Pharmacoeconomics

PHARMACOECONOMICS
Dr. Salim Sheikh
Dept. of Pharmacology,
VMMC & Safdarjung Hospital.
Dr. SALIM SHEIKH, VMMC & SAFDARJUNG HOSPITAL

.
Dr. SALIM SHEIKH, VMMC & SAFDARJUNG
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OVERVIEW OF PRESENTATION
 Brief History
 Introduction
 Challenges
 Pharmacoeconomics Evaluation
 Methods for Evaluation
 Assessment of Results
 Limitations of Evaluation
 Conclusions

HISTORY
• Economic evaluations in the field of pharmacology started about 30
years ago.
• In 1978 McGhan , Rowland & Bootman , from the university of
Minnesota, introduced the concepts of cost-benefit & cost-
effectiveness analyses.
• Crude parameters were used to evaluate e.g. increased labour
production.
• The term pharmacoeconomics was used on a public forum for the
first time in 1986 by Townsend.
“the description and analysis of the costs of drug
therapy to health systems and society”
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INTRODUCTION
• Health economics is the science of assessing cost and benefits
of health care.
• Pharmacoeconomics is a branch of health economics which
compares the value of one drug or a drug therapy to another.
Pharmacoeconomics
Pharmakon - Drug
Oikonomia -
Management of a
household
Oikos – House
Nomos – Law
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DEFINITION
• Pharmacoeconomics is the application of economic analysis to
the use of pharmaceutical products, services and programs,
which frequently focuses on the costs (inputs) and
consequences (outcomes) of that use.
• “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.”
• Its need is undeniable, especially in developing countries.
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WHAT IS PHARMACOECONOMICS
Input costs Output costs
HEALTH CARE
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WHO PAYS FOR MEDICAL BILLS ?
1. Government.
2. Insurance Companies.
3. Patient.
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This NEVER Happens

This ALWAYS happens
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Health care Funders try to make efforts to
contain drug costs -
• Price negotiations
• Patient co-payments
• Dedicated Drug Bills
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DRUG BILL
• It a document of a government which states the various
policies of that government that it has made for health care
improvement in the country.
• It gives the percentage of GDP that particular country has
allotted for HEALTH CARE of the country.
• Generally the health care bill is 10 to 15% of total GDP.
• In 2015, Indian health care budget was 1.2% of the GDP.
• It was proposed to touch 2.5% ( ????????).
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.
• health care funders have to keenly study all these aspects in
order to achieve their main aim in health care sector.
• save as much money as possible along with providing
adequate health care.
• the very first aspect of controlling drug costs is evaluation of
expenditure of drug therapy.
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REASONS FOR EVALUATION
• Size of drug bill.
• Easy to measure pharmaceutical costs.
• Evidence of wasteful prescribing.
• Perception that pharma companies work for profits.
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CHALLENGES
• Training and education in
analysis of data
• Standardizing the methods
• Establishing guidelines
• Continued education on
relevant features
• Stable funds
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Ten Steps of Performing An
Economic Evaluation Study
• Establish the perspective
• Describe or specify the alternatives
• For each alternative, specify the possible outcomes and the
probability of their occurrence
• Specify and monitor the health-care resource consumed in
each alternative
• Assign dollar values to each resource consumed
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Ten Steps of Performing An
Economic Evaluation Study (cont.)
• Specify and monitor non-medical resources consumed by each
alternative
• Specify the unit of outcome measurement
•
• Specify other non-economic attributes of the alternatives, if
appropriate
•
• Analyze the data
• Conduct a sensitivity analysis
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PRINCIPLES
Outcome research-
-Means to identify, measure and evaluate the result of healthcare
researches in general ( perspective).
Cost-
-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.
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Hospital / Physician
-Clinical Cure
-Profit from treatment
3rd-Party Payer
-Clinical Cure
-Cost
-Customer
perception of value
Employer / Society
-Clinical Cure
-Cost
-Productivity

COSTS
• The value of the resources consumed by a program or drug therapy, is
defined as Cost.
