Pharmacoeconomics

Udezi Tony Waka ([Link]. MPSN)

Department of Clinical Pharmacy & Pharmacy Practice, University of Benin.

What is Pharmacoeconomics?

Pharmacoeconomics has been defined as the description and analysis of the costs of drug therapy to
health care systems and society – identifies, measures, and compares the costs and consequences of
pharmaceutical products and services. Decision makers can use these methods to evaluate and compare
total costs of treatment options and outcomes associated with these options. Pharmacoeconomic
analysis considers and compares both the costs and clinical outcomes.

Who uses Pharmacoeconomic evaluations and why?

Hospital managers (including HMOs )
What drugs should be included on the hospital formulary?
Which drug delivery system is the best for the hospital?
Pharmaceutical companies
What is the best drug for a pharmaceutical company to develop?
Shall the company continue a clinical trial?
What is the economic benefit of a new product?
Government
Which drugs should be included in a Medicaid formulary?
Is it cost-effective for Medicare to cover annual mammography?
Researchers
All of the above
How to improve the analytical credibility of economic evaluation ?

Models of Pharmacoeconomic Analysis

Four types of Pharmacoeconomic analyses, which measure costs or inputs in currency and assess the
outcomes associated with these outcomes, are employed. These models of analyses are categorized by
the method used to assess outcomes of using drugs. If outcomes are assumed to be equivalent, the
study is called a cost minimization analysis; if the outcomes are measured in currency e.g. dollars, the
study is called a cost- benefit analysis; if the costs are measured in natural units (CD4+ counts, adverse
reactions, years of life), the study is called a cost- effectiveness analysis; if outcomes consider patient
preferences or utilities, the study is called a cost-utility analysis. Each of these analyses includes
measurement of cost in dollars, followed by measurement of outcomes as illustrated below:
Methodology Cost Measurement Unit Outcome Measurement Unit

Cost-minimization analysis (CMA) Dollars Assumed to be equivalent comparable groups

Cost-benefit analysis (CBA) Dollars Dollars

Cost- effectiveness analysis (CEA) Dollars Natural units (life-years gained, CD4+ counts)

Cost-utility analysis (CUA) Dollars Quality-adjusted life year (QALY) or other utilities.

Assessment of Costs – Costs and benefits of drug treatment of patients have three corresponding
components namely, direct, indirect, and intangible. Costs are calculated to estimate the resources or
inputs that are used to produce outcome. Direct medical costs are the most obvious costs to measure.
Direct costs include those costs incurred prior to diagnosis and hospitalization, during hospitalization,
during convalescent care and during continued medical surveillance. Rice suggested that these costs
include “expenditures for prevention, detection, treatment, rehabilitation, research, training and capital
investments in medical facilities as well as professional services, drugs, medical supplies and non
personal health services.”
Indirect costs are difficult to measure. These are the result of earnings and man-hour losses without
treating the patients. Such costs or rather opportunity costs include wage and productivity losses
resulting from death, absenteeism, and low productivity (lack of motivation to work on the part of the
victim).
Intangible costs include costs of pain, suffering, anxiety, or fatigue that occur because of the disease or
its treatment. It is difficult to measure or assign values to intangible costs.
In practice, since costs are denominated in currency, which is prone to inflation the aspect of time value
of money, is incorporated by discounting the monetary sum with inflation and interest rates.

Assessment of Outcomes:
Cost- Minimization Analysis (CMA) – Here, costs are measured in currency (dollars), and outcomes are
assumed to be equivalent. A typical example is the measurement and comparison of costs for two
therapeutically equivalent antiretroviral medicines. All the outcomes e.g. efficiency, incidence of
adverse drug reactions are assumed to be equal but the costs are not. Some researchers criticize this
method of being pseudo- pharmacoeconomic because although costs are measured, outcomes are not
measured. Others claim that the strength of CMA depends on evidence from published data or expert
opinions that the outcomes are equal and hence the simplicity of the analysis becomes an obvious
advantage compared to other methods of analysis.

Cost- Benefit Analysis (CBA) – A cost-benefit analysis measures both inputs and outcomes in monetary
terms. One advantage of this approach is that treatment options with different outcomes can be
compared since each outcome is converted to the same unit of currency. In doing the analysis, the sum
of estimated benefits is divided by the sum of the estimated costs to produce a cost- benefit ratio. If this
ratio is more than 1.0, the choice is considered beneficial. Alternatively, the total cost is subtracted from
the total benefit to produce a net benefit and a positive net benefit signifies a cost beneficial choice.
Cost- Effectiveness Analysis (CEA)- This method measures costs in currency e.g. dollars and outcomes in
natural health units such as lives saved, reduction in CD4+ counts. An advantage of this method is that
practitioners are conversant with health outcomes and these outcomes do not need to be converted
into monetary units. On the other hand, the alternatives used in comparison must have outcomes that
are measured in the same units and if more than one unit of outcome is important when conducting the
comparison, a cost- effectiveness ratio should be calculated for each type of outcome.

