This document provides an introduction to pharmacoeconomics. It defines key terms like health economics and pharmacoeconomics. It explains that pharmacoeconomics evaluates the costs and consequences of pharmaceutical products and aids decision making by balancing clinical and economic factors. The document also outlines different types of economic evaluations like cost-benefit analysis and cost-effectiveness analysis that are tools in pharmacoeconomics. It emphasizes the need to consider both costs and outcomes to avoid misleading conclusions.

1. PHARMACOECONOMICS
INTRODUCTION

2. INTRODUCTION
 A challenge for healthcare professionals is to provide quality
patient care, while assuring an efficient use of resources.
 Challenged to provide high-quality patient care in the least
expensive way, clinicians developed strategies aimed at
containing costs. However, most of these strategies focussed
solely on determining the least expensive alternative rather than
the alternative that represents the best value for the money.
 The ‘cheapest’ alternative (w.r.t drugs) is not always the best
value for patients, departments, institutions, and healthcare
systems.
 Pharmacoeconomics is the discipline which places a value on
drug therapy.
 The roots of pharmacoeconomics developed in the 1970s,
following the evolution of pharmacy as a clinical discipline and the
incorporation of the pharmaceutical sciences into the pharmacy
curriculum.

3. DEFINITIONS
Health Economics: The field of study that evaluates the behaviour
of individuals, firms and markets in health care, and that usually
focuses on the cost (inputs) and consequences (outcomes) of
health care interventions (such as use of drugs, devices,
procedures, services and programmes).
Pharmacoeconomics: The field of study that evaluates the
behaviour of individuals, firms and markets relevant to the use of
pharmaceutical products, services and programs, and which
frequently focuses on the costs (inputs) and consequences
(outcomes) of that use.
[The International Society for Pharmacoeconomics and Outcomes Research (ISPOR)]

4. In clinical settings, importance is always given to :
• Therapeutic effectiveness of an agent (drug) for patients.
• Impact of the therapeutic agent’s cost.
• QoL (Quality of Life) changes in the patient after using the
therapeutic agent.
 Decision-making regarding the drug price controls and overall
health care costs requires the understanding and balancing of
clincial and economic knowledge and tools.
 Pharmacoeconomics (PE) is one such tool that aids in the
decision-making using the combination of cost (economic) and
consequences (clinical or economic or humanistic endpoints).

5. COSTS
 Total Cost (TC) = cost of producing a particular quantity of
output
 Fixed Cost (FC) = costs which do not vary with the quantity of
the output in the short run
 Variable Cost (VC) = cost which varies with the level of output
 Average Cost (AC) = average cost per unit of output
 Marginal Cost (MC) = extra cost of producing 1 extra unit of
output
(Output refers to the product)

6. CONSEQUENCES OF COSTS
 The consequences (or outcomes) of a disease and its
treatment are an equally important component of
pharmacoeconomic analyses.
 Consequences (or outcomes) of medical care can be
categorized into three types: economic, clinical, and humanistic.
 Economic outcomes: are the direct, indirect, and intangible
costs compared with the consequences of treatment
alternatives.
 Clinical outcomes: are the medical events that occur as a
result of disease or treatment (e.g., safety and efficacy end
points).
 Humanistic outcomes: are the consequences of disease or
treatment on patient’s functional status or QoL along several
dimensions (e.g., physical function, social function, general
health and well-being, and life satisfaction).
 Assessing the economic, clinical, and humanistic outcomes
(ECHO) associated with a treatment alternative provides a
complete model for decision making.

7. Positive versus Negative Consequences
 Consequences (outcomes) can be further categorized as
positive or negative.
 A Positive outcome is a desired effect of a drug (efficacy or
effectiveness measure), [e.g., epidemic cases cured, reductions
in HbA1c, life-years gained, or improved health-related quality
of life (HRQOL)].
 A Negative outcome is an undesired or adverse effect of a
drug, (e.g., treatment failure, an adverse drug reaction (ADR), a
drug toxicity, or even death).
 Pharmacoeconomic evaluations should include assessments of
both types of outcomes. Evaluating only positive outcomes can
be misleading because of the potential detriment and expense
associated with negative outcomes. Thus, the balancing of
positive and negative consequences is important in any
pharmacoeconomic evaluation.

