PHARMACOECONOMICS

What is PharmacoEconomics (PE)?

Input Output
costs costs

HEALTHCARE
 Pharmacoeconomic Evaluations
Term first coined in 1986 by
Townsend

the description and analysis of the

costs of drug therapy to health
systems and society.
 Definition:
Description and analysis of the costs
and consequences of pharmaceutical
products and services and their
impact on
individuals,
health care systems
and society.
 Pharmacoeconomics
Research that identifies, measures
and compares the costs (resources
consumed) and the Economic,
Clinical and Humanistic Outcomes of
diseases, drug therapies and
programmes directed to these
diseases.
 Objectives
Objectives of pharmacoeconomics
and outcomes research must
originate within three dimensions
when considering results and value
of healthcare
Acceptable clinical outcomes
Acceptable humanistic outcomes
Acceptable economic outcomes
Outcome research-
Means to identify, measure,
evaluate the result of
healthcare researches in
general PRINCIPLE
Cost-
S
It is value of resources
consumed by a program or
drug therapy of interest
Consequences-
Effects, outputs or outcomes
of program or drug therapy
of interest
The point of view considered in economic analyses influences the
outcomes and costs considered to be most relevant:
Patient Perspectives
According to patient
E.g.- Insurance copayments, Indirect costs, Drug costs

Provider perspectives
Provider can be a hospital govt./ pvt. PERSPECTIVE
E.g.-Lab tests, Hospitalization

Payer perspectives-
Direct costs
E.g. Govt., Insurance company

Societal perspectives-
Broadest
Considers benefits of society
Include morbidity & mortality
CONSEQUENCES
Outcomes Includes

Cure, comfort and

survival
Clinical

Physical, emotional,
Humanistic
social function, role
performance

Economic Expense, saving, cost

avoidance
+ve & -ve consequences-

Positive Consequences-
Life-years gained , Improved health
related quality of life

Negative Consequences-
Adverse effects, toxicity
Types of pharmacoeconomic
evaluations

Cost of illness evaluation

Cost benefit analysis
Cost minimization analysis
Cost effective analysis
Cost utility analysis
Cost benefit analysis
(CBA)
Identification, measurement, comparison of the
benefits and cost of program or treatment
alternatives
Consequences are measured in terms of total
costs associated with the programme
B/C > 1 treatment is of value
B/C= 1 benefits equal to cost
B/C< 1 not economically beneficial
Cost Minimization Analysis (CMA)

When two or more intervention has equal therapeutic

outcome
Involves the determination of least costly alternative
Alternative must have assumed or demonstrated
equivalency in safety and efficacy
Example- Anti-ulcers
Cost Effective Analysis

Determines which program or treatment

accomplishes a given objective at least cost

In CEA the effectiveness is expressed in terms of

monetary units that describes the desired
objectives
Lives saved
Disability days avoided
Cases treated
Cost Utility Analysis(CUA)
Method for comparing treatment alternatives
that integrates patient preferences and
HRQOL.
Resources consumed is measured in
monetary units
Health outcomes adjusted for quality is
quality adjusted life year (QALY).
QALY- is a measure of disease burden,
including both the quality and the
quantity of life lived
1.0 QALY = Disease free yr.
0.5 QALY = Yr. spent with specific disease
 Why Pharmacoeconomics -
Internal
New Drug
Investigational
Approval -
New Drug - IND
NDA

Basic Research Phase I Phase II Phase III

Time (months) 42.6 15.5 24.3 36.0 = 119.4

Direct Cost ($million) 65.5 9.3 18.6 20.2 = 113.6
Capitalized Cost 155.6 17.8 30.3 27.1 = 230.8
 Pricing Tool
1 2 3
Drug D

