Pharmacoeconomics & health policy
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Pharmacoeconomics refers to comparing the costs and benefits of pharmaceutical drugs and therapies. It is a subfield of health economics that evaluates the cost and effects of pharmaceutical products. Pharmacoeconomic studies are important for health care funders struggling with rising costs to identify the most efficient use of limited resources. They are also important for pharmaceutical companies who must demonstrate cost-effectiveness in addition to safety, efficacy and tolerability for new drugs.
Pharmacoeconomics & health policy
- 2. 2 Pharmacoeconomics refers to the scientific discipline that compares the value of one pharmaceutical drug or drug therapy to another. It is a sub-discipline of health economics. A pharmacoeconomic study evaluates the cost and effects of a pharmaceutical product. Pharmacoeconomics Pharmacoeconomic & Health Policy 22 February 2020
- 3. Health care funders (governments, social security funds, NGO’s insurance companies) are struggling to meet their rising costs. 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. 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. 3 Introductory Remarks Pharmacoeconomic & Health Policy 22 February 2020
- 4. 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 (for instance, a new drug and the previous best therapy - traditional medical evaluation focused only on the benefits), to determine which is the most efficient way to use our limited resources. 4 Introductory Remarks Pharmacoeconomic & Health Policy 22 February 2020
- 5. Basic Concepts And Terminology Efficiency is a key concept in pharmacoeconomics, i.e. how to buy the greatest amount of benefit for a given resource use. Despite some problems, pharmacoeconomic evaluations of drug therapy are increasingly important in decision making. The professionals should welcome this as a means to promote efficiency and effectiveness of prescribing, and aim to move the professionals’ debate away from pure cost to the question of value for money in prescribing. 5 Pharmacoeconomic & Health Policy 22 February 2020
- 6. Benefits The benefits we expect from an intervention might be measured in: A. “Natural” units - e.g. years of life saved, strokes prevented, Diabetes managed 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. Utility estimates can be obtained through direct measurement (using techniques such as time trade off or standard gambles, or by imputing them from the literature or expert opinion ).They are often informed by measures of quality of life in different disease states. 6 Pharmacoeconomic & Health Policy 22 February 2020
- 7. 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. 7 Pharmacoeconomic & Health Policy 22 February 2020
- 8. 8 The Quality Adjusted Life Year (QALY) Pharmacoeconomic & Health Policy 22 February 2020
- 9. Qualy Criticisms QALYs are controversial for many reasons, not least that measuring patient utilities is difficult and preferences may change in the course of an illness (what seems an intolerable burden to a healthy individual may not seem so bad to someone who might otherwise be dead). Despite these criticisms, the concept of the QALY has advanced thinking on how to incorporate quality of life into pharmacoeconomic evaluations. 9 Pharmacoeconomic & Health Policy 22 February 2020
- 10. Calculating QALYS - A Simple Example With treatment X Estimated survival = 10 years Estimated quality of life (relative to ‘perfect health’) = 0.7 QALYs = (10 X 0.7) = 7.0 Without treatment X Estimated survival = 5 years Estimated quality of life (relative to ‘perfect health’) = 0.5 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 Rs. 1800/- then the cost per QALY is Rs. 400/- per QALY (Rs. 1800 divided between 4.5 additional QALY’s) 10 Pharmacoeconomic & Health Policy 22 February 2020
- 11. Pharmaceutical industry’s point of view Pharmacoeconomics is at the interface between research and development and marketing, covering the entire drug product life cycle as well as scientific and commercial planning. 11 Whilst pharmaceutical companies generally recognise the importance of pharmacoeconomic analysis, Academic community needs to do pharmacoeconomic research which is relevant for managerial decision-making. Pharmacoeconomic & Health Policy 22 February 2020
- 12. Earliest definitions of Pharmacoeconomics are very narrowly focused on the "analysis of the costs of drug therapy to health care systems and society ". This perception of pharmacoeconomic research is solely concerned with costs and does not consider the outcome from the use of pharmaceutical products. The role of Pharmacoeconomics does not remain the same during the different phases of drug development. Pharmacoeconomics is a tool which should be applied to strategic and operational decisions about pharmaceutical development, production or consumption. 12 Basic methodology of economic evaluation. Pharmacoeconomic & Health Policy 22 February 2020
- 13. Types of pharmacoeconomic evaluation There are five types of pharmacoeconomic evaluation, all of which can be applied to pharmaceutical products. In order of sophistication and level of complexity these are Cost of illness evaluation (COI) Cost minimization analysis (CMA) Cost benefit analysis (CBA) Cost effectiveness analysis (CEA) Cost utility analysis (CUA) 13 Pharmacoeconomic & Health Policy 22 February 2020
- 14. The ultimate objective of all five methods The ultimate objective of all five methods 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. 14 Pharmacoeconomic & Health Policy 22 February 2020
- 15. 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. 15 Pharmacoeconomic & Health Policy 22 February 2020
- 16. 16 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 Total Cost: Intangible Cost Indirect Cost Direct Cost Example: Dengue Pharmacoeconomic & Health Policy 22 February 2020 1. Cost of Illness Evaluation