8. Intermediate and Final Consequences
 Consequences also can be discussed in terms of intermediate
and final outcomes.
 Intermediate outcomes can serve as a proxy for more
relevant final outcomes.
Eg.: 1) Achieving a decrease in LDL cholesterol levels with
a lipid-lowering agent is an intermediate consequence that can
serve as a proxy for a more final outcome such as a decrease
in myocardial infarction rate.
2) Reductions in hemoglobin A1c (HbA1c) is a generally
accepted intermediate proxy for managing type 2 diabetes.
 Intermediate consequences are used commonly in clinical and
pharmacoeconomic analyses as proxies predictive of final
outcomes because their use reduces the cost and time
required to conduct a trial.
 Final outcomes refer to the ultimate end point desired
by healthcare programme.

9.  Pharmacoeconomic analysis also compares outcomes (clinical,
economic or humanistic) and inputs (resource consumption) of
p’ceutical products, programs and/or services to the next best
alternatives (e.g., allopathic vs traditional medicines).
 P’coeconomics requires inputs from areas such as economics,
epidemiology, medicine, pharmacy and social sciences.
Aim: To identify, measure, value and establish a link b/n both resource
consumption and outcomes so that relative worth of selected p’ceutical
products, programs and/or services can be established.
5 Analyses of P’coeconomics
Cost-Minimisation Analysis (CMA) Cost-Benefit Analysis (CBA)
Cost-Effectiveness Analysis (CEA) Cost-Utility Analysis (CUA)
Cost-Consequences Analysis (CCA)

10. 4 Es of Health Program Evaluation
Efficacy: Can it work? Does it do more good than harm under ideal
conditions?
Effectiveness: Does it work? What can be achieved under realistic
conditions?
Equity: Is it reaching those who need it (access)? Who gains and who
loses (distribution)?
Efficiency: Is it worth doing?
Misconceptions about PE
I. PE means Cost-containment
While PE analysis can result in cost-containment, that is not it’s only
goal. Full PE analysis considers ECHO, and not just cost
containment.
II. PE means Cost-Effectiveness
CEA is just one tool of a full-fledged PE analysis.

11. III. PE means Drug Utilisation Evaluation
DUE focuses on appropriateness of drug use and may employ
qualitative and/or quantitative approaches, resources utilised and
other economic variables.
IV. PE means Outcomes Research
These two terms are sometimes used interchangeably within the
pharmacy field. But, outcomes research is a broad discipline that
evaluates the impact of healthcare interventions. The outcomes
could be clinical, economic or humanistic.
P’coeconomics is one of the tools used in evaluating the impact of a
drug interventions on health outcomes and in guiding decision-
making.
V. Cost saving means Cost-Benefit Analysis
Both these terms are also used interchangeably. CBA incorporates all
benefits by incorporating individual preferences using the ‘willingness
to pay’ method.

12. NEED FOR P’COECONOMICS
 Offers assistance under resource constraints, tight budgets and
competing programs.
 Can aid in decision-making in evaluating the affordability of and
access to the right medication to the right patient at the right time.
 Helps in comparing two (or more) drugs of the same therapeutic
class or drugs with similar MOA.
 Establishes whether the claims by a manufacturer regarding their
drug are justified or not.
 Can help the hospital committee to finalize…
• Whether a drug should be included in the formulary
• Which drug would provide net positive benefits to the patient.
• Which would be the best drug for a pharmaceutical manufacturer to
develop and the right price to market it.
• What the expected QoL improvement is with a certain drug when
trading off it’s side effects.

13. ECONOMIC EVALUATIONS
All p’coeconomic evaluations are based on answers to 2 basic qns. :
• Are there two or more alternatives?
• Do the interventions examine costs and health effects?
Partial Economic Evaluation :
If only one treatment or drug or program is examined. It is simply a
descriptive analysis of that treatment / drug / program.
OR
If a pharmaceutical program (drugs or intervention) consists of two or
more alternatives but, the evaluation limits itself to either costs or
effects only.
Full Economic Evaluation :
PE evaluation of two or more alternatives, and attempts to link both
costs and effects.

14. THE END