Drug C

Drug B
Drug A
Effectiveness
1.
1. Break-even
Break-evenPrice
Price

2.
2. Efficiency
EfficiencyPrice
Price

3.
3. Premium
PremiumPrice
Price

Total Cost of Treatment

 Pharmacoeconomic analysi
Subject determination STEPS
Comparator alternative medical programme
Time horizon
Perspective
Cost analysis
Discounting
Clinical outcomes
Type of analysis
Incremental analysis
Sensitivity analysis
Results presentation
 Discounting Costs
In order to draw most valid conclusion about
costs generated over time to achieve an
effect in the future, it is necessary to
consider that there is a time preference
associated with money
Time-value of money adjustment
Money in hand is worth more than the same
amount sometime in the future (we like to be
paid as soon as possible, but prefer to pay at the
last possible moment)
Therefore future costs must be adjusted to reflect
present value.
A $1000 cost one year from now requires only $930.00
in hand today assuming a 7% return on investment.
 Sensitivity Analysis
Conclusions drawn from an economic analysis
may change, depending on the uncertainty of
cost and effects considered.
S.A., by altering important variables & then
recalculating results, tests the validity of
conclusions:
Would Agent A still be most cost-effective if the
effect of Agent B was greater than measured in
clinical trial?
Would Agent A still be most cost-effective if the
monitoring costs of Agent B were actually
lower?
S.A. becomes increasingly important as
assumptions are made to a greater degree.
 Steps to Pharmacoeconomic
Literature Evaluation
Evaluate:
The quality of the journal
Qualifications of authors
Title and abstract- unbiased?
Study methodology
Perspective, study design, outcomes and appropriate
alternatives, costs and appropriate discounting,
sensitivity analysis, & data sources
Sponsorship- could bias be introduced?
Incremental results
What is the conclusion and does it differ between
subgroups? How much does allowance for
uncertainty change conclusion?
 Perspectives

Patient 3rd-Party Payer

-Clinical Care -Clinical Cure
-Quality of life -Cost
-Out-of-pocket -Customer
Cost perception of
-Satisfaction with value
treatment
process Employer / Society
-Clinical Cure
Hospital / Physician -Cost
-Clinical Cure -Productivity
-Profit from treatment
Relationship between Outcomes,
Pharmacoeconomics and
Pharmaceutical Care
outcomes
research
pharmaco-
economics

pharmaceutical
care
 PHARMACOECONOMIC
METHODS

Economic Humanistic

Cost consequence
Quality of life
Cost benefit
Patient preferences
Cost effectiveness
Patient satisfaction
Cost minimization
Cost utility
Specific Decisions for PE
Applications
MICRO

Clinical Decisions

Formulary Management

Drug Use Guidelines

Disease Management

Justification of Pharmacy Services

Resource Allocation

MACR
National Centre for
Pharmacoeconomics
Established with financial support
from the Department of Health and
Children
Aims to promote expertise in Ireland
for the advancement of the
discipline of pharmacoeconomics
through education, practice and
research C e n tr e
D e p t o f H e a lth R esearch E d u c a tio n

www.ncpe.ie
 Types of Pharmacoeconomic
Analysis

Methodology Cost measurement Outcome unit

unit
Cost minimization Dollars Various- but
equivalent in
comparative groups
Cost benefit Dollars Dollars

Cost effectiveness Dollars Natural units (life

years, mg/dl blood
sugar, LDL
cholesterol)
Cost utility Dollars Quality adjusted life
years
 Common Misconceptions When Applying
Pharmacoeconomic Principles

Cost-effective care is initially the cheapest alternative

in a manner similar to other investments, least cost
option may lead to greater costs downstream

Cost-effective care is outcome that generates

biggest effect in a manner to similar investments,
smaller increments of outcome may be achieved at a
lower overall cost
 Incremental Cost-effectiveness
Analysis
Makes comparisons to other
therapeutic options, standard of care,
or doing nothing (placebo).
Fundamental ratio
Cost optionB Cost optionA
Effect optionB Effect optionA

=
Cost to achieve one unit of effect
 Application of
Pharmacoeconomics

Pharmacoeconomic Studies

Research and Pricing and Communication to

Development Reimbursement Physicians and
Strategy Strategy Patients

Phase II Phase III Regulatory Marketing

Phase Phase
 Applications of
pharmacoeconomics
Drug Therapy Evaluation-
Selecting the most cost-effective drugs for an organizational formulary
making a decision about an individual patients therapy
customizing a patients pharmacotherapy.

