Pharmacoeconomics

Prof. Shaikh Abusufiyan
Assistant Professor,
AIKTC-School of Pharmacy,
New Panvel-410206
Part-01: Pharmacoeconomics
Pharma Learning Forever

At the end of this e-learning session you are able to…
A. Define pharmacoeconomics, explain its aim and uses?
B. Discuss reason increase in health care spending and
increase in drug cost.
Copyright @shaikhabusufiyan2021

Definition
cost-
benefit
cost-
effectiveness
cost
minimization
cost-of-
illness
cost-utility
analyses
to compare pharmaceutical products and treatment strategies.
It is the description and analysis of the costs of drug therapy
to healthcare systems and society.
• Pharmacoeconomics is the branch of economics that uses
…Brinsmead 2003

Role of Pharmacoeconomics and health outcomes research:
1. Informing clinical development and market
access decisions of new innovative medicines.
2. To work on the health economics which
particularly focuses upon
• the costs
• benefits of drug therapy.

3. It focused on the economic evaluation of
pharmaceuticals which includes
Health outcomes research (HOR) and
patient-reported outcomes (PRO)

• It is aim at understanding patient value
in terms of impact of disease and its treatment on
physical functioning and psychosocial wellbeing
known as “health-related quality of life” (HRQL).
AIM Health outcomes research and patient-reported outcomes (PRO)

To Make
formulary
decisions
To Design
disease
management
programs To measure
the cost
effectiveness of
interventions
Use of Pharmacoeconomics

Q&A
Q.1 Give definition of Pharmacoeconomics?
Q.2 What is HRQL.
Q.3 Enlist uses of Pharmacoeconomics?

Improvement
in &
sophistication
of health
technologies.
Increased
life
expectancy
Increased
technology
Increased
standard
of living
Increased
demand in
health care
quality and
services.
Reason for increase in health care spending
Reason

1. New medicines are
under patent law 5. Spending of
pharmaceutical
companies on
marketing &
launch of drugs
2. Preference of
drug therapy
over invasive
therapy
3. Discovering
various off
label uses of
existing drugs
4. The irrational
drug prescription
Reason for Increase in cost of Drug

Impact of price regulation in India
• About 85% of the drug market was under price control in 1979.
• With successive polices, the number diminished and now a mere 15
- 20% of the drug market is under price control.
Therefore drug prices are quickly spinning out of reach of the
common man.

• All over the world, patients are affected
by high price of medicines.
• In a developing country like India, 85%
of total health expenditure
financed by house-hold out of pocket
expenditure.

• Many poor people face a choice between
buying medicines or buying food
due to limited resources and high pricing
of drug.

• Pharmacoeconomics adopts and applies the
principles and methodology of health economics
to the field of pharmaceutical policy.
• Pharmacoeconomic evaluation
makes use of the broad range of techniques
used in health economics evaluation

Reference:
• Brinsmead R (2003): Use of pharmacoeconomics in prescribing research.
J Clin Pharm Ther 28:339-46
• Sumit Kumar, Ashish Baldi. Pharmacoeconomics: Principles, Methods and
Economic Evaluation of Drug Therapies. Ph Tech Med. 2013; (2)5:362-367.

Disclaimer (Images)
• The images used in this presentation are found from different sources all over the
Internet, and are assumed to be in public domain and are displayed under the fair
use principle for education purpose.
Copyright @ Presentation
• The said presentation is copyright under Copyright @shaikhabusufiyan2021
• The presentation is for education purpose only, don’t use the same for any legal
perspective.

Q&A
Quiz-Attendance/Feedback:
https:/
/forms.gle/5LyHRasLi5ZmTwN16

Prof. Shaikh Abusufiyan
Assistant Professor,
AIKTC-School of Pharmacy,
New Panvel-410206
Part-02: Pharmacoeconomics
Pharma Learning Forever

At the end of this e-learning session you are able to…
A. Discuss factors affecting drug pricing.
B. Explain need, challenges and components
of pharmacoeconomics.

Factors affecting drug pricing
I. The sector in which medicines are
purchased: The price is often higher in the
private sector --> profiteering intention.
II. The types of procurement agent: e.g.
different prices may be paid for the same
product by a public sector purchaser, such as
Ministry of Health.

