PHARMACOECONOMICS

“Pharmacoeconomics can be defined as the branch of the economics that uses cost-benefit, cost
effectiveness, cost-minimization, cost-of-illness and cost-utility analyses to compare pharmaceutical
products and treatment strategies.” ‘Pharmacoeconomics’ is a new word; but economic interest in
drug and other treatments of health problems is much older. Decisions about what treatments should
be available within a health-care system have always been influenced by the resources available to
pay for them.
Pharmacoeconomics is the application of economic analysis to the use of pharmaceutical products,
services and programs, with frequently focuses on the cost (inputs) and consequences (outcomes) of
that use. “Research that identifies measure and compares the costs (resources consumed) and the
economic, Clinical and Humanistic outcomes of diseases, drug therapies and programmes directed to
the diseases”. Its need is undeniable, especially in developing countries. Economic evaluations in the
field of pharmacology started about 30 years ago. Crude parameters were used to evaluate e.g.
increased labour production.
Need & Scope Pharmacoeconomics:
Pharmacoeconomics is a subdivision of health economics and results from that discipline coming of
age through consolidation to diversification. Health Economics, as a branch of economics is itself
relatively young. Basically the pharmacoeconomics is needful in following manner;

 In Industry- Deciding among specific research and development alternatives.

 In Government- Determining program benefits and prices paid.
 In Private Sector- Designing insurance benefit coverage

METHODS OF PHARMACOECONOMIC EVALUATION:

There are basically 4 categories or types of pharmacoeconomic studies. These are presented here in
order of detail,
A. Cost-minimization analysis (CMA)
B. Cost-effectiveness analysis (CEA)
C. Cost-utility analysis (CUA)
D. Cost-benefit analysis (CBA)
COST MINIMIZATION ANALYSIS (CMA)
Cost-minimization analysis (CMA) involves the determination of the least costly alternative when
comparing two or more treatment alternatives. With CMA, the alternatives must have an assumed or
demonstrated equivalency in safety and efficacy CMA is a relatively straightforward and simple
method for comparing competing programs or treatment alternatives as long as the therapeutic
equivalence of the alternatives being compared has been established. If no evidence exists to support
this, then a more comprehensive method such as cost-effectiveness analysis should be employed.
Remember, CMA shows only a “cost savings” of one program or treatment over another.
 COST EFFECTIVENESS ANALYSIS (CEA):
Cost-effectiveness analysis (CEA) is a form of economic analysis that compares the relative costs and
outcomes (effects) of two or more courses of action. Cost effectiveness analysis is distinct from cost-
benefit analysis, which assigns a monetary value to the measure of effect. Cost-effectiveness analysis
is often used in the field of health services, where it may be in appropriate tomonetize health effect.
Typically the CEA is expressed in terms of a ratio where the denominator is a gain in health from a
measure (years of life, premature births averted) and the numerator is the cost associated with the
health gain. The most commonly used outcome measure is quality-adjusted life years (QALY). Cost-
utility analysis is similar to costeffectiveness analysis. The results of CEA are also expressed as a
ratio—either as an average costeffectiveness ratio (ACER) or as an incremental costeffectiveness ratio
(ICER).

COST UTILITY ANALYSIS (CUA):

Cost-utility analysis (CUA) is a method for comparing treatment alternatives that integrates patient
preferences and HRQOL. CUA can compare cost, quality, and the quantity of patient-years. QALYs
represent the number of full years at full health that are valued equivalently to the number of years as
experienced. For example, a full year of health in a disease-free patient would equal 1.0 QALY,
whereas a year spent with a specific disease might be valued significantly lower, perhaps as 0.5
QALY, depending on the disease. This method is used to compare treatment alternatives that are life
extending with serious side effects (e.g., cancer chemotherapy), those which produce reductions in
morbidity rather than mortality (e.g., medical treatment of arthritis), and when HRQOL is the most
important health outcome being examined. This is similar to cost effectiveness in that the costs are
measured in money and there is a defined outcome. But here the outcome is a unit of utility (e.g. a
QALY).
ACER = Health care cost / Clinical outcomes
COST BENEFIT ANALYSIS (CBA):
CBA may also seem to discriminate against those in whom a return to productive employment is
unlikely, e.g. the elderly, or the unemployed. However the virtue of this analysis is that it may allow
comparisons to be made between very different areas, and not just medical, e.g. cost benefits of
expanding university education (benefits of improved education and hence productivity) compared to
establishing a back pain service (enhancing productivity by returning patients to work). Cost–benefit
analysis (CBA), sometimes called benefit. Cost analysis (BCA), is a systematic approach to
estimating the strengths and weaknesses of alternatives that satisfy transactions, activities or
functional requirements for a business. It is a technique that is used to determine options that provide
the best approach for the adoption and practice in terms of benefits in labor, time and cost savings etc.
APPLICATIONS OF PHARMACOECONOMICS:

 Health care practitioners can benefit from applying the principles and methods of pharmacoeconomics
to their daily practice settings.
 Pharmacoeconomics aid clinical and policy decision making.
 Complete pharmacotherapy decisions should contain assessments of three basic outcome areas
whenever appropriate economic, and humanistic outcomes (ECHO)
 Traditionally, most drug therapy decisions where based solely on the clinical outcomes (e.g.. safely
and efficacy) associated with a treatment alternative.
 Over the past 15 to 20 years, assessment of the economic outcomes associated with a treatment
alternative become popular.
 The current trends is to incorporate the humanistic outcomes associated with a treatment alternative,
that is, to bring the patient back into this decision making equation.
 In today’s health care environment, it is no longer appropriate to make drug-selection decisions based
solely on acquisition costs.
CHALLENGES: The main challenges for pharmacoeconomics continue to be:
 Establishing guidelines or standards of practice
 Creating a cadre of trained producers and consumers of pharmacoeconomic work.
 Continuing education on the relevant features of this discipline for practitioners, government officials,
private sector executives.
 Stable funding to support applied pharmacoeconomic research.
 Lack of full appreciation of the potential importanceand application of Pharmacoeconomics studies.
 Poor technical skills of healthcare professionals, especially of pharmacists.
 Lack of appropriate database of the health care system in order to bring about research adaptation
from another country.