Front cover:

Pharmaco-
economics
L e c t u r e

Economic evaluation
3

Typesetting: Sajjad Oday Source: Dr. Haitham Sachit

Date: 5/27/2024 (1st Edition) Date Update: 5/28/2024 I
Links: https://t.me/Ph_Sajjad_OA https://t.me/ph11ph1
Summaries:
No table of figures entries found.
Figures:
Figure 3-1: Components of economic evaluation ...................................................................................................................... 1
Figure 3-2: Seeing healthcare as a process ................................................................................................................................ 1
Figure 3-3: An example of a healthcare process is the process of an operation ....................................................................... 1
Figure 3-4: Cost-Effectiveness Plane .......................................................................................................................................... 3

Tables:
Table 3-1: Pharmacoeconomic Methodologies ......................................................................................................................... 1
Table 3-2: Cost-Effectiveness Grid ............................................................................................................................................. 3

Content:
Front cover: ....................................................................... I
Summaries:...................................................................... II
Figures: ............................................................................ II
Tables: .............................................................................. II
Content: ........................................................................... II
3.2.A Cost-Minimization Analysis (CMA) [Cost]: ...... 1
3.2.A.I Example 1: ................................................ 1
3.2.B Cost-effectiveness analysis [Decision-Maker]: 2
3.2.B.I Outcome measures in cost-effectiveness
analysis:................................................................ 2

Lecture 3: Economic evaluation ....................................... 1 3.2.C Cost-Effectiveness Ratios: ............................... 2

3.1 Economic evaluation: ............................................. 1
3.1.A Pharmacoeconomic Methodologies: .............. 1
3.1.B Economic evaluation:...................................... 1
3.1.C Types of economic evaluation: ....................... 1
3.2 The components of economic evaluation:............. 1
3.2.C.I Ways of using outcome data in incremental
economic analysis: ............................................... 2
3.2.C.II Should the incremental cost-effectiveness
ratio be large or small? ........................................ 2
3.2.D Cost-Effectiveness Grid: .................................. 3
3.2.E Cost-Effectiveness Plane: ................................ 3

II
LectureLECTURE
3: Economic evaluation

3
3.1 Economic evaluation:
Economic evaluation

--------------
Costs Healthcare
3.1.A Pharmacoeconomic Methodologies: (inputs) programme

There is often more than one way of doing something in

healthcare. Figure 3-1:
Components of economic evaluation
▪ For example, there may be two different drugs that can
Therefore, an economic evaluation requires the systematic
be used to treat depression, or two surgical techniques
identification of costs and consequences of the healthcare
for the management of dysmenorrhea.
interventions to be compared (Figure 3-2). Any healthcare
Note that interventions may be compared against each
intervention can be seen as a process in this way.
other (for example antibiotic A against antibiotic B) or
against a 'do nothing' scenario.
There are different ways in which we can choose one of
these options.
rNPt I • P"rocess of ·
healthcare
' - ------"J~

▪ We may decide to pick the more effective surgical tech- ~

nique, or we may decide to select the less costly antide- Resources: Su rgery O utcomes :
pressant. • Bu ilding s Drug therapy • Effectiveness
• Stoff Physiotherapy • Qol
3.1.B Economic evaluation: • Drugs Counsel ling o Util ity
Economic evaluation is a generic term for techniques that etc . etc. • M onetary
are used to identify, measure and value both the costs and valuation
the outcomes of healthcare interventions. Figure 3-2:
▪ Economic evaluation is concerned with identifying the Seeing healthcare as a process
differences in costs and outcomes between options. Figure 3-3 illustrates how an operation can be shown as a
▪ It can be defined as a study that compares the costs process with inputs (resources consumed) and outputs (ef-
and benefits of two or more alternative interventions; fect on the patient).
so, the main components are costs and benefits.
Process of an Outputs
3.1.C Types of economic evaluation: I Inputs ~ operation
There are four main types of economic evaluation (Table 3-
1):
l
Resources: l l
O utcomes :
1. Cost-Minimization Analysis (CMA) • Anaesthetics • Induction • Postoperative pain
• Other drugs • Maintenance • Nausea
2. Cost-Effectiveness Analysis (CEA) • Equipment • Operation • Vomiti ng
3. Cost-Utility Analysis (CUA) • Disposables • Postoperative • Dizziness
• Stoff costs management • Bleeding
4. Cost-Benefit Analysis (CBA). • Hotel costs • Postdischorge • Infection
Although they employ similar methods to define and • Post discharge management etc.
evaluate costs, they differ in the methods used to estimate Figure 3-3:
the benefits from a program or intervention. An example of a healthcare process is the process of an operation
Table 3-1: Pharmacoeconomic Methodologies 3.2.A Cost-Minimization Analysis (CMA) [Cost]:
Cost In CMA, the outcome of the treatments being compared is
Methodology Measurement Unit Outcom e Unit
the same.
Cost-benefit dollars dollars • Having ensured that the outcomes between the com-
Cost-effectiveness dollars na ural units (life-years gained, mg/dl parators are equivalent, then the approach used is to
blood glucose, mm Hg blood pressure)
Cost-minimization dollars assume to be equivalent in comparative consider the costs of each option.
groups • The preferred option is the cheapest.
Cost-utility dollars quality-adjusted life-year or other utilities 3.2.A.I Example 1:
Suppose two antibiotics, G and C, are equally effective in the
3.2 The components of economic evaluation: treatment of Pseudomonas pneumonia, according to the
It is clear that economic evaluations can be understood in current evidence. Therefore, we should use the least costly
terms of the inputs (costs) and outputs (benefits or out- alternative.
comes) of a healthcare intervention (Figure 3-1).