III. The distribution route.
• A patient who purchases a medicine at a
hospital pharmacy may have to pay more
the hospital pharmacy purchased the
product from a local wholesaler

• Continue….
• Many times hospital pharmacy may have
limited stock of the generic drugs which one is
cheaper than the branded drugs prescribed to
the patient on routine basis.
• Some time patient has to purchase the
branded drugs in the emergency condition.

iv. The patient status:
• The price of patented medicine is often higher than that
of their generic equivalent.
• other factors influence the total cost of drugs are:
• Prices of patented, non-patented and generic drugs
• Retail and wholesale mark-ups
• Pharmacists' professional fees

Continue….
• Changes in the composition of total population e.g.
proportion of older persons
• Changes in prescribing habits of physicians
• Changes in the utilization of drugs i.e. number of drugs
used per patient
• Trends towards using newer drug therapy instead of
other treatments

In Industry:
Deciding among
specific
research and
development
alternatives.
In Government:
Determining
program benefits
and prices paid. In Private Sector:
Designing insurance
benefit coverage
Need of Pharmacoeconomics

Q&A
Q.1 Enlist factor affecting drug price.
Q.2 What is need of Pharmacoeconomics in
industry?

1. Establishing
guidelines or
standards of practice.
4. Continuing
education on the
relevant features
of this discipline
for practitioners,
government
officials, private
sector executives.
3. Creating a
cadre of trained
producers of
pharmacoeconomic
work.
CHALLENGES
2.Stable funding to
support applied
pharmacoeconomic
research.

Component of Pharmacoeconomics
Health
Economics
Health
Policy
research
Health
technology
assessment
Disease
burden
Health
outcome
research
Component
of PE

Aims, Objectives and principle of Pharmacoeconomic Evaluation
Aims, Objectives:
1. To reduce monetary burden on the
consumers
by insuring global pricing strategy for the
effective management of health care system.
2. To take decisions about drug therapies.

Principle
To make more efficient use of limited
resources
for maximization of health care benefit
at lower cost.

7 ways of cost Measurement:
1. Cost / unit
2. Cost / treatment
3. Cost / person
4. Cost / person / year
5. Cost / case prevented
6. Cost / life saved
7. Cost / DALY (disability-adjusted life year)

Reference:
• Sumit Kumar, Ashish Baldi. Pharmacoeconomics: Principles, Methods and
Economic Evaluation of Drug Therapies. Ph Tech Med. 2013; (2)5:362-367.

Q&A
Quiz-Attendance/Feedback:
https:/
/forms.gle/5LyHRasLi5ZmTwN16
Dr. Suleman Merchant
Dr. Suleman Merchant

Outcomes:
• The fundamental component of a pharmacoeconomic study is:
• outcomes or benefits.
• A cost-benefit analysis allow:
• To compares the costs and outcomes of alternative therapies -----> the outcome is then
expressed in monetary terms.
• It compares the costs involved in implementing a programme with the value of the outcome.
• Since the endpoints are measured in monetary terms, different endpoints can be studied--à
such as a surgical procedure compared with a pharmaceutical intervention.

Outcomes:
• The expected benefits from an intervention might be measured in:
• A. “Natural” units:
• e.g. strokes prevented
• years of life saved
• 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. Copyright @shaikhabusufiyan2021

The Methods of Pharmacoeconomic Evaluation
• Pharmacoeconomic evaluations include any study designed:
• To assess the costs (resources consumed) and consequences (clinical,
humanistic) of alternative therapies.
• The evaluation mechanisms often helpful in demonstrating:
• the cost impact of innovative treatments
• therefore granting them greater acceptance by healthcare providers, administrators,
and the public.

Types of pharmacoeconomic studies or methods:
There are basically 4 methods:
• Cost-minimization analysis (CMA)
• Cost-effectiveness analysis (CEA)
• Cost-utility analysis (CUA)
• Cost-benefit analysis (CBA)

Cost-Minimization Analysis (CMA):
• Objective: To select the least costly among multiple equivalent
interventions.
• Cost-minimization is a tool used in pharmacoeconomics and is
applied:
• when comparing multiple drugs of equal efficacy and equal tolerability.
• when the outcomes are the same for the two interventions.
• In this, only the input, i.e. the cost, is considered.

• The option that has the least cost is selected:
• e.g. if a hospital decides to introduce compulsory prescribing of
generic names of drugs instead of their brand names --> then the
pharmacoeconomic evaluation of this would be done by CMA.

• CMA shows only a “cost savings” of one program or treatment
over another.
• The CMA is appropriate:
• when comparing two or more therapeutically equivalent agents or
alternate dosing regimens of the same agent.

Cost Effective Analysis (CEA)
• CEA is a technique designed to assist a decision-maker in identifying
a preferred choice among possible alternatives.
• It involve a series of analytical and mathematical procedure that aid
in the selection of a course of action from various alternative
approaches.

• CEA evaluates multiple drug treatments for the same condition.
• The cost of the drug treatments --> are weighed against the
effectiveness of the drug.
• The costs of drug treatments include
• acquisition costs
• physician involvement
• and nursing costs for administration of the drug.

• The effectiveness of drug treatment is measured in tangible measures such as:
• length of hospital stay
• duration of treatment required
• and mortality rate.
• The results of a CEA are expressed as cost/outcome for both therapies.
• Pharmacoeconomic analysis should be incorporated in the clinical trial itself.
• It is done on the basis of pre-existing data available in the medical literature.

