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1. PHARMACOECONOMICS

2. OBJECTIVES
Define the term pharmacoeconomics
Differentiate between the types of pharmacoeconomic evaluation methods
Discuss various considerations essential to evaluating a
pharmacoeconomic design
Provide examples of how pharmacoeconomics is applied in practice and
various roles for the pharmacist

3. DEFINITION OF PHARMACOECONOMICS
The process of identifying, measuring, and comparing the costs, risks, and
benefits of programs, services, or therapies
To determine which alternative produces the best health outcome for the
resource invested
Most impactful when making decisions about a population rather than
individual
―Costs vs. Consequences of Alternatives‖

4. TYPES OF ECONOMIC EVALUATION
Cost of illness evaluation (COI)
Cost minimization analysis (CMA)
Cost benefit analysis (CBA)
Cost effectiveness analysis (CEA)
Cost utility analysis (CUA)

5. COST OF ILLNESS EVALUATION
Also termed cost consequence model
Description: Estimates the cost of a disease within a defined population
Application: Provides a baseline for evaluating the impact of
prevention/treatment options
Measurement Units: Monetary ($)
Example: Cost of peptic ulcer disease

6. COST MINIMIZATION ANALYSIS
Description: Identifies intervention cost differences between similar alternatives
Application: Identify least costly alternative when outcomes/consequences are identical
Measurement Units: Monetary for intervention costs (no outcomes measured)
Example: Comparing costs of Drug A and Drug B, which have evidence of equal efficacy for a
given condition and safety (incidence of ADRs)

7. COST BENEFIT ANALYSIS
Description: Identifies net cost impact of an intervention
Measurement Units: Monetary for both intervention costs and outcomes
Calculated: Benefit($)/Cost ($)
Application: Compare programs or agents with different objectives or 1
program against a return on investment benchmark
Example: Clinical pharmacy service vs. other institutional service

8. COST EFFECTIVENESS ANALYSIS
Description: Compares costs of two or more alternatives versus
outcomes measured in natural units
Measurement Unit: Monetary for cost, outcome in physical
measures i.e., event avoided
Incremental cost to achieve a one unit increase in outcome
ICER = ∆Cost/∆Effect
= (CTx1 – CTx2)/(ETx1 – ETx2)
Application: Compare treatment alternatives for a given
condition that differ in outcomes and costs
Example: Osteoporosis Drug A vs Drug B on fracture risk
reduction ($/fracture avoided)

9. COST UTILITY ANALYSIS
Description: Subset of cost effectiveness analysis -
outcomes are measured in utility units
Utilities represent patient preferences and quality of
life/functional status associated with disease and/or
treatment
QALY: Quality adjusted life year – factor of life
expectancy and utility
e.g., 4 years at 25% QOL = 1 year at 100% QOL
ICER = (CTx1 – CTx2)/(QALYTx1 – QALYTx2)
Application: Same as CEA, useful when treatment
extends life and/or effects quality of life
Example: Compare cancer chemotherapy regimens

10. COST EFFECTIVENESS PLANE
-500
-400
-300
-200
-100
0
100
200
300
400
500
-1 -0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1
More Costly, Less Effective
Quadrant II or NW
Standard treatment dominant
More Costly, More Effective
Quadrant I or NE
Trade off
Less Costly, Less Effective
Quadrant III or SW
Trade off
Less Costly, More Effective
Quadrant IV or SE
New treatment dominant
∆ Effectiveness
∆Cost
10

11. COST EFFECTIVENESS PLANE
-$500
-$400
-$300
-$200
-$100
$0
$100
$200
$300
$400
$500
-1 -0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1
More Costly, Less Effective
Quadrant II or NW
Standard treatment dominant
More Costly, More Effective
Quadrant I or NE
Trade off
Less Costly, Less Effective
Quadrant III or SW
Trade off
Less Costly, More Effective
Quadrant IV or SE
New treatment dominant
∆ Effectiveness
∆Cost
11

12. RECAP OF PHARMACOECONOMIC ANALYSES
Model Type Units Outcomes Comparison
Cost Minimization Costs in $ Assumed to be
equal
2+ similar alternatives
Cost Benefit Costs and benefits
in $
Can differ by type of
outcome
2+
interventions/program
s or 1 vs. benchmark
Cost
Effectiveness/Utilit
y
Costs in $, benefits
in non $ units
Presumed to differ,
but must be same
type of outcome
2+ alternatives

13. CONSIDERATIONS FOR DESIGNING OR EVALUATING
PHARMACOECONOMIC STUDIES
Costs
Direct medical – e.g., medication and administration
Direct non-medical – e.g., transportation for treatment
Indirect – e.g., lost wages due to illness
Intangible – e.g., pain, suffering
Perspective
Patient, Provider, Payer, Society
Perspective dictates what costs are considered

14. CONSIDERATIONS FOR DESIGNING OR EVALUATING
PHARMACOECONOMIC STUDIES
Discounting - value of money changes over time
A dollar is worth more today than in the future
Sensitivity Analysis
Challenges results and tests assumptions by altering
variables
Accuracy and transparency
Clearly documented study design, assumptions, inputs
Face Validity
Do the assumptions/input and alternatives reflect reality

15. ECONOMIC MODELING
Analytic models used to predict economic consequences of
coverage, treatment, and access decisions
 budget impact, cost effectiveness, cost minimization
 E.g., evaluate the impact of adding drug A to the formulary
Constructed by health plans, pharmaceutical manufacturers,
academic groups, and consultants

16. ECONOMIC MODELING
Good practice guidelines for model development should
utilized in constructing models
Promote transparency, minimize bias
Guidelines also exist to facilitate the evaluation of
pharmacoeconomic studies

17. APPLICATIONS IN PRACTICE & ROLES OF THE
PHARMACIST
Assist in the design and implementation of research
studies
Evaluate pharmacoeconomic literature
Apply results to clinical decision making
Individual patient care
Formulary/utilization management
Disease management
Resource allocation

18. HELPFUL RESOURCES
Navarro RP, ed. Managed Care Pharmacy Practice. 2nd edition.
Jones and Bartlett Publishers: Sudbury, MA; 2009.
Rice TH, Unruh L. The Economics of Health Reconsidered 3rd ed.
Chicago, IL. Health Administration Press, 2009.
www.ispor.org
http://www.ispor.org/workpaper/Modeling-Good-Research-
Practices-Overview.asp. Assessed Sept. 16, 2013.
Husereau D, Drummond M, Petrou S, et al. Consolidated Health
Economic Evaluation Reporting Standards (CHEERS)—
Explanation and Elaboration: A Report of the ISPOR Health
Economic Evaluation Publication Guidelines Good Reporting
Practices Task Force. Value in Health. 2013; 16:231-250.

19. CONCLUSION
Pharmacoeconomic evaluations consider cost compared to consequences
of treatment alternatives
Results are used to support population-level decisions regarding
medication coverage and use
Best-Practice principles should be used in designing pharmacoeconomic
studies to optimize transparency and reduce bias