• Direct Medical Costs -
-Drugs,
-medical supplies and equipment,
-laboratory and diagnostic tests,
-hospitalizations,
-physician visits.
Direct Non-medical Costs –
-Transportation to and from healthcare facilities,
-extra trips to the emergency department,
-child or family care expenses,
-special diets,
-various other out-of-pocket expenses.
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COSTS
• Indirect Non-medical Costs –
Morbidity cost – Loss of productivity.
Mortality – Loss of years of service due to premature death.
• Intangible Costs –
Non-financial outcomes of disease and medical care such as pain,
suffering, inconvenience, and grief.
• Opportunity Costs –
Value (economic benefit) of the alternative therapy that was forgone.
• Incremental Costs –
The extra costs required to purchase an additional unit of effect.
Direct Costs = Direct Medical Costs + Direct non-medical costs
Indirect Costs = Morbidity costs + Mortality costs
Total costs = Direct costs + Indirect costs + Intangible costs
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CLINICAL
ECONOMIC
HUMANISTIC
OUTCOMES
RESEARCH
Outcomes Relationship
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CONSEQUENCES
Outcomes Includes
Clinical
Humanistic
Economic
Cure, comfort and survival
Physical, emotional, social
function, role performance
Expense, saving, cost
avoidance
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CONSEQUENCES
Positive Consequences-
-Life-years gained
-Improved health related quality of life
Negative Consequences-
-Adverse effects
-toxicity
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Outcomes Research
Pharmacoeconomics
Pharmaceutical Care
Relationship Between Outcomes,
Pharmacoeconomics and Pharmaceutical Care
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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 evalulations.Dr. SALIM SHEIKH, VMMC & SAFDARJUNG
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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.
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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.
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Full economic evaluations
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Cost Minimization Analysis (CMA)
• Cost-minimization analysis is the most basic technique.
• CMA involves the determination of the least costly alternative.
• For example, if drugs A and B are antiulcer agents equivalent
in efficacy and adverse drug reactions (ADRs), then the costs
of using these drugs could be compared using CMA.
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Cost-Minimization Analysis
comparing an generic drug to its brand name equivalent
comparing the cost of a multiple dose schedule to a once
daily schedule that is equally safe and effective
Not same chemical entity but belong to same therapeutic
category
analyzing the cost of administering and monitoring the
same drug in two different settings
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Cost Benefit Analysis (CBA)
• Measures costs and benefits in monetary
terms.
• Estimates the strengths and weaknesses of
alternatives.
• Both the costs and the benefits are
measured and converted into equivalent
dollars in the year in which they will occur.
• The costs and benefits are expressed as a
ratio (a benefit-to-cost (B:C) ratio).
• Many CBAs measure and quantify direct
costs and direct benefits only due to
difficulties in measuring indirect and
intangible benefits.
• This approach is not widely used in health
economics.
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CBA Example
• Cost per flu shot = $10
• Treatment cost per flu = $250
• Productivity loss from sick leave = $4,000
• Employees = 1000
•
• W/o vaccine: 50 have flu, 3 absence
• W/ vaccine: 30 have flu, 1 absence
• What should the manager do?
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CBA Example (cont.)
Net Benefit= benefit - cost
=(number of flu avoided)*$250
+ (number of absence avoided)*$4000
- $10*1000
=20*$250+2*$4000-$10000
=$3000 > 0
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CBA Example (cont.)
• New flu vaccine available
• Cost = $20
• W/ the new vaccine:
– 5 have flu, no absence from work
• Which one should the manager choose?
