Pharmacoeconomics is the description and analysis of the costs of drug therapy to health systems and society. It identifies, measures, and compares the costs and outcomes of drug therapies and healthcare programs. Key methods include cost-of-illness, cost-benefit analysis, cost-effectiveness analysis, and cost-utility analysis. These evaluate the economic, clinical, and humanistic impacts of healthcare interventions from various perspectives including patients, providers, payers, and society.

1. by:
Sanghmitra priyadarshini
M.Pharma
(pharmacology)

2. Input costs Output
costs
HEALTHCARE

3.  Term first coined in 1986 by Townsend
 ―thedescription and analysis of the costs
of drug therapy to health systems and
society‖
Rl Townsend (1986)

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

5.  ―Research that identifies, measures and
compares the costs (resources consumed)
and the Economic, Clinical and Humanistic
Outcomes of diseases, drug therapies and
programmes directed to these diseases.‖

6.  Objectivesof pharmacoeconomics and
outcomes research must originate within
three dimensions when considering results
and value of healthcare
• Acceptable clinical outcomes
• Acceptable humanistic outcomes
• Acceptable economic outcomes

7. Outcome research-
Means to
identify, measure, evaluate the
result of healthcare researches
in general
Cost-
It is value of resources
consumed by a program or drug
therapy of interest
Consequences-
Effects, outputs or outcomes of
program or drug therapy of
interest

8. The ―point of view‖ considered in economic analyses
influences the outcomes and costs considered to be
most relevant:
Patient Perspectives
•According to patient
•E.g.- Insurance copayments, Indirect costs, Drug costs
Provider perspectives
•Provider can be a hospital govt./ pvt.
•E.g.-Lab tests, Hospitalization
Payer perspectives-
•Direct costs
•E.g. Govt., Insurance company
Societal perspectives-
•Broadest
•Considers benefits of society
•Include morbidity & mortality

9. OUTCOMES INCLUDES
Clinical Cure, comfort and survival
Humanistic Physical, emotional, social
function, role performance
Economic Expense, saving, cost
avoidance
Prasanna R. Deshpande, Pharm D, Manipal,India

10. Positive Consequences-
 Life-years gained , Improved health
related quality of life
Negative Consequences-
 Adverse effects, toxicity
Prasanna R. Deshpande, Pharm D, Manipal,India

11.  Cost –of –illness evaluation
 Cost benefit analysis
 Cost minimization analysis
 Cost effective analysis
 Cost utility analysis
Prasanna R. Deshpande, Pharm D, Manipal,India

12.  Identification, measurement, comparison of the benefits
and cost of program or treatment alternatives
 Consequences are measured in terms of total costs
associated with the programme.
 B/C > 1 treatment is of value
 B/C= 1 benefits equal to cost
 B/C< 1 not economically beneficial
Prasanna R. Deshpande, Pharm D, Manipal,India

13.  When two or more intervention has equal therapeutic
outcome
 Involves the determination of least costly alternative
 Alternative must have assumed or demonstrated equivalency
in safety and efficacy
 Example- Anti-ulcers
Prasanna R. Deshpande, Pharm D, Manipal,India

14.  Determines which program or treatment accomplishes a
given objective at least cost
 In CEA the effectiveness is expressed in terms of
monetary units that describes the desired objectives
Lives saved
Disability days avoided
Cases treated
Prasanna R. Deshpande, Pharm D, Manipal,India

15.  Method for comparing treatment alternatives that
integrates patient preferences and HRQOL.
 Resources consumed is measured in monetary
units
 Health outcomes adjusted for quality is quality
adjusted life year (QALY).
 QALY- is a measure of disease
burden, including both the quality and the
quantity of life lived
 1.0 QALY = Disease free yr.
 0.5 QALY = Yr. spent with specific disease
Prasanna R. Deshpande, Pharm D, Manipal,India

16. New Drug
Investigational
Approval -
New Drug - IND
NDA
Basic Research Phase I Phase II Phase III
Time (months) 42.6 15.5 24.3 36.0 =
119.4
Direct Cost ($million) 65.5 9.3 18.6 20.2 =
113.6
Capitalized Cost 155.6 17.8 30.3 27.1 =
230.8

17. 1 2 3
Drug D
Drug C
Drug B
Drug A
Effectiveness
1. Break-even Price
2. Efficiency Price
3. Premium Price
Total Cost of Treatment

