construct Markov decision analytical models; and
9. Interpret results from the cost-effectiveness analysis

Pre-Requisite Knowledge and Skills

Commercial Applications of Pharmacoeconomics

Course Structure & Outline

Course Structure. This course is designed to provide the student with knowledge and experience to
conduct and evaluate health technologies assessments. The course is provided via recorded and live
sessions.
The schedule may change based on the needs of the students and instructor availability.
Students are expected to:
• attend live sessions and watch assigned video lectures;
• Complete assignments in a timely manner
• Read assigned articles
• Participate in class discussions
Failure to participate fully in all aspects of the course may result in a lower grade for the specific
assignment and overall lower course grade.

Course Outline/Activities. Refer to an outline of course activities

Textbooks
Vary

Software
Students are expected to purchase a student version of TreeAge software ($45.00) from
www.treeage.com. This should occur before the start of the third week of the course.

Readings
A guide to understanding common prescription drugs pricing terms. Academy of Managed Care
Pharmacy.

Beck JR, Pauker SG. The Markov process in medical prognosis. Medical Decision Making 1983; 3:419458.

Bjornson DC. Interpretation of drug risk and benefit: individual and population perspectives. Annals of
Pharmacotherapy 2004; 38:694-9.
Bombardier C. et al. Comparison of upper gastrointestinal toxicity of rofecoxib and naproxen in patients
with rheumatoid arthritis. New England Journal of Medicine 2000; 343:1520-1528.

Briggs A, Tambour M. The design and analysis of stochastic cost-effectiveness studies for the evaluation
of health care interventions. Drug Information Journal 2001; 35:1455-1468.

Caldwell DM, Ades AE, Higgins JPT. Simultaneous comparison of multiple treatments: combing direct
and indirect evidence. BMJ 2005;331:897-900.

Cairo JJ, Briggs AH, Siebert U, Kuntz KM. Good research practices- overview: a report of the ISPORSMDM
Modeling Good Practices Task Force-1. Value in Health 2012: 15:796-803.

Charlson ME, Pompei P, Ales KL, MacKenzie CR. A new method of classifying prognostic comorbidity in
longitudinal studies: development and validation. Journal of Chronic Diseases 1987; 40:373-383.

Clark DO, Von Korff M, Saunders K, et al. A chronic disease score with empirically derived weights.
Medical Care 1995; 33:783-795.
Crystal S, Akincigil A, Bilder S, Walkup JT. Studying prescription drug use and outcomes with Medicaid
claims data. Medical Care 2007; 45(suppl 2):S58-S65.

Detsky A, Naglie G, Krahn MD, Naimark D, Redelmeier DA. Primer on Decision Analysis: Part 1 –Getting
Started. Medical Decision Making 1997; 17:123-125.

Detsky A, Naglie G, Krahn MD, Redelmeier DA, Naimark D. Primer on Decision Analysis: Part 2 – Building
a Tree. Medical Decision Making 1997; 17:126-135.

Drummond M, Sculpher M. Common methodological flaws in economic evaluations. Medical Care 2005;
43(suppl 7);II-5-II-14.

Finkler SA. The distinction between cost and charges. Annals of Internal Medicine 1982; 96:102-109.

Fishman PA, Shay DK. Development and estimation of a pediatric chronic disease score using automated
pharmacy data. Medical Care 1999; 37:874-883.

Fishman PA, Goodman MJ, Hornbrook MC, Meenan RT, Bachman DJ, O’Keefe Rosetti MC. Risk
adjustment using automated ambulatory pharmacy data: the RxRisk model. Medical Care 2003; 41:8499.

Karnon J, Stahl J, Brennan A, Cairo JJ, Mar J, Moller J. Discrete event simulation: a report of the
ISPORSMDM Modeling Good Practices Task Force-4. Value in Health 2012: 15:821-827.

Krahn MD, Naglie G, Naimark D, et al. Primer on medical decision analysis: part 4 – analyzing the model
and interpreting the results. Medical Decision Making 1997; 17:142-151.

Martin LM, Leff M, Colonge N, et al. Validation of self-reported chronic conditions and health services in
a managed care population. American Journal of Preventative Medicine 2000; 18:215-218.
Malone DC, Billups SJ, Valuck RJ, et al. Development of a chronic disease indicator score using a
Veterans Affairs medical center medication database. Journal of Clinical Epidemiology 1999; 52:551-557.