• NB(new) =45*$250+3*$4,000-$20*1,000
=$3,250
• NB(new) > NB(old)
 choose the new vaccine
• However, if productivity loss = $3000, then NB(old)=$1000,
and NB(new)=$250, then the old vaccine will be chosenDr. SALIM SHEIKH, VMMC & SAFDARJUNG
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Cost Effectiveness Analysis (CEA)
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• The most commonly employed method is cost-effectiveness analysis.
• Measures effectiveness (health benefit) in natural units (eg. years of life
saved, ulcers healed) and the costs in money.
• It compares therapies with qualitatively similar outcomes in a particular
therapeutic area. For instance, in severe reflux oesophagitis, using a proton
pump inhibitor compared to using H2 blockers.
• CEA does not allow comparisons to be made between two totally different
areas of medicine with different outcomes.
• The results of CEA are expressed as a ratio
-average cost-effectiveness ratio (ACER)
-incremental cost effectiveness ratio (ICER).
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• An ACER represents the total cost of a program or treatment alternative
divided by its clinical outcome to yield a ratio representing the dollar cost
per specific clinical outcome gained, independent of comparators.
Average cost effectiveness (ACER) = Net Cost / Net Health Benefit
• The key measure of CEA is the incremental cost effectiveness ratio (ICER).
• Incremental Cost Effectiveness Ratio
ICER = Difference in costs (A-B) / Difference in benefits (A-B)
• CEA is being used to set public policies regarding the use of
pharmaceutical products (national formularies) in countries such as
Australia, New Zealand, and Canada.
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Cost-Effectiveness Analysis
• Example:
_____________________________________________________
Total Cost/ Lives Saved/ Average CE
100 Patients 100 Patients Ratio
Drug A $220,000 79 $2784.81/ life
saved
Drug B $20,000 78 $256.41/ life
saved
_____________________________________________________
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Cost-Effectiveness Analysis
• Example: Incremental CE ratio
= Cost drug A - Cost drug B
Outcomes drug A - Outcomes drug B
= $220,000 - $20,000
79 Lives - 78 Lives
= $200,000 / Life Saved
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Cost-Effectiveness Plane
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COST EFFECTIVENESS GRID
Cost
effectiveness Lower cost Same cost
Higher
cost
Lower
effectiveness A B C
Same
effectiveness D E F
Higher
effectiveness G H I
are cost effective choices
are not cost effective
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Cost Utility Analysis (CUA)
• Comparing treatment alternatives that integrates patient preferences and
Health Regulated Quality of Life (HRQOL) .
• HRQOL measure is an utility, having value between 1.0 (perfect health)
and 0.0 (death).
• Quality-adjusted life years (QALYs) are then derived by multiplying the
time in a health state by the appropriate utility score.
• In CUA, Cost is measured in dollars, and therapeutic outcome is measured
in patient-weighted utilities rather than in physical units.
• This method is well suited to the evaluation of chronic diseases that have
deleterious effects on HRQOL.
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Cost Utility Analysis (CUA)
• Differences between treatments are expressed as the incremental cost per
QALY gained.
• CUA can compare cost, quality, and the quantity of patient-years.
• Results of CUA are expressed in a ratio, a cost-utility ratio (C:U ratio).
• CUA is complex and can be limited in scope of application from a hospital
or MCO perspective. CUA is employed less frequently
-lack of agreement on measuring utilities,
-difficulty comparing QALYs across patients & populations
-difficulty quantifying patient preferences.
• In CEA, the costs are measured in money and there is a defined outcome.
But in CUA, the outcome is an unit of utility (e.g. a QALY).
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Calculating QALYs
With treatment X Without treatment X
Estimated survival = 10 years Estimated survival = 5 years
Estimated quality of life Estimated quality of life
(relative to ‘perfect health’) = 0.7 (relative to ‘perfect health’) = 0.5
QALYs = (10 X 0.7) = 7.0 QALYs = (5 X 0.5) = 2.5
QALY gain from treatment X = 7 - 2.5 = 4.5 QALYs
If the cost of treatment X is £18,000, then the cost per QALY is £4,000 per
QALY (£18,000 divided between 4.5 additional QALY’s)
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Humanistic Evaluation Methods
• Methods for evaluating the impact of disease and treatment of
disease on
-a patient’s HRQOL
-patient preferences (PRO)
-patient satisfaction (PRO)
HRQOL has been defined as the assessment of the functional effects
of illness and its consequent therapy as perceived by the patient.