18. •Subject determination
•Comparator – alternative medical programme
•Time horizon
•Perspective
•Cost analysis
•Discounting
•Clinical outcomes
•Type of analysis
•Incremental analysis
•Sensitivity analysis
•Results presentation

19.  In order to draw most valid conclusion about
costs generated over time to achieve an effect in
the future, it is necessary to consider that there
is a time preference associated with money
 Time-value of money adjustment
• Money in hand is worth more than the same amount
sometime in the future (we like to be paid as soon as
possible, but prefer to pay at the last possible
moment)
• Therefore future costs must be adjusted to reflect
present value.
 A $1000 cost one year from now requires only $930.00 in hand
today assuming a 7% return on investment.

20.  Conclusions drawn from an economic analysis may
change, depending on the uncertainty of cost and effects
considered.
 S.A., by altering important variables & then recalculating
results, tests the validity of conclusions:
• Would Agent A still be most cost-effective if the effect
of Agent B was greater than measured in clinical trial?
• Would Agent A still be most cost-effective if the
monitoring costs of Agent B were actually lower?
 S.A. becomes increasingly important as assumptions are
made to a greater degree.

21.  Evaluate:
• The quality of the journal
• Qualifications of authors
• Title and abstract- unbiased?
• Study methodology
 Perspective, study design, outcomes and appropriate
alternatives, costs and appropriate discounting, sensitivity
analysis, & data sources
• Sponsorship- could bias be introduced?
• Incremental results
 What is the conclusion and does it differ between subgroups?
How much does allowance for uncertainty change conclusion?
Vogengerg, FR editor. Introduction to Applied Pharmacoeconomics, 2001

22. Perspectives
Patient 3rd-Party Payer
-Clinical Care -Clinical Cure
-Quality of life -Cost
-Out-of-pocket -Customer
Cost perception of
-Satisfaction with value
treatment
process Employer / Society
-Clinical Cure
Hospital / Physician -Cost
-Clinical Cure -Productivity
-Profit from treatment

23. Relationship between
Outcomes, Pharmacoeconomics and
Pharmaceutical Care
outcomes
research
pharmaco-
economics
pharmaceutical
care

24. PHARMACOECONOMIC
METHODS
Economic Humanistic
Cost consequence
Quality of life
Cost benefit
Patient preferences
Cost effectiveness
Patient satisfaction
Cost minimization
Cost utility

25. Summary of Pharmacoeconomic Methodologies
Method Description Application Cost Outcome
Unit Unit
COI Estimates the cost of a disease on Use to provide baseline to compare $$$ NA
a defined population prevention/ treatment options against
CMA Finds the least expensive cost Use when benefits are the same $$$ Assume to be
alternative equivalent
CBA Measures benefit in monetary units Can compare programs with different $$$ $$$
and computes a net gain objectives
CEA Compares alternatives with Can compare drugs/programs that $$$ Natural units
therapeutic effects measured in differ in clinical outcomes and use
physical units; computes a C/E same unit of benefit
ratio
CUA Measures therapeutic Use to compare drugs/programs that $$$ QALY‘s
consequences in utility units rather are life extending with serious side
than physical units; computes a effects or those producing reductions
C/U ratio in morbidity
CCA Measures multiple costs and Examines whether the use of a drug $$ Reported
outcomes without aggregating the produces an outcome that decreases separately
two into a CE or CB ratio. costs and offsets the price cost of the
new therapy

26. Specific Decisions for PE
Applications
MICRO
Clinical Decisions
Formulary Management
Drug Use Guidelines
Disease Management
Justification of Pharmacy Services
Resource Allocation
MACRO

27.  Established with financial support from the
Department of Health and Children
 Aims to promote expertise in Ireland for
the advancement of the discipline of
pharmacoeconomics through
education, practice and research
C entre
D ep t of H ealth R esearch E d u cation
www.ncpe.ie

28. Methodology Cost measurement Outcome unit
unit
Cost minimization Dollars Various- but
equivalent in
comparative groups
Cost benefit Dollars Dollars
Cost effectiveness Dollars Natural units (life
years, mg/dl blood
sugar, LDL
cholesterol)
Cost utility Dollars Quality adjusted life
years