Cost- Utility Analysis (CUA) – This method considers patients’ preferences (utilities) when measuring
health consequences. Diseases affect the quality of life of patients in three dimensions namely, physical,
mental, and social well being. Since HIV/AIDS does not yet have a known cure, improvement of the
patient’s quality of life appears to be the most attractive outcome. The most common unit in conducting
CUAs is the Quality Adjusted Life Years (QALYs). This unit incorporates both the quality and quantity of
life and hence it is possible to compare different types of health outcomes. In calculating QALYs, one
year of life in perfect health is given a score of 1.0 QALY. The impact of HIV/AIDS on health related
quality of life is a reduction in this score. The unit allows comparison between of mortality (score 0) and
morbidity. The summated rating scale whereby patients score their state of health is commonly
employed. Thus a score of 70 on a scale of 0 to 100 indicates 0.7 QALYs. There are general and specific
instruments for measuring quality of life. The SF-36 Health Survey, and Health Status Profile SF- 12 are
examples of general assessment instruments. HIV-PARSE Baseline Questionnaire, Health- related quality
of life measures from HIV Cost and Services Utilization Study, and Questionnaire for Persons with HIV
(MQOL-HIV) are some of the specific instruments.

How to Conduct a Pharmacoeconomic Evaluation

Establish the perspective

Describe or specify the alternatives
For each alternative, specify the possible outcomes and the probability of their occurrence
Specify and monitor the health-care resource consumed in each alternative
Assign naira values to each resource consumed
Specify and monitor nonmedical resources consumed by each alternative
Specify the unit of outcome measurement
Specify other noneconomic attributes of the alternatives, if appropriate
Analyze the data
Conduct a sensitivity analysis

Decision Tree
A decision tree is a graphical representation of the decision process indicating competing options or
treatment alternatives, their probabilities of occurrence and costs, benefits or loss. It consists of a
network of nodes and branches. Decision nodes are represented by a square and chance or event nodes
are represented by circles. The general approach in decision tree analysis is to work backward through
the tree from right to left, computing the expected value. This is known as roll back.
Steps in decision tree analysis:
Systematically identify the decision points and the alternative courses of action at each point
Determine the probability and the payoff associated with each course of action
Starting from the extreme right, compute the expected payoffs or cost for each course of action
Choose the course of action that yield the best payoff or cost for each of the decisions
Repeat the above for each decision point
Finally, identify the course of action to be adopted under different possible outcome for the situation
under consideration

Advantages of decision tree approach:

Helps decision-making in an orderly, systematic and sequential manner
It helps the decision maker to examine all possible outcomes, whether desirable or undesirable
It communicates the decision making process in an easy and clear manner to others
It displays logical relationship (of event occurrence in sequence) between the parts of a complex
problem
It is particularly useful where the initial decision and its outcome affects subsequent decisions
It can be applied in various fields such as introduction of a new product, marketing, investment etc

Disadvantages of the decision tree approach

The diagrams become complicated as decision alternatives and variables increases in number
It becomes complicated when there is interdependence between the alternatives
It yields an “average” value solution
Example:
35% of patients on chloroquine that cost N15.00 for a complete treatment get well. The others have to
take an ACT that cost N450.00 for 98% of them to get well. The rest died. Another group of patients took
fansidar with a treatment cost of N120.00. 68% of them got well. The rest took an ACT with a similar
cost and outcome with the chloroquine group. Assume that death cost N250 , 000.00. With the aid of a
decision tree, calculate the cost effectiveness of the options. As a policy maker which of the drugs
should be first line? Explain your answer.
Solution……..
Chloroquine
Well = 35 x 15 = 525
SICKact = 65 x (450 + 15) 30,225
WELL1 = (65 x 98/100) x 0 = 0
DIED = (65 X 2/100) X 250,000 = 325,000
Total for 100 patients = 525 + 30,225 + 0 + 325,000 = 355,750
For one patient = 355,750/100 = N3,557.50

DO THE ABOVE FOR FANSIDAR and answer the question completely…..GOODLUCK!