It's the study of health economics.

1. Pharmacoeconomics
Presented by:- Dr.Sameer Khasbage
Guided by:- Dr. Surjit Singh

2. Content
1. Introduction
2. Pharmacoeconomics: A brief History.
3. Definition of terms and basic methodology of pharmacoeconomic
evaluation of drug therapies.
4. Types of pharmacoeconomic evaluation.
5. Cost models and Cost effectiveness analysis.

3. Aim of pharmacoeconomics:
To compare the economics
of different pharmaceutical products or
to compare drug therapy to other treatments.

4. Introduction
1. Health care funders (governments, social security funds,
insurance companies) are struggling to meet their rising costs.
2. They make many efforts to contain drug costs, by price
negotiation, patient co-payments or dedicated drug budgets.
3. The aim is to identify what is most efficient, so that the greatest
amount of benefit can be bought for a given amount of money
or resources.

5. 5. Pharmacoeconomics is a branch of health economics that
particularly considers drug therapy.
6. It is of particular interest to pharmaceutical companies who in
developing a new drug and after the traditional hurdles of efficacy,
safety and tolerability must now jump over a fourth hurdle of cost
effectiveness.

6. › Pharmacoeconomics is about making choices between
options, when there is scarcity of resources.
› It is fundamentally comparative, weighing the costs and
benefits of option 1 with those of option 2 to determine which
is the most efficient way to use our limited resources.

7. History
› In the 1970s Pharmacoeconomics developed
› In 1978 McGhan , Rowland & Bootman , from the university of
Minnesota, introduced the concepts of cost benefit & cost-
effectiveness analyses.
› Term first coined in 1986 by Townsend “the description and analysis
of the costs of drug therapy to health systems and society”.

8. Why study Pharmacoeconomics ??
› Helps to decide which drug to develop
› To estimate and understand the full impact of new therapy.
› To make an informed decision regarding appropriate use of
drug which have been developed.
›To make the best use of limited resources.

9. Goals
› To determine which healthcare alternatives provide the
best healthcare outcome in terms of money spent.
› To improve the allocation of resources for
pharmaceutical products and services.

10. Definition
Description and analysis of the costs and
consequences of pharmaceutical products and
services and their impact on individuals, health care
systems and society.

11. › It allow us to compare the economic resources
consumed (inputs) to produce the health and economic
consequences of products or services (outcomes).

12. Costs:
› Cost is NOT the same as price.
› All the resources that are used to produce and deliver a particular
drug therapy.
› Physicians and pharmacists do not have complete information about
the costs of drugs.
› Have no idea how much drugs cost.

13. Types of costs:
› Direct Medical Costs: Costs of medical service. {Drug acquisition costs,
Treatment costs (hospital, physician visits),Monitoring (labs, physician
visits) Management of adverse events}
These include:
– Fixed costs or costs that do not vary immediately with the number of
patients treated. E.g. capital costs of hospital building or equipment
etc.
– Variable costs or costs that vary immediately with number of patients
treated. E.g. costs of drugs, syringes, needles etc.
› Direct non-medical costs:
– Costs incurred by the patient in receiving medical care. E.g.
transportation to and from hospital.

14. › Indirect cost: e.g. income lost because of absenteeism, loss
of productivity.
› Intangible costs:
–Costs of pain, worry and other suffering which a patient or
his family might suffer.
› Opportunity costs:
–The amount lost by not using economic resources in its best
alternative use (labour, capital, building, management etc.).
–Resources invested in one area will be at expense of loss of
another opportunity.

15. Outcomes:
Both positive and negative outcomes should be
addressed
›Positive outcomes: drug’s efficacy measure.
›Negative outcomes: ADR and treatment failure.

16. Echo model
To help decision making
regarding a drug therapy and/or
related services, the
pharmacoeconomic evaluation
should include an assessment
of the economic, clinical, and/or
humanistic outcomes. (i.e.,
ECHO model).

17. Consequences
OUTCOMES
› Clinical
› Humanistic
› Economic
Cure, comfort and survival.
Physical, emotional, social function, role
performance.
Expense, saving, cost avoidance.