29.  Cost-effective care is initially the cheapest alternative in a
manner similar to other investments, least cost option may
lead to greater costs downstream
 Cost-effective care is outcome that generates ―biggest‖ effect
in a manner to similar investments, smaller increments of
outcome may be achieved at a lower overall cost

30.  Makes comparisons to other therapeutic
options, standard of care, or ―doing
nothing‖ (placebo)
 Fundamental ratio
Cost optionB – Cost optionA
Effect optionB – Effect optionA
= Cost to achieve one unit of effect

31. Pharmacoeconomic Studies
Research and Pricing and Communication to
Development Reimbursement Physicians and
Strategy Strategy Patients
Phase II Phase III Regulatory Marketing
Phase Phase

32. Drug Therapy Evaluation-
Selecting the most cost-effective drugs for an organizational formulary
making a decision about an individual patient‘s therapy
customizing a patient‘s pharmacotherapy.
CLINICAL PHARMACY SERVICE EVALUATION
 Determining the value of an existing service,
 Estimating the potential worth of implementing a new service,
 Capturing the value of a ―cognitive‖ clinical intervention
 Industry – marketing, pricing, performance guarantees
 Managed Care – protocols, guidelines, formularies
 Physicians – individual patient treatment decisions, prescribing, payor-
performance
 Consumers – education, autonomy
 Government – pricing, approval, formularies, policy
 Institutions – protocols, guidelines, formularies
 Pharmacists – formularies, protocols, guidelines, pharmaceutical care services
or program evaluation

33.  To assist clinicians and practitioners in making
more informed and complete decisions regarding
drug therapy in providing cost effectiveness data
to support the addition or deletion of a drug.
Eg. In patients with relapsed Non-small cell lung
carcinoma(NSCLC), treatment with erlotinib was found to
be cost-saving versus docetaxel and cost-effective
versus best supportive care. In this study erlotinib is
found to be more efficacious & cost effective compare to
docetaxel in Netherlands for patients with relapsed
NSCLC.

34. P & T Committee.
Eg. Community-acquired pneumonia is a frequent cause of
hospitalization in the United States. In this study
comparison of intravenous monotherapy with either
levofloxacin or azithromycin against combination of
cefuroxime plus erythromycin. The drug acquisition costs
of levofloxacin was the most expensive of the three
regimens ($126 vs. $80 and $83 for azithromycin and
cefuroxime/erythromycin, respectively). When the costs
of supplies and administration, adverse drug events, and
treatment failures were included in the analysis,
levofloxacin and azithromycin were found to be similar in
cost per pneumonia cure ($208 vs. $228). Taking
pharmacoeconomics data into consideration,
Levofloxacin or azithromycin when used as monotherapy,
were more cost-effective than the
cefuroxime/erythromycin combination.

35.  Influencing prescribing pattern of physician
Eg. A prospective observational study (POS) assessing the
standard of care was conducted over two months and
was compared with a proactive conversion program
(PCP). A cost-minimization analysis was performed. A
pharmacist-managed proactive program that used
predetermined clinical criteria for converting levofloxacin
therapy from i.v. to p.o. without physician approval
reduced length of stay and institutional health care costs
without compromising clinical outcomes.

36.  Useful for making a decision about an individual patient‘s
therapy. Evaluating the impact a drug has on a patient‘s
HRQOL can be useful when deciding between two
agents for customizing a patient‘s pharmacotherapy
Eg. An author performed cost utility analysis from government‘s
perspective that there is increased compliance with ACE
inhibitors in type 1 diabetic nephropathy due to cost reduction.
ACE inhibitor therapy found to be cost effective with an
increase of 0.147 in the number of quality-adjusted life-years
(QALYs) and an annual cost savings of $849 per patient. ACE
inhibitor therapy for type I diabetes with macroproteinuria
improves patient outcomes, with a decrease in cost for end
stage renal failure services.

37.  Justify the value of various health care
services, particularly pharmacy services.
Eg. Clinical Pharmacy Services, Pharmacy Staffing, and the Total Cost
of Care in United States Hospitals.
In this study, relation & association of clinical pharmacist
services, staffing & total cost of care was evaluated in the united states.
The database constructed from National clinical Pharmacy service
database,1992. Data were collected from 3422 hospitals in the united
states. Out of 14 clinical pharmacy services, 6 services were found to
reduces total cost of care. For ex. Service like drug information reduces
cost of 12.14 times compare to that of drug cost reduction. Service like
protocol management reduces cost of 12.59 times compare to that of
drug cost reduction. Services like admission drug history reduces cost of
32.64 times compare to that of drug cost reduction. So, it is concluded
that some clinical pharmacy services and clinical pharmacists may be
able to lower the total cost of care in the united states. It also suggest
that increase in staffing levels of clinical pharmacists and pharmacy
administrators are associated with lowering of 30% of hospital‘s total
cost.

