PHARMACOECONOMICS –

CHAPTER 1

Lebanese International University

School of Pharmacy
Fall 2021-2022
Objectives • Define and understand basic terms in
economics

• Understand the importance and the

clinical relevancy of
pharmacoeconomics

• List and describe the differences

between the four most common types
of pharmacoeconomics’ studies
Introduction • Pharmacoeconomics is a subdivision of health
economics

• Health Economics is by itself a branch of

economics

• Economics is a social science that studies how

the society allocates its scarce (limited)
resources to satisfy unlimited needs and wants.

• It deals with the production, distribution and

consumption of goods and services.

• It’s the study of scarcity and choice.

 Basic • Resources are the building blocks of an
economy as they constitute the factors of
Economic production of goods and services for the
Concepts & satisfaction of needs and wants. The three
main resources in economics are land, labor
Terms and capital.

• Needs are what is required for a safe stable,

and healthy life such as food, water, shelter

• Wants are desires for goods and services

that have many alternatives.
 Basic • Scarcity = Limited resources
– The scarcity of resources requires individuals
Economic to choose which goods and services they

Concepts & consume

– The basis for their choice is the relative value
Terms that they place on each good or service
– The structure of these relative values is the
basis for their system of prioritization

• Opportunity cost represents the potential

benefits an individual, investor, or business
misses out on when choosing one
alternative over another.

• It is the forgone benefit that would have

been derived by an option not chosen.
 Basic • Consumer is the person that consumes/
utilizes the good or service; the end user.
Economic • Customer is the person that buys the
Concepts & good or service.

Terms • Goods are tangible items that satisfy

human wants and provide utility.
• Services are intangible such as education,
hospitalization, banking, transportation…
• Price is the amount of money a person is
willing to pay to buy a good/service
• Cost is the expense incurred for making a
profit or service.
• Profit = price-cost
• Profit margin=(profit /price)x100%
 Basic • Demand is an economic term referring
to the consumer’s desire to purchase a
Economic good or services and his/her willingness
Concepts & to pay the price of it. Thus the
need/want + willingness to
Terms pay=demand.
• P ↑, D ↓ and vice versa

• Supply represents the willingness and

ability of producers to create
goods/services and put them in the
market.
• P ↑, S ↑ and vice versa
 Basic • Price Signals

Economic – One of the fundamental differences

Concepts & between health and other areas of

Terms economics is that some consumers (ex.

patients or doctors) exhibit a reduced
sensitivity to price signals and their
consumption of healthcare remains
reasonably constant even if the price
increases

– This is mainly because in many health

services the costs of healthcare are
borne by government or through health
insurance schemes
 Health • Is economics that is applied to health
care
Economics
• Analyzes the supply and demand
functions of goods and services in the
healthcare sector
 Goals • Improve public and individual health

of Health • Treat sick individual

• Maximize the number of patients
Economics treated
• Maximize quality of treatment
• Efficiency
 Efficiency, • Efficiency measures how well the
resources are used in order to achieve a
Effectiveness desired output. It refers to getting the
and most out of the inputs.

Equity • Effectiveness refers to getting the

expected results out of the outputs, or
doing the right things.

• Equity refers to a desire to share

benefits and cost fairly across the
community
Pharmacoeco • Is a division of health economics that is
designed to provide decision makers
nomics with information about the value of the
different pharmaco-therapies.

• Pharmacoeconomics is NOT about

determining the cheapest health care
alternatives.

• It is about determining those

alternatives that provide the best health
care outcome per dollar spent.
 Why • Pharmacoeconomics attempts to
measure if the added benefit of one
Pharmaco- intervention is worth the added cost of
economics that intervention .

is Important?
 Why • It addresses the

Pharmaco- – Clinical
economics is – Economic
Important? – Humanistic aspect of health care
interventions
ECHO Model
ECHO Model

Economic
Direct
Humanistic
medica Clinical
Satisfa
l costs Efficac
ction
Resour y
Quality
ces Safety
of life
consu
med
 Why • It allows health care professionals to get
answers for questions such as:
Pharmaco-
economics is – How do the different medications

Important? impact a patient’s health related quality

of life?

– Should this new medication be added in

the formulary?
 Pharmaco- • Enables healthcare professionals to:
economics in
Formulary -Evaluate, predict or compare the costs
Decision and outcomes of different treatments in
clinical practice
Making
-Evaluate new treatment(s) in relation to
older more established therapy
Pharmacoe- • Formulary decisions according to the
conomics in World Health Organization (WHO)
Formulary should consider the following

Decision – Efficacy
Making – Effectiveness
– Efficiency
– Safety of the drug
– Quality and availability of the drug
– Costs
 Basic
Pharmaco- C O
economic
Equation o ut
st R c
s x o
($ m
) es
 Basic • If just the left hand side of the equation
is measured without regard to outcome
Pharmaco- – Cost analysis
economic
Equation • If just the right hand side of the
equation is measured without regard to
costs
– Clinical or outcome study (NOT an
economic analysis)
 Types of • Based on how health outcomes are
measured, there are four basic types of
Phamaco- pharmacoeconomic studies:
ecomics
Studies – Cost minimization analysis (CMA)
– Cost effectiveness analysis (CEA)
– Cost utility analysis (CUA)
– Cost benefit analysis (CBA)
 Cost- • The simplest form of PCE analysis

Minimization • The outcomes are assumed to be

equivalent.
Analysis • Only the costs of the intervention are
compared.
• CMA is actually a special form of a CEA.
 Cost- • CEA is the most commonly applied form
of economic analysis.
Effectiveness • Programs with different types of
Analysis outcomes cannot be compared.
• May estimate the extra costs associated
with each additional unit of outcome.
 Cost- • Measures outcomes in natural units

Effectiveness • Costs are expressed in the numerator in

monetary units
Analysis – Dollars

• Effectiveness is expressed in the

denominator in some unit of
effectiveness
– Cases cured, drop in blood pressure
Cost-Utility • CUA is a specific type of cost-
effectiveness analysis in which utility is
Analysis measured and the units of effectiveness
are quality-adjusted life-years (QALYs).

• CUA takes into account patient

preference and quality improved.
Cost-Utility • Measures outcomes based on years of
life that are adjusted by “utility”
Analysis weights.

– Range from 1.0 for “perfect health” to

0.0 for “dead.”

• CUA is a valuable technique to evaluate

new chemotherapeutic regimens.
Cost-Benefit • Clinicians and other decision makers can
compare multiple programs or
Analysis interventions with similar or unrelated
outcomes.

• Both costs and benefits are expressed in

the same units, usually monetary units.

• It is difficult to place a monetary value

on health outcomes.
Other Types • Cost-consequence analysis(CCA)

of Analyses – Constitutes only a list of costs and a list

of various outcomes is presented, with
no direct calculations or comparisons.
Other Types • Cost-of-illness(COI) 

of Analyses
– COI is the evaluation and assessment of
the resources used in treating an illness.
– This technique is used to determine the
total economic burden of a disease on
the society and obtain baseline
information before the introduction of a
new intervention .
– Costs are measured in monetary units
(ex, dollars).
– No comparison is made in this type of
analysis.
Cost-Of- • Direct costs, or the costs associated
with providing treatment or prevention
Illness
• Indirect costs, or the costs attributable
to loss of productivity of patients with
that disease or condition
 Final • The type of analysis conducted and
economic comparisons are only one
Thoughts part of the decision-making process.

• Social values and legal, ethical, and

political considerations are also
incorporated into the decision-making
process.