Pharmacoeconomics

 “It refers to the scientific discipline that compares the value of one pharmaceutical drug or drug
therapy to another”.
OR
“Description and analysis of the costs and consequences of pharmaceutical products and
services and their impact on individuals, health care systems and society”.it is a branch of health
economics.

Health economics:
“It is a branch of economics concerned with issues related to efficiency, effectiveness, value and
behavior in the production and consumption of health and healthcare. In broad terms, health
economists study the functioning of healthcare systems and health-affecting behaviors such as
smoking”.

Aim of Pharmacoeconomics :
Its aim is to compare the economics of different pharmaceutical products or to compare the drug
therapy to other treatments.

History:
 One can hardly find any systematic reference to it before the mid 1960’s and the first
reading book on this subject was published in 1973
 The term Pharmacoeconomics was used on a public forum for the first time
in1986byTownsend. “the description and analysis of the costs of drug therapy to health
systems and society.

Principle of pharmaceutical analysis

It involves
 Choosing a perspective
 Identifying and measuring costs
 Identifying and measuring consequences

Perspective of evaluation
The value of a pharmaceutical product or service depends heavily on the perspective of the
evaluation. Common perspectives include those of the patient, provide, payer ,and society.
Patients perspective
Costs from the perspective of patients are essentially what patients pay for a product service—
that is, the portion not covered by insurance
Provider Perspective:

Costs from the provider's perspective are the actual expense of providing a productor
service, regardless of what the provider charges.
 Providers can b hospitals, managed-care organizations(MCOs), or private practice
physicians.
 From this perspective ,direct costs such as drugs ,hospitalization, tests, supplies, and
salaries of healthcare professionals can be identified, measured, and compared.
However , indirect costs can be of less importance to the provider.it includes direct cost only

Payer Perspective:
Payers include insurance companies, employers, or the government.
 From this perspective, costs represent the charges for healthcare products and services
allowed by the payer.
 The primary cost for a payer is of a direct nature. However, indirect costs, such as lost
workdays(absenteeism), being at work but not feeling well and therefore having lower
productivity (presenteeism), also can contribute to the total cost of health care to the
payer.

Society Perspective:
 The perspective of society is the broadest of all perspectives because it is the only one
that considers the benefit to society as a whole.
 Theoretically, all direct and indirect costs are included in an economic evaluation
performed from as societal perspective. Costs from this perspective include patient
morbidity and mortality and the overall costs of giving and receiving medical care.

Cost :
“The value of the resources consumed by a program or drug therapy is defined as cost.”
Health care cost categorized as;

I. Direct medical cost :

The term direct cost refers to all costs due to resource use that are completely
attributable to the use of a health care intervention or illness.
Drugs ,medical supplies, equipment , laboratory, and diagnostic tests ,
hospitalization and physician visits.

II. Direct non-medical cost

These costs are consumed to purchase services other than medical care and
include resources spent by patients for transportation to and from healthcare
facilities, extra trips to the emergency department, child or family care expenses,
special diets, and various other out-of-pocket expense
III. Indirect non-medical costs

 Indirect nonmedical costs are the costs of reduced productivity (e.g., morbidity and
mortality costs).
 Indirect costs are costs that result from morbidity and mortality and are an
important source of resource consumption, especially from the perspective of the patient.
 Morbidity costs are costs incurred from missing work (i.e., lost productivity),
 mortality costs represent the years lost as a result of premature death.

IV. Intangible Costs

 Intangible costs are those of other nonfinancial outcomes of disease and medical care.
Examples include pain, suffering, inconvenience, and grief, and these are difficult to
measure quantitatively and impossible to measure in terms of economic or financial
costs.
V. Opportunity Costs

 Opportunity costs represent the economic benefit forgone when using one therapy
instead of then next best alternative therapy.
 Therefore, if are source has been used to purchase a program or treatment alternative,
then the opportunity to use it for another purpose is lost. In other words, opportunity cost
is the value of the alternative that was forgone.
VI. . Incremental Costs
 Incremental costs are the extra costs required to purchase an additional unit of
effect.
 : Direct cost: Direct medical cost +direct non-medical cost
 Indirect cost: morbidity cost +mortality cost
 Total cost: direct cost +indirect cost+ Intangible Costs

Consequences :
“Consequence is defined as
“the effects, output. or outcomes of the programme or drug therapy”.
 Similar to costs, the outcomes or consequences of a disease and its treatment are an
equally important component of pharmacoeconomic analyses Like costs, the
consequences (or outcomes) of medical care also can be categorized.
Consequence are categorized as:
 Economic
 clinical
 humanistic.
  Economic outcomes
These are the direct, indirect, and intangible costs compared with the consequences of
medical treatment alternatives.
 Clinical outcomes
These are the medical events that occur as a result of disease or treatment (e.g., safety and
efficacy end points)
 Humanistic outcomes
These are the consequences of disease or treatment on patient functional status or quality
of life along several dimensions
(e.g., physical function, social function, general health and well-being, and life
satisfaction).
 Positive Consequences
An example of a positive outcome is a desired effect of a drug (efficacy or effectiveness
measure), possibly manifested as cases cured.
 Negative Consequences
A negative outcome is an undesired or adverse effect of a drug ,possibly manifested as a
treatment failure ,an adverse drug reaction(ADR) ,a drug toxicity, or even death.
 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
For example, achieving a decrease in low-density lipoprotein 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

Types of pharmacoeconomic evaluations:

1-Economic evaluation
it includes;
 Cost-minimization analysis (CMA)
 Cost-benefit analysis (CBA)
 Cost-effectiveness analysis (CEA)
 Cost-utility analysis (CUA)
2-humanistc evaluation

Economic evaluation:

Cost minimization analysis

Measures and compares input costs, and assumes outcomes to be equivalent.