1
▪ Comparing medications that are the same chemical en-
tity, the same dose, and have the same pharmaceutical
properties (i.e. they are Bioequivalent) such as brand
versus generic or generic made by one company com-
pared with generic made by another company.
▪ In these cases, only the cost of the medication itself
needs to be compared because outcome should be the
same.
CMA is the simplest of the four types of Pharmacoeconomic
analysis; because the focus is on measuring the left-hand
side of the pharmacoeconomic equation (the cost) and the
right–hand side of the equation (outcomes) is assumed to
be the same. [MCQ]
This method is limited in use because it can only com-
pare alternatives with the same outcomes. [MCQ]
3.2.B Cost-effectiveness analysis [Decision-Maker]:
Cost-effectiveness analysis is a technique designed to assist
a decision-maker in identifying a preferred choice among
possible alternatives.
Generally, cost-effectiveness is defined as a series of
analytical and mathematical procedures that aid in the
selection of a course of action from various alternative ap-
proaches.
Cost-effectiveness analysis has been applied to health
matters, where the program's inputs can be readily
measured in dollars, but the program's outputs are
more appropriately stated in terms of health improve-
ment created (e.g., life-years extended, clinical cures).
3.2.B.I Outcome measures in cost-effectiveness analysis:
In CEA, outcomes are reported in a single unit of measure-
ment, and are given in natural units, for example, mmHg for
blood pressure reduction, or life-years gained by transplan-
tation.
▪ An economic evaluation could examine the use of Cor-
onary Artery Bypass Graft (CABG) surgery for ischemic
heart disease compared with medical (drug therapy
only) management.
The effectiveness of both treatment methods can be meas-
ured using mortality at 10 years.
Evidence suggests that it is likely that mortality will be
lower if CABG is used.
Therefore, cost-effectiveness analysis is the appropriate
method to use; because the outcome is common to the two
alternatives, but there is a difference in effectiveness.
3.2.C Cost-Effectiveness Ratios:
Results from a CEA are typically expressed as a cost-effec-
tiveness (C/E) ratio; the numerator of the ratio reflects total
costs, while the denominator is the expression of the out-
come variable.
Two forms of the C/E ratio exist (1) Average, or Simple, and
(2) Incremental (ICER).
1. The average/simple C/E ratio is a straightforward ap-
proach, defined as follows:
𝐶𝑜𝑠𝑡
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 (𝑠𝑖𝑚𝑝𝑙𝑒) 𝐶/𝐸 𝑟𝑎𝑡𝑖𝑜 =
𝐸𝑓𝑓𝑒𝑐𝑡
2
2. The ICER expresses the cost required to achieve each
extra unit of outcome.
• When one alternative is more effective but requires
more resources, the ICER must be calculated.
• In the situation when one alternative is more effec-
tive and less costly, this alternative is the dominant
therapy.
• When there is dominance, ICERs do NOT need to
be generated.
The following questions are always asked:
What is the difference in cost between the interventions?
What is the difference in outcome between the interven-
tions?
The answers to these questions allow the explanation of the
incremental cost-effectiveness ratio (ICER). Incremental
cost/outcome ratios may be calculated using the following
equation:
𝐶𝑜𝑠𝑡1 − 𝐶𝑜𝑠𝑡2
𝑂𝑢𝑡𝑐𝑜𝑚𝑒1 − 𝑂𝑢𝑡𝑐𝑜𝑚𝑒2
When:
• Outcome 1: is the number of patients successfully
treated with intervention 1.
• Outcome 2: is the number of patients successfully
treated with intervention 2.
• Cost 1: is the cost of treating patients with intervention
1.
• Cost 2: is the cost of treating patients with intervention
2.
3.2.C.I Ways of using outcome data in incremental eco-
nomic analysis:
It could be cost per life year gained, cost per death averted,
cost per case successfully diagnosed, or cost per patient suc-
cessfully treated. [MCQ]
▪ For example, in the cost-effectiveness analysis of
rhDNase in children with cystic fibrosis, the outcome
measure was percentage improvement in FEV1 (test
lung function). In this study, it's reported that the ICER
to be £200 per 1% gain in FEV1. This approach is often
used in CEA.
However, sometimes it is not easy to interpret the clinical
significance of this type of ICER.
• An improvement of 1% in FEV1 is not likely to be clini-
cally significant.
• Therefore, we might be more interested in knowing the
ICER for an improvement of 10% or 20% in FEV1 which
is more likely to be clinically significant.
3.2.C.II Should the incremental cost-effectiveness ratio be
large or small?
The larger the ICER, the more money is required to buy each
unit of outcome. Therefore, as an ICER becomes larger, the
intervention is said to be less cost-effective. [MCQ]
▪ For example, a CEA of reducing cholesterol concentra-
tion with statins, generated cost per life year gained for
different types of patients in which the drugs may be
indicated.
It can be seen that different groups of patients had
very different ICERs.
To generate one additional life year women aged 45-54 with
a history of angina and cholesterol 5.5-6.0 mmol/1 it would
cost £361,000.
This is 60 times what it would cost to generate one ad-
ditional life year in men aged 55-64 with a history of my-
ocardial infarction and cholesterol above 7.2 mmol/1.
3.2.D Cost-Effectiveness Grid:
A cost-effectiveness grid can be used to illustrate the defini-
tion of "cost-effectiveness" (Table 3-2).
To determine if a therapy or service is cost-effective, both
▪ If an alternative is less expensive and more effective, the
point would fall in quadrant II, and the alternative
would dominate the standard comparator.
▪ If an alternative was less costly and less effective, the
point would fall in quadrant III, and again a Trade-off
would have to be considered. (Do the costs savings of
the alternative outweigh its decrease in effectiveness?).
▪ If an alternative was more expensive and less effective,
the point would fall in quadrant IV, and the alternative
would be dominated by the standard comparator.
Cost Differences(+)