• It does not allow comparisons to be made between two totally
different areas of medicine with different outcomes.
• The key measure of these evaluations is the incremental cost
effectiveness ratio (ICER):
• Incremental cost effectiveness ratio=
Cost of drug A - Cost of drug B
Benefits of drug A - Benefits of drug B

3. Cost Utility Analysis (CUA)
• CUA is a type of evaluation in which
• drugs/interventions with different outcomes can be compared.
• It is use when comparing programs and treatment alternatives:
• That are life extending with serious side effects (e.g., cancer
chemotherapy).
• Those which produce reductions in morbidity rather than mortality (e.g.,
medical treatment of arthritis).
• When HRQOL is the most important health outcome being examined.

• CUA is employed less frequently than other economic
evaluation methods because of :
• a lack of agreement on measuring utilities
• Difficulty comparing QALYs (quality adjusted life years) across
patients and populations
• And difficulty quantifying patient preferences.

• It is a method for:
• Comparing treatment alternatives that integrates patient preferences and
HRQOL.
• It compare:
• cost
• quality
• and the quantity of patient-years.
• Cost is measured in dollars/ Rs.
• The therapeutic outcome is measured in patient-weighted utilities.

• Often the utility measurement used is a quality-adjusted life
year (QALY) gained.
• Results of CUA are also expressed in a ratio: A cost-utility
ratio (C:U ratio).
• Most often this ratio is translated as the cost per QALY
gained.

SCORE FOR UTILITY
• QALYs represent --> the number of full years at full health.
• Ex. a full year of health in a disease free patient would -->equal 1.0
QALY.
• whereas a year spent with a specific disease might be valued
significantly lower --> perhaps as 0.5 QALY, depending on the
disease.

4. Cost Benefit Analysis (CBA)
• CBA is the most comprehensive and the most difficult of all
economic evaluation techniques.
• In this technique --> the benefits are also assigned a monetary
value so that costs and benefits can be easily compared.
• Totally different interventions can be compared.
• Making it a useful tool for resource allocation by policy-makers.

• It is a basic tool that allows for the
• identification
• measurement
• and comparison of the benefits and costs of a program or treatment
alternative.
• CBA should be employed when comparing treatment alternatives.
• All benefits are converted into dollars (Rs.) to evaluate a single program
or compare multiple programs.

• Both the costs and the benefits are measured and ---> converted into equivalent
dollars (Rs.) in the year in which they will occur.
• These costs and benefits are expressed as:
• a ratio (a benefit-to-cost ratio)
• a net benefit
• or a net cost.

Challenges of CBA
1. Calculating the benefits in economic terms.
2. Some benefits are easy to convert, others need subjective judgment.
3. It may ignore intangible benefits (pain, anxiety, stress) that are
--> difficult to express in monetary terms.

Applications of Pharmacoeconomics
1. To aid clinical and policy decision making:
• Practitioners and administrators can make --> better, more informed decisions regarding the
products and services they provide.
• Traditionally, most drug therapy decisions were based solely on the clinical outcomes (e.g.,
safety and efficacy) associated with a treatment alternative.
• Complete pharmacotherapy decisions should contain assessments of three basic outcome areas:
1. economic
2. clinical
3. And humanistic outcomes (ECHO).

2. Pharmacoeconomic data can be a powerful tool to support various
clinical decisions.
• This decisions are ranging from the level of the patient to the level of
an entire healthcare system.
• The application of pharmacoeconomics to decision making is divided into
two basic areas:
1. Drug therapy evaluation (Pharmacotherapeutics)
2. and clinical pharmacy service evaluation.

3. It provide information needed for making decisions on:
• selection of pharmaceuticals
• and medical devices.

4. Healthcare practitioners --> can applying the principles and methods of
pharmacoeconomics to their daily practice settings.
5. Applied pharmaco-economics is defined as:
• putting pharmacoeconomic principles, methods, and theories into practice --> to
quantify the value of pharmacy products and pharmaceutical care services used in
real-world environments.
• Today’ s practitioners increasingly needs to justify the value of the products and
services they provide.
• Applied pharmacoeconomics can provide the means or tools for this valuation.

6. Pharmacoeconomic analysis is important since payers such
as:
• third-party payers or government/
• private health plans to utilize them when determining whether to
reimburse a claim.

Reference:
• Brinsmead R. Use of Pharmacoeconomics in prescribing
research. J Clin Pharm Ther. 2003; 28:339-46.
• Sumit Kumar, Ashish Baldi. Pharmacoeconomics: Principles,
Methods and Economic Evaluation of Drug Therapies. Ph Tech
Med. 2013; (2)5:362-367.

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