-displayed as physical, emotional, and social
effects on the patient.
• Measurement of HRQOL usually is achieved through the use of
patient-completed questionnaires.
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RESULTS OF PE EVALUATION
I
IIIII
IV

LIMITATIONS
• Choice of
comparator drug
• The assumptions
made
• Selective reporting
of results
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WHY IS THIS BIAS?
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Applications Of Pharmacoeconomics
Phase II Phase III Marketing
Phase
Regulatory
Phase
Pharmacoeconomic Studies
Research and
Development
Strategy
Pricing and
Reimbursement
Strategy
Communication
to Physicians
and Patients
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Specific Decisions for PE Applications
Clinical Decisions
Formulary Management
Drug Use Guidelines
Disease Management
Resource Allocation
MICRO
MACRO
Justification of Pharmacy Services
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PE and Drug Development
• What is the relationship between Pharmacoeconomics
evaluation & Clinical trials ?
• Pharmacoeconomics studies may be planned & conducted at
the Clinical development & phase IV stages of post marketing
research .
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PE -Today’s Scenario
• Drug development is very expensive process.
• Duration of development – 10 to 15 yrs.
• Patent life – 20 yrs.
• Patent life starts with preclinical phase.
• All new drugs are very expensive when they come in market.
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Pharmacoeconomics – drug development
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
Phase II Phase III
New Drug
Approval -
NDA
Investigational
New Drug - IND
Basic Research Phase I
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Phase I
• Cost of illness
• Clinical benefits (to achieved have a marketable product)
Phase II
• Cost of illness, QOL, Resources utilization, Instrument costs.
Phase III
• How much money is spent in new drug development ?
• Patient related costs (as large number of patient are involved in
this trial)
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Phase IV
• Post marketing Pharmacoeconomics studies are extremely
important in that they allow evaluation of the costs &
consequences of drug therapy without the altered interventions
that occur in strictly controlled clinical trials.
• Pharmacoeconomics evaluation may be secondary objective of
a trial designed primarily to safety & efficacy.
• Pharmacoeconomics evaluation may be the principle purpose
of a clinical trail .
• A Pharmacoeconomics evaluation may be done retrospectively
using clinical data obtained in previous.
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Pricing Tool
Total Cost of Treatment
Effectiveness
Drug B
Drug A
Drug C
Drug D
1. Break-even
Price
2. Efficiency Price
3. Premium Price
1 2 3
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(Putting Theory into Practice)
• Mission –
To provide pharmacoeconomics and outcomes
research, education, and consulting services
↓↓
to assess the value of pharmaceutical products and
services in today’s health care systems.
Applied Pharmacoeconomics
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Drug Therapy Evaluation
• Pharmacoeconomics principles and methods have been applied to
assist clinicians and practitioners in making more informed and
complete decisions regarding drug therapy.
• Selecting the most cost effective drug for an organizational formulary
is important.
• It is equally important to determine the most appropriate way to use
and prescribe these agents.
• It is also useful for making a decision about an individual patient ‘s
therapy.
• Evaluating the impact a drug has on patient’s health related quality of
life can be useful when deciding between two agents for customizing a
patient’s pharmacotherapy.
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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.
In this study erlotinib is found to be more efficacious & cost
effective compare to docetaxel in UK for patients with
relapsed NSCLC.
• Lewis G et al. J Int Med Res. 2010 Jan-Feb;38(1):9-21.
• Cost-effectiveness of erlotinib versus docetaxel for second-line treatment of advanced non-small-cell lungcancer in the United Kingdom.
