A concise overview of pharmacoeconomics, health economics, various costs, various pharmacoeconomic study designs and its application in the field of medicine and drug development

1. PHARMACOECONOMICS
Dr. Siddhartha Dutta
MAMC, New Delhi

2. OUTLINE
• Introduction
• Need of Pharmacoeconomics
• Goals
• Costs and types
• Perspectives of Pharmacoeconomics
• Types of Pharmacoeconomic studies
• Applications
• Conclusion

4. INTRODUCTION
• Term coined by Townsend in 1986
• Branch of health economics
Making choices between options, when there is
scarcity of resources
Fundamentally comparative, weighing the costs and
benefits of 2 options- 󱁋 Most efficient

5. PHARMACOECONOMICS
• The description & analysis of the costs of
drug therapy to health care system &
society

6. • Pharmacoeconomics research identifies, measures
& compares the costs( i.e. resources consumed ) &
consequences (i.e. clinical, economic , humanistic)
of pharmaceutical products & services
• PE analysis
• Efficient allocation of limited resources among
competing alternative medications and services
• Biggest bang for your buck, using a quantitative
measure
• To make the best use of limited resources

7. WHY STUDY
PHARMACOECONOMICS ??
• Helps to decide which drug to develop
• To estimate and understand the full impact of new
therapy
• To make an informed decision regarding appropriate
use of drug which have been developed
• To make the best use of limited resources

8. GOALS:
 To determine which healthcare alternatives
provide the best healthcare outcome in terms
of money spent
 To improve the allocation of resources for
pharmaceutical products and services

9. PHARMACOECONOMICS
Input cost
Provided Healthcare system/
Pharmaceutical products
Analyse the
outcome

10. COSTS
 Cost vs. Price ??
 Cost involves all the resources that are used to
produce and deliver a particular drug therapy
Types of Costs
• Direct costs
Medical vs Nonmedical
• Indirect costs
• Intangible costs
• Opportunity costs

11. • Direct Medical Costs: Costs of medical service
These include:
• Fixed costs or costs that do not vary immediately
with the number of patients treated. E.g. capital
costs of hospital building or equipment etc.
• Variable costs or costs that vary immediately with
number of patients treated. E.g. costs of drugs,
syringes, needles etc.
• Direct non-medical costs:
• Costs incurred by the patient in receiving medical
care. E.g. transportation to and from hospital.

12. • Indirect cost: e.g. income lost because of
absenteeism, loss of productivity
• Intangible costs
• Costs of pain, worry and other suffering which a
patient or his family might suffer
• Opportunity costs:
• The amount lost by not using economic resources
in its best alternative use (labour, capital,
building, management etc.)
• Resources invested in one area will be at expense
of loss of another opportunity

13. PERSPECTIVES OF PHARMACOECONOMICS
• Patient perspective
• Provider perspective
• Payer perspective
• Societal perspective
After selection of
perspective next step cost
related measurements
1. Direct medical costs
2. Direct non medical costs
3. Indirect nonmedical costs
4. Intangible costs
5. Opportunity costs

14. PATIENT PERSPECTIVE
All the relevant cost and consequences experienced
by the patient
Included costs:
Direct
Indirect
Intangible

15. PROVIDER PERSPECTIVE
Concerned with the expenses of providing
products or services
Included costs:
-Direct costs only

16. PAYER PERSPECTIVE
Social Security/Government, third party payers
eg. private insurance companies and employers
Included costs:
-Direct costs
-Indirect costs
relevant to employers
lost workdays
lost productivity at work

17. SOCIETAL PERSPECTIVE
 The broadest of all perspectives that
comprehensively evaluates all costs and
consequences
 Considers the benefits to society as a whole
Included costs:
- Direct; overall cost of providing care
- Indirect; loss of productivity

18. ECHO MODEL
Humanistic
Outcomes
Clinical
Outcomes
Economic
Outcomes

19. OUTCOME PARAMETERS
Clinical- As a result of disease or treatment
-survival / mortality
-morbidity
Economic- Direct, indirect and intangible costs
Humanistic
-Patient preferences / Utilities
-Quality of life

20. TYPES OF STUDY
• Cost Minimization Analysis
• Cost Effectiveness Analysis
• Cost Benefit Analysis
• Cost Utility Analysis

21. COST MINIMIZATION ANALYSIS (CMA)
Compares the costs of two or more alternatives that
have a demonstrated equivalence in therapeutic outcome
 Relatively straight forward and simple method
 Least cost alternative is chosen
• Examples:
Brand vs. Generic products
Different antibiotic therapies
Different route of administration of the same drug