Naglie G, Krahn MD, Naimark D, et al. Primer on medical decision analysis: part 3 – estimating
probabilities and utilities. Medical Decision Making 1997; 17:136-141.

Naimark D, Krahn MD, Naglie G, et al. Primer on medical decision analysis: Part 5- working with Markov
processes. Medical Decision Making 1997; 17:152-159.

Pitman R, Fisman D, Zaric GS, Postma M, Kretzschmar M, Edmunds J, Brisson M. Dynamic transmission
modeling: a report of the ISPOR-SMDM Modeling Good Practices Task Force-5. Value in Health 2012:
15:828-834.

Roberts M, Russell LB, Paltiel AD, et al. Conceptualizing a model: a report of the ISPOR-SMDM Modeling
Good Practices Task Force-2. Value in Health 2012: 15:804-811
Schneeweiss S. Seeger JD. Maclure M. Wang PS. Avorn J. Glynn RJ. Performance of comorbidity scores to
control for confounding in epidemiologic studies using claims data. American Journal of Epidemiology.
154(9):854-64, 2001 Nov 1.

Siebert W, Alagoz O, Bayoumi AH, Jahn B, Owens DK, Cohen DJ, Kuntz KM, State-transition modeling: a
report of the ISPOR-SMDM Modeling Good Practices Task Force-3. Value in Health 2012: 15:812-820.

Sheridan SL, Pignone MP, Lewis CL. A randomized comparison of patients’ understanding of number
needed to treat and other common risk reduction formats. Journal of General Internal Medicine 2003;
18:883-892.

Song F, Altman DG, Glenny AM, Deeks JJ. Validity of indirect comparisons for estimating efficacy of
competing interventions: empirical evidence from published meta-analyses. BMJ. 2003; 326: 472.

Sonnenberg FA, Beck JR. Markov models in medical decision making: a practical guide. Medical Decision
Making 1993; 13:332-338.

Stinnett AA, Mullahy J. Net health benefits: a new framework for the analysis of uncertainty in
costeffectiveness analysis. Medical Decision Making 1998; 18(suppl):S68-S80.

Von Korff M, Wagner EH, Saunders K. A chronic disease score from automated pharmacy data. Journal of
Clinical Epidemiology 1992; 45:197-203.

Active Learning Requirements

Complete Excel and TreeAge exercises

Student Evaluation & Grading

Evaluation Methods

Grading
Item Points Note
Indirect treatment
5 (Excel)
comparisons*
(5 points for each assignment)
Decision model exercises (5)* 25
(TreeAge)

Combining efficacy data* or

5 (Excel)
Markov model (TBA)
Article evaluation assignments 15 (3 articles for 5 points each)

Examinations 50
Total 100
*See below for information pertaining to these assignments
Assignments must be turned in by the date and time due in order to be eligible for full
points. Any assignment turned in late will be subject to 1-point penalty for each day late.
The final exam will have two parts. The first part consists of multiple-choice items over the
reading material and concepts discussed during class. This portion of the exam is timed
and closed book. The other portion of the exam is an open book exam that will cover the
concepts presented in the assignments and discussions. You will have 1 week to complete
the open book exam.

Final course grades will be based upon the percentage of total possible points that a student
can earn across the entire term. Letter grades will be assigned according to the following
grading scale:

Article Evaluation Assignments

Select three articles from the reading list (excluding the textbook) and write a brief (not to
exceed 1 page) summary of the article. The summary should include two parts. The first
part should address the following elements: a) purpose or goal of the study or method; b)
approach taken; c) data used (if any); d) results; and e) conclusions. The second part should
be a critique of the paper in terms of the approach, data, results, and conclusion. To
receive full credit your summary of the article should not be just a re-statement of the
paper but an insightful examination of content. You can integrate parts 1 and 2, or have
them appear sequentially. Do not write more than 1 page, single spaced, 11 point font,
with 1 inch margins. Deadlines for the article evaluation assignments are:

1) Article review #1 – End of 3rd week of course

2) Article review #2 – End of 4th week of course
3) Article review #3 – End of 5th week of course

Article reviews are worth 5 point each.