18. Measurements of benefits (Outcomes)
The benefits we expect from an intervention might be
measured in:
A. “Natural” units - e.g. years of life saved, strokes
prevented, peptic ulcers healed etc.
B. “Utility” units - utility is an economist’s word for
satisfaction, or sense of well being, and is an attempt to
evaluate the quality of a state of health, and not just its
quantity.

19. The Quality Adjusted Life Year (QALY)
› QALY is one widely used measure, which attempts to integrate both
quality and the quantity of life.
› Broadly, it assumes that if a treatment increases one’s life
expectancy by 2 years, but causes adverse effects or
inconvenience, such that one’s quality of life or utility are decreased
by 25%, the net gain is 2 x 0.75 = 1.5 QALYs.

20. Parameters for PE Evaluation:
› Efficacy - Established by RCT.
› Cost - Decided by company.

21. Types of pharmacoeconomic evaluation.
There are Four types of pharmacoeconomic
evaluation, all of which can be applied to
pharmaceutical products.
In order of sophistication and level of complexity these are:
cost-minimisation analysis(CMA),
cost-effectiveness analysis (CEA),
cost-benefit analysis (CBA), and
cost-utility analysis (CUA).

22. 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

23. The ultimate objective of all four methods
› It is to compare the cost and outcome of alternative regimens, ideally
by generating a single index or cost-outcome ratio.
› The nature of outcome measurement is the all important factor
determining both the level of complexity and sophistication as well
as the reliability and validity of a comparison of alternative regimens.

24. The common components of all economic
analyses
A full pharmacoeconomic analysis will always address the following
two questions:
1. Are two or more alternatives being considered?
2. Are both costs and consequences of each alternative being
considered?
If the answer to either question is no, the study is not a full
pharmacoeconomic analysis. Two or more alternatives must be
considered, otherwise the analysis is merely a description costs
and/or outcome.

25. Cost-minimisation Analysis:
› Compares the costs of two or more alternatives that have a
demonstrated equivalence in therapeutic outcome (i.e.,
therapeutically equivalent alternatives).
› Brand vs. Generic products, minor surgery as inpatient or
outpatient procedure

26. Cost-minimization analysis (CMA): Example
applied to 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%

27. › It is Used to compare
– Different brands.
– Brand vs. Generic products.
– Different antibiotic therapy.
– Different routes of administration.
› Cost minimization is more than a simple cost analysis. It contains an
explicit assumption that the two alternatives achieve the major
outcome equally and it may include additional information to test the
assumption of "all other things being equal?".

28. Cost-effectiveness analysis (CEA),
› Form of economic evaluation whose goal is to identify, examine, and compare
the relevant costs and consequences of competing drug regimens and
interventions.
› Costs are expressed in monetary terms.
› Consequences are measure in their natural units, such as:
– Cases cured
– Lives saved
– Hospitalization prevented
› Decision maker in identifying a preferred choice among possible alternatives.

29. › Cost-Effectiveness Ratio (CER)and/or Incremental CER (ICER)
› Marginal or Incremental Analysis
› Identifies the additional costs and benefits of a new intervention
› Useful to evaluate the relative efficiency of interventions that provide
more benefit at greater cost or less benefit at lower cost than the
existing ones.

30. Cost-effectiveness
analysis: Example
applied to 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
OUTPUTS
Extra years of life 1.5 1.6
Cost-effectiveness ratio 500/1.5= $333, Per extra
year of life
400/1.6= $ 250, Per extra
year of life

31. Cost-benefit Analysis (CBA)
› The aim here is the same as before i.e. to construct cost/outcomes ratios
(average and incremental) to compare alternative regimens.
› However, cost-effectiveness analysis cannot be applied because the
alternatives achieve fundamentally different outcomes.
– For example, one prolongs life and improves quality of life (e.g. coronary artery
bypass grafting) whereas the other only improves quality of life (e.g. hip joint
replacement).
› In CBA the common denominator for conversion is money.
› We express in monetary terms the positive and negative consequences
of the medical intervention and aggregate them to construct comparable
cost-benefit ratios.

32. › CBA are not that common in Pharmacoeconomics,
› It performed the investigators usually have calculated the costs and
benefits which easily (and non-controversially) can be expressed in
money terms.
› Alternatively, there are techniques for quantifying the strengths of
individual preferences for alternatives.
› These include willingness to pay and the standard gamble
technique, in which hypothetical examples are used to ask
individuals how much they would be willing to pay to secure
improvements in treatment.