22. COST-MINIMIZATION ANALYSIS (CMA):
IN DRUG THERAPY
Cost of therapies (₹)
COSTS Drug A Drug B
Acquisition cost 250 350
OUTCOMES
Antibiotic effectiveness 90% 90%

23. COST-MINIMIZATION ANALYSIS (CMA): IN
DRUG THERAPY
Cost of therapies (₹)
COSTS Drug A Drug B
Acquisition cost 250 350
Administration 75 0
Monitoring 75 25
Adverse effects 100 25
Subtotal 500 400
OUTCOMES
Antibiotic effectiveness 90% 90%

24. COST-EFFECTIVENESS ANALYSIS
(CEA)
Form of economic evaluation whose goal is to identify,
examine, and compare the relevant costs and consequences of
competing drug regimens and interventions
 Costs are expressed in monetary terms
 Consequences are measure in their natural units, such as:
- Cases cured
- Lives saved
- Hospitalization prevented
Decision maker in identifying a preferred choice among
possible alternatives

25.  Result expressed as: cost per unit of success
CER = cost / Effectiveness
 Choice is that of lower ratio

26. CEA IN DRUG THERAPY
Cost of therapies (₹)
COSTS Drug A Drug B
Acquisition cost 300 400
Administration 50 0
Monitoring 50 0
Adverse effects 100 0
Subtotal 500 400

27. CEA IN DRUG THERAPY
Cost of therapies (₹)
COSTS Drug A Drug B
Acquisition cost 300 400
Administration 50 0
Monitoring 50 0
Adverse effects 100 0
Subtotal 500 400
OUTPUTS
Extra years of life 2.22 1.6
Cost-effectiveness ratio 500/2.2 = ₹ 225 400/1.6 = ₹ 250
Per extra year of life

28. COST-BENEFIT ANALYSIS (CBA)
All costs (inputs) and benefits (consequences) of
alternatives expressed in monetary terms
Results are often expressed as:
• Ratio of benefit to cost
• Net cost or benefit = benefit – cost
CBA allows uniform comparison of programs or
interventions with entirely different outcomes
Useful when resources are limited and only one
program can be implemented

29. COST-BENEFIT ANALYSIS (CBA)
Cost of therapies (₹)
COSTS Drug A Drug B
Acquisition cost 300 400
Administration 50 0
Monitoring 50 0
Adverse effects 100 0
Subtotal 500 400
BENEFITS(₹)
Days at work (₹) 1000 1000
Extra months of life (₹) 2000 3000
Subtotal (₹) 3000 4000
Benefit to cost ratio 3000/500=6:1 4000/400=10:1
Net benefit (₹) 3000-500 =2500 4000-400 =3600

30. COST-UTILITY ANALYSIS (CUA)
Method to compare treatment alternatives or
programs where costs are measured in monetary
terms and outcomes is expressed in terms of patient
preferences or quality of life
CUR = Cost / QALY
Least cost preferred
• Example:
• Evaluating arthritis treatment
• Chemotherapy that increases survival but
decreases patient well-being

31. COST-UTILITY ANALYSIS
Cost of therapies (₹)
COSTS Drug A Drug B
Acquisition cost
Administration
Monitoring
Adverse effects
Subtotal
UTILITIES
Extra years of life (yrs)
Quality of life index
QALYs
Cost-to-utility ratio
300
50
50
100
500
2.22
0.33
0.73
500/0.73=₹ 685 Per
extra quality of life
year
400
0
0
0
400
1.6
0.41
0.66
400/0.66= ₹ 606
Per extra quality of
life year

32. PHARMACOECONOMIC METHODS
Cost minimization analysis (CMA)
-assumes equal outcomes
Cost effectiveness analysis (CEA)
-measures outcome in natural or physical units
Cost Benefit analysis (CBA)
-measures both benefit and cost in monetary terms
Cost Utility analysis (CUA)
- measures outcomes in QALY

33. APPLICATIONS
 Assist in decision making and allocating scarce resources
 Assessing the value of a new agent
 Formulary decision making
 Drug policy decisions, treatment guidelines & Justify the
addition of new clinical service
 Pricing in pharmaceutical industry
 Decision on reimbursement
 Third-party; payers use such information to decide
whether to pay for a particular treatment, or to determine
what price they are willing to pay

34. CONCLUSION
Time and money can
only be spent once-
choice is inevitable
Pharmacoeconomics can
enhance the quality of
practice by
strengthening
evaluation process and
increasing the
probability that deliver
better value in patient
care

35. THANK YOU