Grading Scale
B+ 86.6-89.9 C+ 76.6-79.9 D+ 66.6-69.9
A 93.0-100 B 83.3-86.5 C 73.3-76.5 D 63.3-66.5
A- 90.0-92.9 B- 80.0-83.2 C- 70.0-73.2 D- 60.0-63.2

Class Attendance Policy

Attendance in live class sessions is recommended. Students should, whenever possible,
anticipate upcoming absences and speak with the instructor to make prior arrangements for
make-up work. Students must contact the instructor as soon as possible following any
unanticipated absence.
Quiz/Exam Policy
A take home exam is given at the end of the course – students will have 1 week (7 days) to complete the
take home exam. There is a closed book exam that must be taken completed within 7 days after the last
class period.

Make-up Quiz/Exam Policy

There is no make-up policy for the exams because the exams are given at the end of the course.

Policy on Old Quizzes and Assignments

Students are not provided copies of old exams.

Assignment Deadlines
Assignments are penalized 1 point for each day late.

General College of Pharmacy Course Policies

The College of Pharmacy has a website that lists course policies that are common to all courses. This
website covers the following:

1. University Grading Policies

2. Academic Integrity Policy
3. How to request learning accommodations
4. Faculty and course evaluations
5. Student expectations in class
6. Discussion board policy
7. Email communications
8. Religious holidays
9. Counseling & student health
10. How to access services for student success

Please see the following URL for this information:

http://www.cop.ufl.edu/wp-content/uploads/dept/studaff/policies/General%20COP%20Course%20Policies.pdf

Complaints
Should you have any complaints with your experience in this course please visit:
http://www.distancelearning.ufl.edu/student-complaints to submit a complaint.

Excel and TreeAge Assignments

Excel assignments will largely be completed during class. Students unfamiliar with Excel are encouraged
to learn basic functions used in spreadsheets, including copy and pasting, entering data, and basic
mathematical formulas. Online training for Excel is made available through the University of Florida.
TreeAge assignments will be discussed in class and completed by students as homework. Basic tutorials
will be given to provide students with skills to navigate TreeAge and construct both basic and advanced
cost-effectiveness models.

Appendix. Schedule of Course Activities/Topics

Dates or Learning Activities/Topic
Week
Week 1a Risk Adjustment:
$Fishman PA, Goodman MJ, Hornbrook MC, Meenan RT, Bachman DJ, O’Keefe Rosetti
MC. Risk adjustment using automated ambulatory pharmacy data: the RxRisk model.
Medical Care 2003; 41:84-99.

$Clark DO, Von Korff M, Saunders K, et al. A chronic disease score with empirically
derived weights. Medical Care 1995; 33:783-795.

$Malone DC, Billups SJ, Valuck RJ, et al. Development of a chronic disease indicator score
using a Veterans Affairs medical center medication database. Journal of Clinical
Epidemiology 1999; 52:551-557.

$Von Korff M, Wagner EH, Saunders K. A chronic disease score from automated
pharmacy data. Journal of Clinical Epidemiology 1992; 45:197-203.

$Charlson ME, Pompei P, Ales KL, MacKenzie CR. A new method of classifying prognostic
comorbidity in longitudinal studies:
development and validation. Journal of Chronic Diseases 1987; 40:373-383.

Week 1b International Classification of Disease, Common Procedural

Codes, HCPCS, and National Drug Codes
$Crystal S, Akincigil A, Bilder S, Walkup JT. Studying prescription drug use and
outcomes with Medicaid claims data. Medical Care 2007; 45(suppl 2):S58-S65.

$Anon. History of International Classification of Diseases.

Week 2a Measures of Risk and Logistic Regression

$Bjornson DC. Interpretation of drug risk and benefit: individual and population
perspectives. Annals of Pharmacotherapy 2004; 38:694-9.

Week 2b Indirect Treatment Comparisons

$Caldwell DM, Ades AE, Higgins JPT. Simultaneous comparison of multiple treatments:
combing direct and indirect evidence. BMJ 2005;331:897-900.

Week 3a Identifying Costs and Sources for Costs

$A guide to understanding common prescription drugs pricing terms.
Academy of Managed Care Pharmacy

$Finkler SA. The distinction between cost and charges. Annals of Internal Medicine 1982;
96:102-109.
 Week 3b Decision Models and Cost-Effectiveness Models, Introduction of TreeAge
software
$Detsky A, Naglie G, Krahn MD, Naimark D, Redelmeier DA. Primer on Decision
Analysis: Part 1 – Getting Started. Medical Decision Making 1997; 17:123-125.