- 17. 17 1. Cost of Illness Evaluation 22 February 2020 Pharmacoeconomic & Health Policy
- 18. 18 Pharmacoeconomic & Health Policy 22 February 2020
- 19. 2. Cost-minimisation Analysis 19 Description: Identifies intervention cost differences between similar alternatives Application: Identify least costly alternative when outcomes/consequences are identical Example: Comparing costs of Drug A and Drug B, which have evidence of equal efficacy for a given condition and safety (incidence of ADRs) Pharmacoeconomic & Health Policy 22 February 2020
- 20. 3. Cost-effectiveness Analysis (CEA) Description: Compares costs of two or more alternatives versus outcomes measured in natural units The major outcome of interest is single and common to all alternatives but different programs have different success rates in achieving this common outcome. For example, if the outcome of interest is prolongation of life we may have programs A and B which have different costs and prolong life to a different degree: 20 Pharmacoeconomic & Health Policy 22 February 2020
- 21. The term cost effectiveness is often used to refer to the whole of economic evaluation, but should properly refer to a particular type of evaluation, in which the health benefit can be defined and measured in natural units (e.g. years of life saved, diabetes managed) and the costs are measured in money. 21 Pharmacoeconomic & Health Policy 22 February 2020 3. Cost-effectiveness Analysis (CEA)
- 22. It does not allow comparisons to be made between two totally different areas of medicine with different outcomes. The broad form of these evaluations are shown in box, and the key measure is the incremental cost effectiveness ratio (ICER). 22 Pharmacoeconomic & Health Policy 22 February 2020 3. Cost-effectiveness Analysis (CEA)
- 23. 4. 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). We express in monetary terms the positive and negative consequences of the medical intervention and aggregate them to construct comparable cost-benefit ratios. Cost Benefits Ratio =Benefits Cost 23 Pharmacoeconomic & Health Policy 22 February 2020
- 24. CBA are not that common in Pharmacoeconomics, and where 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. 24 Pharmacoeconomic & Health Policy 22 February 2020 4. Cost-benefit Analysis (CBA) Solution A Solution B Solution C Total Cost 10,000 15,000 20,000 Total Benefits 12,000 19,000 23,000 Cost benefits Ratio 1.20 1.27 1.15
- 25. 5. Cost-utility Analysis (CUA) In CUA a different measure of value derived directly from Economics is used to measure an outcome called utility. The basic idea behind CUA is that one purpose of medical intervention is to improve the quality of life of patients and that changes in quality of life should be measured alongside measures of increase in life expectancy. Therefore, the comparative efficacy of the alternative treatments is captured and measured through their contribution to the quality of life of the patients undergoing such treatments. This is an important idea which deserves a more detailed explanation. However, despite the obvious theoretical advantages of CUA there are major practical difficulties in establishing the exact utility attached to different health states. 25 Pharmacoeconomic & Health Policy 22 February 2020
- 26. Sources of variation in costs associated with drug treatment: Accounting systems Reimbursement systems Economies of scale Medical practice variation 26 Pharmacoeconomic & Health Policy 22 February 2020
- 27. Accounting systems Fixed costs (staff salaries and buildings or other capital equipment costs) account for the majority of any healthcare budget. Accounting practice for allocation of these fixed costs varies considerably. 27 Pharmacoeconomic & Health Policy 22 February 2020
- 28. Drug wastage is another potential source of accounting variation. Wastage occurs because drugs cannot be used due to incorrect preparation or breach of sterility or lapsed expiry date, or a drug is prepared for a patient who does not receive it because of a change in treatment, or the dosage or presentation size is greater than the required dose. 28 Pharmacoeconomic & Health Policy 22 February 2020
- 29. Reimbursement systems Reimbursement systems which pay per patient treated make it relatively easy to allocate fixed costs to individual patients or treatments administered. 29 Pharmacoeconomic & Health Policy 22 February 2020
- 30. Medical practice variation 30 There are many examples of systematic variation in medical practice that is consistent variation between doctors working in two different institutions or geographic areas. Naturally, doctors would like to believe that variations in practice are due to genuine variations in the epidemiology of disease, but this rarely explains the marked systematic medical practice variations which exist. Much of the research in this area relates to elective surgery but a few examples related to antibiotic therapy in hospitals will serve to illustrate the potential impact of medical practice variation on pharmacoeconomic analysis. The impact of medical practice variation on pharmacoeconomic studies can be illustrated by comparing the costs of antibiotics administered to treat infections occurring. Pharmacoeconomic & Health Policy 22 February 2020
- 31. HANDLING THE RESULTS OF PHARMACOECONOMIC EVALUATIONS 31 -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 Standard treatment dominant More Costly, More Effective Quadrant I Trade off Less Costly, Less Effective Quadrant III Trade off Less Costly, More Effective Quadrant IV New treatment dominant ∆ Effectiveness ∆Cost Pharmacoeconomic & Health Policy 22 February 2020
- 32. Cost Effectiveness Plan 32 -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 Pharmacoeconomic & Health Policy 22 February 2020
- 33. 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. 33 Pharmacoeconomic & Health Policy 22 February 2020