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Drug therapy evaluation
• Useful for making a decision about an individual patient’s
therapy.
Eg. An author performed cost utility analysis from government’s
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-adjusted life-years (QALYs)
and an annual cost savings of $849 per patient.
ACE inhibitor therapy for type I diabetes with macroproteinuria
improves patient outcomes, with a decrease in cost for end stage
renal failure services.
• Clark WF et al. CMAJ. 2000 Jan 25;162(2):195-8.
• To pay or not to pay? A decision and cost-utility analysis of angiotensin-converting-enzyme inhibitor therapy for diabetic nephropathy.
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Clinical Pharmacy Service Evaluation
• Pharmacoeconomic principles and methods has been used for
justifying the value of various health care services ,especially
pharmacy services.
• When a specific service is competing for hospital resources,
pharmacoeconomics can provide the data necessary to justify
that service maximizes the resources allocated by health care
system administrators.
• It is also useful in determining the value of existing service,
estimating the potential worth of implementing a new service.
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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.
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Clinical pharmacy service evaluation
• 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.
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Limitations of Pharmacoeconomics
• Pricing decisions for pharmaceuticals usually follow a two-step
process.
• A final economic evaluation needs to be based on a prior
clinical-pharmacological evaluation of a new drug in light of
therapeutic alternatives.
• However, major limitations for this evaluation process may be
encountered. Most notably a lack of
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Limitations of Pharmacoeconomics
 evidence-based data,
 clinical endpoint data
 direct comparator studies
 an impaired "assay sensitivity" may cause uncertainty about the
appropriate value of a new drug.
 precedents in case of innovations
 obvious "efficacy-effectiveness gaps" may pose challenges in the
pricing decision process for pharmaceuticals.
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National Centre for Pharmacoeconomics
• Established with financial support from the Department of
Health and Children welfare.
• Aims to promote expertise in Ireland for the advancement of
the discipline of pharmacoeconomics through education,
practice and research
Dept of Health Research Education
Centre
www.ncpe.ie Dr. SALIM SHEIKH, VMMC & SAFDARJUNG
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International Society of Pharmacoeconomics
& Outcomes Research
• The mission of ISPOR is to increase the efficiency,
effectiveness, and fairness of health care to improve health.
• ISPOR is recognized globally as the authority for outcomes
research and its use in health care decisions towards improved
health.
• The ISPOR scope and sphere of influence includes outcomes
researchers, health technology developers and assessors,
regulators, health economists, health care policy makers,
payers, providers, patients, populations, and society as a whole.
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ISPOR Members
• ISPOR outreach to over 11,300 members. ISPOR worldwide
members come from different work environments.
• 50% from research organization and academic institutions,
12% from government organizations, health technology
assessment agencies, hospitals and clinical practice, and 38%
from pharmaceutical, biotechnology and medical device
industries.
• Visit Website - http://www.ispor.org.
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Activities of ISPOR : India chapter
• Preparation of Pharmacoeconomics guidelines for India.
• Symposia & Workshop on Pharmacoeconomics.
• Symposia on Clinical Outcome Studies.
• Symposia on Health Care and Policy-issues.
• fourth International Conference on Pharmacoeconomics &
Outcomes Research
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Conclusion
• In our developing economy, India, the words
“pharmacoeconomics” and “outcomes research” are new to
health care practitioners, but we are determined to familiarize
ourselves with these concepts and put them into practice.
• In most developing countries, the patients continue to suffer
due to an ignorance about information, and practice and
resources being overburdened.
• There is a universal need to optimize both, which is possible by
adopting the practice of pharmacoeconomics, outcomes
research, and Health Technology Assessment.
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Conclusions
• PE 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 study—there 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.
• enhance the quality of your practice by strengthening your
evaluation process and increasing the probability that you deliver
better value in patient care.Dr. SALIM SHEIKH, VMMC & SAFDARJUNG
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