33. Cost-benefit Analysis: Example Applied to
Drug Therapy

34. Cost-utility Analysis (CUA)
› Method to compare treatment alternatives or programs
where costs are measured in monetary terms and outcomes
expressed in terms of patient preferences or quality of life.
› “Utility based” unit (QALYs)
– The most difficult analysis .
– Used when QOL is the important outcome.

35. Cost-utility Analysis (CUA)
›Example:
–Evaluating arthritis treatment
–Chemotherapy that increases survival but decreases
patient well-being
›Results are expressed as Cost per quality-adjusted
lifeyear (QALY) gained

36. › Outcome expressed as quality-adjusted life years: QALY
› QALY = Q x Y
› Q = Quality of life (utility)
› Y = Quantity (years) of life
› Example:
– Q = 1, Y = 20 then QALY=20
– Q = 0.5, Y = 20 then QALY = 10

38. Steps for conducting PE Analysis
1. Define the problem.
2. Identify the perspective and alternative interventions to be
compared.
3. Identify and measure outcomes of each alternative.
4. Identify, measure and value costs of all alternatives.

39. 1) Define the problem & state the objective
› Identify the disease state and what aspect you want to
deal with.
› i.e. What is the most cost effective method for
controlling glucose in the treatment of type II diabetes?

40. 2)Identifying the perspective
› That is, who will be utilizing the information to make what
decisions.
› This will guide you in choosing the relevant costs and
benefits.

41. Patient perspective
› Examples of costs that directly affect the patient include:
– Out-of-Pocket costs
– lost income
– transportation
› Relevant Consequences are:
– Therapeutic effectiveness
– Adverse events
– Quality of Life (QOL)

42. Health practitioner
› Costs to physicians may include:
– Hospitalization
– Pharmacy
– Personnel
– Supplies
› Consequences of interest are:
– Therapeutic effectiveness
– Adverse events

43. Provider perspective
› Concerned with the expenses of providing products or services
› Included costs:
– Direct costs only
– Hospital stay costs
– Treatment of adverse events & complications.
› Consequences of interest:
– Therapeutic effectiveness
– Adverse events

44. Payer perspective
›Social Security/Government, third party payers, eg.
private insurance companies and employers
›Included costs:
–Direct costs
–Indirect costs
› relevant to employers
›lost workdays
›lost productivity at work

45. Societal perspective
›The broadest of all perspectives that comprehensively
evaluates all costs and consequences.
›Considers the benefits to society as a whole.
›Included costs:
–Direct; overall cost of providing care.
–Indirect; loss of productivity.

46. 3) Identify alternative Interventions
› What are the relevant choices?
› Often a head-to-head comparison of the most used (traditional)
treatment with the new one.
› It’s important to compare with the most likely substitute for a realistic
result.
› The comparator doesn’t have to be a drug therapy.

47. How to interpret Results of Pharmaco Economic
Studies to take the right Decision?

48. 4) Identify and measure the outcomes
› Cure rate (percent cured of illness)
› Improved quality of life
› Decreased incidence of morbidity
› Years of extended life
› Relief or reduction in symptoms
› no effect
› Adverse events (drug interactions and side-effects)
› mortality

49. 5) Discounting
› Discounting is based on the assumption that costs incurred
in the immediate future are of greater importance than costs
incurred in the distant future.
› Adjustment of impact of future costs & benefits to their Net
Present value (NPV).

50. › Discounting offers a means of standardizing different cost
time profiles so that total costs can be compared.
› A procedure used in economic analysis to express as
“present values” those costs and benefits that will occur in
future years.
› Individuals prefer to receive benefits today rather than in the
future.
› Resources invested today in alternative programs could earn

51. Applications
› 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

52. Conclusion
› Tool for formulary designing and decision making process.
› Help in shaping the economic evaluations & allocate resources properly.
› Effective utilization of restricted resources.
› Provide clear picture about the likely costs and benefits of other alternatives.
› Time and money can only be spent once-choice is inevitable
› Pharmacoeconomics can enhance the quality of practice by strengthening evaluation
process and increasing the probability that deliver better value in patient care.

53. Thank you