CLINICAL PHARMACY SERVICE EVALUATION

Determining the value of an existing service,
Estimating the potential worth of implementing a new service,
Capturing the value of a cognitive clinical intervention
Industry marketing, pricing, performance guarantees
Managed Care protocols, guidelines, formularies
Physicians individual patient treatment decisions, prescribing, payor-
performance
Consumers education, autonomy
Government pricing, approval, formularies, policy
Institutions protocols, guidelines, formularies
Pharmacists formularies, protocols, guidelines, pharmaceutical care services or
program evaluation
 Drug therapy
evaluation
To assist clinicians and practitioners in
making more informed and complete
decisions regarding drug therapy in
providing cost effectiveness data to
support the addition or deletion of a drug.
Eg. In patients with relapsed Non-small cell lung
carcinoma(NSCLC), treatment with erlotinib was
found to be cost-saving versus docetaxel and
cost-effective versus best supportive care. In this
study erlotinib is found to be more efficacious &
cost effective compare to docetaxel in
Netherlands for patients with relapsed NSCLC.
 Drug therapy evaluation

P & T Committee.
Eg. Community-acquired pneumonia is a frequent cause of
hospitalization in the United States. In this study
comparison of intravenous monotherapy with either
levofloxacin or azithromycin against combination of
cefuroxime plus erythromycin. The drug acquisition costs of
levofloxacin was the most expensive of the three regimens
($126 vs. $80 and $83 for azithromycin and
cefuroxime/erythromycin, respectively). When the costs of
supplies and administration, adverse drug events, and
treatment failures were included in the analysis,
levofloxacin and azithromycin were found to be similar in
cost per pneumonia cure ($208 vs. $228). Taking
pharmacoeconomics data into consideration, Levofloxacin
or azithromycin when used as monotherapy, were more
cost-effective than the cefuroxime/erythromycin
combination.
 Drug therapy evaluation
Influencing prescribing pattern of
physician
Eg. A prospective observational study (POS)
assessing the standard of care was conducted over
two months and was compared with a proactive
conversion program (PCP). A cost-minimization
analysis was performed. A pharmacist-managed
proactive program that used predetermined clinical
criteria for converting levofloxacin therapy from i.v.
to p.o. without physician approval reduced length
of stay and institutional health care costs without
compromising clinical outcomes.
Drug therapy evaluation
Useful for making a decision about an individual
patients therapy. Evaluating the impact a drug
has on a patients HRQOL can be useful when
deciding between two agents for customizing a
patients pharmacotherapy
Eg. An author performed cost utility analysis from
governments perspective that there is increased
compliance with ACE inhibitors in type 1 diabetic
nephropathy due to cost reduction. ACE inhibitor
therapy found to be cost effective with an increase of
0.147 in the number of quality-adjustedlife-years
(QALYs) and an annual cost savings of $849 per
patient. ACE inhibitor therapyfor type I diabetes with
macroproteinuria improves patient outcomes,with a
decrease in cost for end stage renal failure services.
Clinical pharmacy service evaluation

Justify the value of various health care services,

particularly pharmacy services.

