HPH 4103

PHARMACOECONOMICS- Part II

8/3/22
Addressed Learning Outcome:

• Apply basic principles of pharmacoeconomics to pharmacy

practice
• Describe the outset and main notions of pharmacoeconomics, as a
field of study and research, and recognize the roles of such field in
the healthcare service industry.
• Explain and interpret the basic principles of pharmacoeconomics
• Cost Minimization Analysis, CMA ; Cost Effectiveness Analysis, CEA ;
Cost Utility Analysis, CUA, Cost Benefit Analysis, CBA).
 Types of
Outcome
• What are we looking for in PE studies?

• Outcome parameters
Outcome Parameters
What are consequences ?
• Positive Consequences-
• -Life-years gained
• - Improved health related quality of life

• Negative Consequences-
• -Adverse effects
• -toxicity
METHODOLOGIES

• Humanistic evaluation
-Health Regulated Quality of Life (HRQOL)
-Patient preferences (PRO)
-Patient satisfaction (PRO)

• Economic evaluations
• Partial economic evaluations
-Cost consequence analysis(CCA) or Cost outcome analysis(COA)
-Cost of illness(COI) evaluation
Full economic evaluations.
QALY: Quality adjusted life year
• Quality adjusted life year, a year of life adjusted for its quality or
its value.
•  is a generic measure of disease burden, including both the quality
and the quantity of life lived
Cost-Consequence Analysis (CCA)
• Partial economic evaluations
• -Include simple descriptive tabulations of outcomes or resources
consumed.
• -Require a minimum of time and effort.

• A cost-outcome or cost-consequence analysis (CCA)

• -describes the costs and consequences of an alternative.
• -does not provide a comparison with other treatment options.
Cost of Illness (COI) evaluation
• COI identifies and estimates the overall cost of a particular disease for a defined
population.

• COI evaluation method is also known as burden of illness.

• It involves measuring the direct and indirect costs attributable to a specific disease
such as diabetes, mental disorders, or cancer.

• COI evaluation is not used to compare competing treatment alternatives but to

provide an estimation of the financial burden of a disease.
 Type of Study
• There are four basic types of pharmacoeconomic studies (Table 1.1); cost- minimization analysis (CMA), cost-effectiveness analysis

(CEA), cost-utility analysis (CUA), and cost-benefit analysis (CBA). Each method measures costs in dollars, but they differ regarding

how health outcomes are measured and compared.

• Cost Minimization Analysis (CMA)

• Cost Effectiveness Analysis (CEA)

• Cost Benefit Analysis (CBA)

• Cost Utility Analysis (CUA)

COST MINIMIZATION ANALYSIS (CMA)
• Compares the costs of two or more alternatives that have a
demonstrated equivalence in therapeutic outcome

• Relatively straight forward and simple method

• Least cost alternative is chosen

•  Examples:
• Brand vs. Generic products Different antibiotic therapies
• Different route of administration of the same drug
• CMA has the advantage of being the simplest to conduct because the
outcomes are assumed to be equivalent; thus, only the costs of the
intervention are compared.

• The advantage of the CMA method is also its disadvantage: CMA cannot be
used when outcomes of interventions are different.

• A common example of a CMA is comparing two generic medications that are

rated as equivalent by the FDA. If the drugs are equivalent to each other (but
manufactured and sold by different companies), only the differences in the cost
of the medication are used to choose the one that provides the best value.
Thus, the type of interventions that can be evaluated with CMA may be limited.
• It would not be appropriate to compare different classes of medications using
cost-minimization analyses if there are noted differences in outcomes.
COST-MINIMIZATION ANALYSIS (CMA):
IN DRUG THE DRUG THERAPY
Cost of
therapies (₹)
COSTS Drug A Drug B

Acquisition cost 250 350

     

OUTCOMES

Antibiotic effectiveness 90% 90%

COST-MINIMIZATION ANALYSIS (CMA):
IN DRUG THE DRUG THERAPY
Cost of
therapies
(₹)
COSTS Drug A Drug B
Acquisition cost 250 350
Administration 75 0
Monitoring 75 25
Adverse effects 100 25
Subtotal 500 400
OUTCOMES
Antibiotic effectiveness 90% 90%
COST-EFFECTIVENESS ANALYSIS (CEA)
•CEA measures outcomes in natural units (e.g., mm Hg, cholesterol levels, symptom-free days [SFDs], years of life saved).
•The main advantage of this approach is that the outcomes are easier to quantify when compared with a CUA or a CBA,
and clinicians are familiar with measuring these types of health outcomes because these outcomes are routinely
collected in clinical trials and in clinical practice.
•One disadvantage of CEA is that programs with different types of outcomes cannot be compared. For example, it would
not be possible to compare the cost-effectiveness of implementing an anticoagulation clinic with implementing a
diabetes clinic because the clinical outcomes measured would be valued in different units (e.g., prothrombin time versus
blood glucose measures).
•Costs are expressed in monetary terms
•Consequences are measure in their natural units, such as:
•Cases cured
•Lives saved
•Hospitalization prevented
• Result expressed as: cost per unit of success
• CER = cost / Effectiveness