38.  Pharmacoeconomics can be useful in
determining the value of an existing
service, estimating the potential worth of
implementing a new service, or capturing the
value of a ―cognitive‖ clinical intervention.
Eg. Cost Effectiveness of A Clinical Pharmacist on A
Neurosurgical Team.
In this retrospective study of services of dedicated pharmacist
in neurosurgical team for the duration of 4 years was
reviewed. From 2156 patients, 11250 interactions were
recorded. Total cost saving is $718260 over the duration of the
study that includes hospital stays, readmission rates, and
pharmacy cost.

39.  Providingdrug information services by clinical
pharmacists helps to reduce the total cost of
care.
Eg. Clinical Pharmacy Services, Pharmacy
Staffing, and the Total Cost of Care in United States
Hospitals.
In this study, pharmacist provided unbiased drug information
services which lowers total cost of care up to 28% of all
hospital related compare with drug morbidity & mortality. In
addition, ADRs in hospital are often preventable if detected
early & with better information system it is likely to be
accepted by other health professionals. Each $ of
pharmacist‘s salary associated with $602.16 reduction in total
cost of care.

40. ADR monitoring services by clinical pharmacists
helps to reduce the total cost of care by reducing
ADR related admission.
Eg. Clinical Pharmacy Services, Pharmacy Staffing, and
the Total Cost of Care in United States Hospitals.
Adverse drug reactions are the most common untoward
events occurring in hospitals & significantly increase the cost
of care. This study suggest that the presence of this service
indicates a hospital that has an active program to detect and
prevent ADRs, and thus may reduce the cost of care
associated with these problems. A cost reduction of
$1,610,841.02 in total cost of care/hospital was associated
with the presence of the service. Each $ of pharmacist‘s salary
associated with $2988.57 reduction in total cost of care.

41.  Providing services of drug management
protocol to hospital.
Eg. Clinical Pharmacy Services, Pharmacy
Staffing, and the Total Cost of Care in United States
Hospitals.
Pharmacist provided drug protocol management services
achieves high level of trust by medical staff due to
improvement of patients‘ condition with lower cost. A
reduction of $1,729,608.41 in total cost of care
reduction/hospital was associated with the presence of
drug protocol management . Each $ of pharmacist salary
cost was associated with $1048.25 reduction of total cost
of care.

42.  Pharmacists‗ participation on medical ward
rounds.
Eg. Clinical Pharmacy Services, Pharmacy Staffing,
and the Total Cost of Care in United States
Hospitals.
In medical rounds major decisions of therapy is
discussed. Presence of pharmacist helps in better patient
care with reduction in cost. A reduction of $7,979,720.45
in total cost of care/hospital was associated with
pharmacists' participation on medical rounds. Each $ of
pharmacist salary cost was associated with $252.11
reduction of total cost of care.

43.  Service
of clinical pharmacist in taking
medication history of patients.
Eg. Clinical Pharmacy Services, Pharmacy Staffing,
and the Total Cost of Care in United States
Hospitals.
As up to 28% of patient admission is due to drug related
morbidity & mortality. In addition taking medication history
helps to avoid unnecessary cost burden on patient in early
stage of therapy. Pharmacist is the best person to identify it. A
reduction of $6,964,145.17 in total cost of care/hospital was
associated with pharmacist-provided admission drug histories.
Each $ of pharmacist salary cost was associated with $776.64
reduction of total cost of care.

44.  Pharmacoeconomics can guide choices among alternative
medications, treatment regimens and services based on a
combination of costs and outcomes.
 Results and interpretation of pharmacoeconomic studies are
influenced by the perspective of the study—there is no one ―right‖
answer.
 Time and money can only be spent once- choice is inevitable.
Whether done unconsciously or with a consistent process, health
care professionals are constantly evaluating patient care choices
& acting on them.
 Pharmacoeconomics and outcomes research can enhance the
quality of your practice by strengthening your evaluation process
and increasing the probability that you deliver better value in
patient care.