Eg. Clinical Pharmacy Services, Pharmacy Staffing, and the Total Cost of
Care in United States Hospitals.
In this study, relation & association of clinical pharmacist services, staffing &
total cost of care was evaluated in the united states. The database
constructed from National clinical Pharmacy service database,1992. Data
were collected from 3422 hospitals in the united states. Out of 14 clinical
pharmacy services, 6 services were found to reduces total cost of care. For
ex. Service like drug information reduces cost of 12.14 times compare to
that of drug cost reduction. Service like protocol management reduces cost
of 12.59 times compare to that of drug cost reduction. Services like
admission drug history reduces cost of 32.64 times compare to that of drug
cost reduction. So, it is concluded that some clinical pharmacy services and
clinical pharmacists may be able to lower the total cost of care in the united
states. It also suggest that increase in staffing levels of clinical pharmacists
and pharmacy administrators are associated with lowering of 30% of
hospitals total cost.
Clinical pharmacy service evaluation

Pharmacoeconomics can be useful in

determining the value of an existing service,
estimating the potential worth of implementing
a new service, or capturing the value of a
cognitive clinical intervention.
Eg. Cost Effectiveness of A Clinical Pharmacist on A
Neurosurgical Team.
In this retrospective study of services of dedicated pharmacist
in neurosurgical team for the duration of 4 years was reviewed.
From 2156 patients, 11250 interactions were recorded. Total
cost saving is $718260 over the duration of the study that
includes hospital stays, readmission rates, and pharmacy cost.
 Providing drug information services by
clinical pharmacists helps to reduce the
total cost of care.
Eg. Clinical Pharmacy Services, Pharmacy
Staffing, and the Total Cost of Care in United
States Hospitals.
In this study, pharmacist provided unbiased drug
information services which lowers total cost of care up
to 28% of all hospital related compare with drug
morbidity & mortality. In addition, ADRs in hospital are
often preventable if detected early & with better
information system it is likely to be accepted by other
health professionals. Each $ of pharmacists salary
associated with $602.16 reduction in total cost of care.
 ADR monitoring services by clinical
pharmacists helps to reduce the total cost of
care by reducing ADR related admission.
Eg. Clinical Pharmacy Services, Pharmacy Staffing,
and the Total Cost of Care in United States Hospitals.
Adverse drug reactions are the most common untoward
events occurring in hospitals & significantly increase
the cost of care. This study suggest that the presence of
this service indicates a hospital that has an active
program to detect and prevent ADRs, and thus may
reduce the cost of care associated with these problems.
A cost reduction of $1,610,841.02 in total cost of
care/hospital was associated with the presence of the
service. Each $ of pharmacists salary associated with
$2988.57 reduction in total cost of care.
 Providing services of drug management
protocol to hospital.
Eg. Clinical Pharmacy Services, Pharmacy Staffing,
and the Total Cost of Care in United States
Hospitals.
Pharmacist provided drug protocol management services
achieves high level of trust by medical staff due to
improvement of patients condition with lower cost. A
reduction of $1,729,608.41 in total cost of care
reduction/hospital was associated with the presence of
drug protocol management . Each $ of pharmacist salary
cost was associated with $1048.25 reduction of total
cost of care.
 Pharmacists participation on medical
ward rounds.
Eg. Clinical Pharmacy Services, Pharmacy Staffing,
and the Total Cost of Care in United States
Hospitals.
In medical rounds major decisions of therapy is
discussed. Presence of pharmacist helps in better
patient care with reduction in cost. A reduction of
$7,979,720.45 in total cost of care/hospital was
associated with pharmacists' participation on medical
rounds. Each $ of pharmacist salary cost was
associated with $252.11 reduction of total cost of care.
 Service of clinical pharmacist in taking
medication history of patients.

Eg. Clinical Pharmacy Services, Pharmacy Staffing,

and the Total Cost of Care in United States
Hospitals.
As up to 28% of patient admission is due to drug related
morbidity & mortality. In addition taking medication history
helps to avoid unnecessary cost burden on patient in early
stage of therapy. Pharmacist is the best person to identify it.
A reduction of $6,964,145.17 in total cost of care/hospital was
associated with pharmacist-provided admission drug
histories. Each $ of pharmacist salary cost was associated
with $776.64 reduction of total cost of care.
 Conclusions
Pharmacoeconomics can 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 studythere 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.

Pharmacoeconomics and outcomes research can enhance the quality

of your practice by strengthening your evaluation process and
increasing the probability that you deliver better value in patient care.