 Simplest method ,to compare costs of alternative therapies that have: identical clinical
effectiveness (including adverse reactions, complications and duration of therapy), but
different costs choose the least cost alternative among equivalent or equally efficacious
alternatives .
Example: The evaluation of two generically equivalent drugs in which the outcome has
been proven to be equal, although the acquisition and administration cost may be
significantly different

Cost effectiveness analysis

If two or more drug therapies have the same treatment objective but different degrees of
efficacy then cost-effectiveness analysis may be performed.
Assigns a monetary value to the measure of effect .
Incremental Cost Effectiveness Ratio = Cost A - Cost B (ICER) Effect A – Effect B
Disadvantages :
1.It is a narrow measure as only one outcome is being measured.
2. It is not useful in assessing a single programme.
3. It cannot be used to compare more disparate alternatives

Cost Benefit Analysis

CBA, sometimes called benefit–cost analysis (BCA), is a systematic process for
calculating and comparing benefits and costs of a project, decision or government policy
To improve the decision making process in allocation of funds to health care programs.
Disadvantages :
Use is limited by need to place monetary valuations on health outcomes.
Cost utility analysis is more widely used as results are presented in terms of cost per
QALY.
Cost Utility Analysis:
An adaptation of cost effectiveness analysis.
Measures an intervention's effect on both quantitative and qualitative aspects of health
(morbidity and mortality).
Focuses on increased quality of life.
Expressed as cost per quality-adjusted life years (QALY).
Disadvantage :
It is not helpful in assessing a single programme
Humanistic evaluations:
Methods for evaluating the impact of disease and treatment of disease on a patient's
HRQOL, patient preferences, and patient satisfaction are all growing in popularity and
application to pharmacotherapy decisions.
 These methods also can assist clinicians in quantifying the value of pharmaceuticals.
HRQOL has been defined as the assessment of the functional effects of illness and its
consequent therapy as perceived by the patient. These effects often are displayed as
physical, emotional, and social effects on the patient.
Measurement of HRQOL usually is achieved through the use of patient completed
questionnaires

Guidelines for performing a Pharmacoeconomics analysis

It involves following steps
Defining the problem
Determining the study’s perspective
Determining the alternative and outcomes
Selecting the appropriate Pharmacoeconomics method
Placing monetary values on the outcomes
Identifying study resources
Establishing the probabilities of the outcomes
Applying decision analysis
Discounting costs or performing a sensitivity or incremental cost analysis
Presenting the result ,along with any limitations of the study.

Applications :
Assist in decision making and allocating scarce resources
Assessing the value of a new agent
Formulary decision making
Drug policy decision ,treatment guidelines $justify the addition of new clinical
service.
Health care practitioners can benefit from applying the principles and methods of
Pharmacoeconomics to their daily practice settings.
Pharmacoeconomics analysis help to maximum benefit in limited cost.
Limitations:
Many problems limit the use of health economics in practice.
The whole process may be open to bias, in the choice of computer drug, the assumption
made, or in the selective reporting of results.
Health economics is sometimes misused as a marketing ploy.

Conclusions:
 Pharmacoeconomics identifies, measures, and compares the costs and consequences of
drug therapy to healthcare systems and society.
 The perspective of a pharmacoeconomic evaluation is paramount because the study
results will be highly dependent on the perspective selected.
 Healthcare costs can be categorized as direct medical, direct nonmedical, indirect
nonmedical, intangible, opportunity, and incremental costs.
 Economic, humanistic, and clinical outcomes should be considered and valued using
pharmacoeconomic methods, to inform local decision making whenever possible.
 To compare various healthcare choices, economic valuation methods are used, including
cost-minimization, cost-benefit, cost-effectiveness, and cost-utility analyses. These
methods all provide the means to compare competing treatment options and are similar in
the way they measure costs . They differ, however, in their measurement of outcomes and
expression of results.
 In today's healthcare settings, pharmacoeconomic methods can be applied for effective
formulary management, individual patient treatment, medication policy determination,
and resource allocation.
 When evaluating published pharmacoeconomic studies, the following factors should be
considered: study objective, study perspective, pharmacoeconomic method, study design,
choice of interventions, costs and consequences, discounting, study results, sensitivity
analysis, study conclusions, and sponsorship.
 Both the use of economic models and conducting pharmacoeconomic analyses on a local
level can be useful and relevant sources of pharmacoeconomic data when rigorous
methods are employed.