• Choice is that of lower ratio

CEA IN DRUG THERAPY
Cost of therapies (₹)
COSTS Drug A Drug B

Acquisition cost 300 400

Administration 50 0
Monitoring 50 0
Adverse effects 100 0
Subtotal 500 400
 
 Cost of therapies (₹)

COSTS Drug A Drug B

Acquisition cost 300 400

Administration 50 0

Monitoring 50 0

Adverse effects 100 0

Subtotal 500 400

OUTPUTS

Extra years of life 2.22 1.6

Cost-effectiveness ratio 500/2.2 = ₹ 225 400/1.6 = ₹ 250

Per extra year of life

COST-BENEFIT ANALYSIS (CBA)
• All costs (inputs) and benefits (consequences) of alternatives expressed in
monetary terms

• Results are often expressed as:

• Ratio of benefit to cost
• Net cost or benefit = benefit – cost
• CBA allows uniform comparison of programsor interventions with
entirely different outcomes (e.g., the implementation of an anticoagulation
clinic versus the implementation of a diabetes clinic)
CBA
• Measuring both costs and benefits in monetary terms has two
major advantages:
• First, clinicians and other decision makers can determine whether the
benefits of a program or intervention exceed the costs of implementation.
• Second, clinicians and other decision makers can compare multiple
programs or interventions with similar or unrelated outcomes.

The major disadvantage of CBA is that it is difficult to place a monetary value

on health outcomes.
Cost-Benefit Analysis Example1:
The example provides the results from a CBA of an intervention to reduce trans fats in
the food supply.
    Cost of therapies (₹)

COSTS Drug A Drug B

Acquisition cost 300 400
Administration 50 0
Monitoring 50 0
Adverse effects 100 0
Subtotal 500 400
BENEFITS(₹)    
Days at work (₹) 1000 1000
Extra months of life (₹) 2000 3000
Subtotal (₹) 3000 4000
Benefit to cost ratio 3000/500=6:1 4000/400=10:1
Net benefit (₹) 3000-500 =2500 4000-400 =3600
COST-UTILITY ANALYSIS (CUA)
• Method to compare treatment alternatives or
• programs where costs are measured in monetary terms and outcomes is expressed in terms
of patient preferences or quality of life
• CUR = Cost / QALY
• Least cost preferred
• CUA measures outcomes based on years of life that are adjusted by “utility” weights, which
range from 1.0 for “perfect health” to 0.0 for “dead.”
CUA
• https://www.youtube.com/watch?v=iuf_-u5Nf4Q
PHARMACOECONOMIC METHODS
•Cost minimization analysis (CMA)
•-assumes equal outcomes

•Cost effectiveness analysis (CEA)

•-measures outcome in natural or physical units
• 
•Cost Benefit analysis (CBA)
•-measures both benefit and cost in monetary terms
• 
•Cost Utility analysis (CUA)
•- measures outcomes in QALY
LIMITATIONS

• BIAS!!
• The choice of comparator drug
• The assumptions made
• Selective reporting of results
• Pharmaceutical Companies!!!
• Most studies are conducted or funded by pharmaceutical companies who obviously
are interested in the results, and there is a publication bias towards those studies
favourable to sponsoring companies.
Guidelines for performing a
Pharmacoeconomic analysis
A well-designed pharmacoeconomic analysis involves 10 steps:
1. Defining the problem
2. Determining the study's perspective
3. Determining the alternatives and outcomes
4. Selecting the appropriate pharmacoeconomic method
5. Placing monetary values on the outcomes
6. Identifying study resources
7. Establishing the probabilities of the outcomes
8. Applying decision analysis
9. Discounting costs or performing a sensitivity or incremental cost analysis
10. Presenting the results, along with any limitations of the study.
APPLICATION of
PHARMACOECONOMICS
• Assist in decision making and allocating scarce resources
• Assessing the value of a new agent
• Formulary decision making
• Drug policy decisions, treatment guidelines & Justify the addition of new
clinical service
• Pricing in pharmaceutical industry
• Decision on reimbursement
• Third-party; payers use such information to decide whether to pay for a particular
treatment, or to determine what price they are willing to pay
Importance of Pharmacoeconomics
• Pharmacoeconomic analysis helps to achieve maximum benefit in limited cost.
• Physicians want their patients to receive best care and outcome available.
• The payers want to manage rising costs.
• Pharmacoeconomics combines the objectives of both clinician and payers by
estimating the value of patient outcomes for the expenditure spent on
medications and other healthcare services.
• Pharmacoeconomic methods can be applied for effective formulary
management, individual patient treatment, medication policy determination,
and resource allocation.
CONCLUSION
• Pharmacoeconomics can enhance the quality of practice by
strengthening evaluation process and increasing the probability
that deliver better value in patient care
References
• Rascati, K. L. (2014). Essentials of pharmacoeconomics.
Philadelphia: Wolters Kluwer Health/Lippincott Williams & Wilkins.