$Detsky A, Naglie G, Krahn MD, Redelmeier DA, Naimark D. Primer on Decision

Analysis: Part 2 – Building a Tree. Medical Decision Making 1997; 17:126-135.
Week 4a Using Variables in TreeAge; Incorporating Information from
Meta-analysis into Decision Models
$Naglie G, Krahn MD, Naimark D, et al. Primer on medical decision analysis: part 3 –
estimating probabilities and utilities. Medical Decision Making 1997; 17:136-141.

Week 4b Markov Modeling

$Naimark D, Krahn MD, Naglie G, et al. Primer on medical decision analysis: Part 5-
working with Markov processes. Medical Decision Making 1997; 17:152-159.

$Sonnenberg FA, Beck JR. Markov models in medical decision making: a practical guide.
Medical Decision Making 1993; 13:332338.
Week 5a Probabilistic Models: 1st and 2nd order Uncertainty
$Briggs A, Tambour M. The design and analysis of stochastic costeffectiveness studies for
the evaluation of health care interventions.
Drug Information Journal 2001; 35:1455-1468.
Week 5b Discounting and Half-cycle Correction
Stinnett AA, Mullahy J. Net health benefits: a new framework for the analysis of
uncertainty in cost-effectiveness analysis. Medical Decision Making 1998; 18(suppl):S68-
S80.

$Baltussen RM, Hutubessy RC, Evans DB, Murray CJ. Uncertainty in cost-effectiveness
analysis. Probabilistic uncertainty analysis and stochastic league tables. International
Journal of Technology Assessment in Health Care. 18(1):112-9, 2002 Winter.
Week 6a Net Health Benefits, CEA plane and CEA curves, Acceptability
curves
Week 6b Cost-Effectiveness Plane and Cost-Effectiveness
Acceptability Curves
$Koerkamp BG, Hunick M, Stijnen T, Hammitt JK, Kuntz KM,
Weinstein MC. Limitations of the acceptability curves for
presenting uncertainty in cost-effectiveness analysis. Medical Decision Making 2007;
27:101-111.
Week 7a Other Modeling Approaches – An Overview
Week 7b Course Review

Learning Objectives:

Week 1:

• Discuss the concept of risk with respect to health

 • Identify commonly used risk factors
• Compare and contrast diagnosis based and pharmacy based risk adjustment tools
• Distinguish between ICD-9 and CPT codes
• Identify entities responsible for maintaining ICD, CPT, and NDC codes
• Describe approaches to NDC formats
• Discuss limitations of using drug names, therapeutic class codes, and brand names for
drug product identification
• Discuss the role of NCPDP standards as it applies to pharmaceutical claims datasets

Week 2:

• Differentiate between cost and charge

• Contrast and compare these common medication cost terms: AWP, WAC, ASP
• List common sources for costs of medical care and services
• Be able to adjust prices for inflation
• Be able to discount future costs
• Understand concept of risk and relative risk
• Differentiate between relative risk and odds ratio
• Be able to calculate RR, OR, and relative risk reduction
• Understand the concept of number needed to treat
• Describe the purpose of logistic regression and be able to interpret the results
Week 3:

• Be able to calculate a logged odds ratio

• Understand the concept of indirect treatment comparisons
• Construct a decision tree

Week 4:

• Create a decision tree with variables

• Calculate path probabilities for a decision model
• Roll-back a decision tree to find the optimal path
• Identify the steps for Markov modeling
• Convert a rate to a probability
• Be able to contrast and compare Monte Carlo, cohort, and matrix algebra solutions for
Markov models
• Create a Markov model
• Debug a decision tree

Week 5:

• Create a dynamic transition probability

• Discuss the notion of the half-cycle correction
 • Be able to apply a discount rate in an economic model
• Implement distributions for measures of effectiveness and cost in an economic analysis
• Explain the difference between first and second order uncertainty
• Conduct a Monte Carlo simulation

Week 6:

• Conduct a probabilistic sensitivity analysis

• Conduct a one-way sensitivity analysis
• Explain the concept of a tornado diagram
• Create a tornado diagram
• Discuss the role of thresholds for CEA
• Identify regions of acceptance on a cost-effectiveness plane

Week 7:

• Explain structural uncertainty

• Differentiate between heterogeneity and uncertainty
• Explain the concept of extended dominance
• Contrast and compare cost-effectiveness planes and cost-effectiveness acceptability
curves
• Be able to construct a incremental cost-effectiveness ratio scatter plot
• Be able to construct a CEAC graph
• Identify the most cost-effective strategy using a CE plane and CEAC graph at a given
willingness to pay