the costs and effectiveness must be considered. Think of

comparing a new drug with the current standard treatment.
If the new treatment is:
Quadrant IV Q uadra nt I
▪ 1) Both more effective and less costly (cell A), 2) More Dominated Tradeoff

effective at the same price (cell B), or 3) Has the same Effect Effect
effectiveness at a lower price (cell D). The new therapy Differences(-) Differences (+)

is considered cost-effective. [MCQ] Quadrant Ill

Tradeoff
Quadrant II
Dominant
▪ On the other hand, if the new drug is 1) Less effective
and more costly (cell I), 2) Has the same effectiveness
but costs more (cell F), or 3) Has lower effectiveness for
the same costs (cell H). Then the new product is not Cost Differe nces(-)

cost-effective. [MCQ] Figure 3-4:

▪ For the middle cell E, other factors may be considered Cost-Effectiveness Plane
to determine which medication might be best.
• For the other two cells (C and G), an ICER is calcu-
lated to determine the extra cost for each extra unit
of outcome. [MCQ]
Table 3-2: Cost-Effectiveness Grid
Cost of Alttrualin A Rtlatin to .-llttruatin B

LOWER EQUAL IDGHER

EffertiHuess of IUGHER A(+) (Domiuaut) B(+) C (+/-)(TRADE-OFF)

Alt,rna!IHA
R,latiw to
EQL"AL D(+) EAl"bltnl)·)' F(- )
AltmrntlwB
LOWER G (+/-) (Trnde-ofl) H (- ) I (Dominated)

Dominant strategies are defined as offering both lower cost

and higher effectiveness compared with an alternative,
while a Dominated Strategy is one that costs more than the
comparator and is less effective.
3.2.E Cost-Effectiveness Plane:
A graphical depiction of cost-effectiveness comparisons is
also sometimes is a cost-effectiveness plane (seen Figure 3-
4).
The point on the plane where the x and y axes cross indi-
cates the starting point of costs and effectiveness for the
standard comparator.
A point is placed in the plane for each alternative to the
standard comparator by indicating how much more or less it
costs than the starting point (y-axis) and how much more or
less effective it is than the starting point (x-axis).
▪ If an alternative is more expensive and more effective
than the standard comparator, this point will fall in
quadrant I, and a Trade-off is required (i.e., is the in-
creased cost of the new treatment worth the increase
in effectiveness?)