The document discusses methods of pharmacoeconomic evaluation, specifically cost-effectiveness analysis (CEA). It provides definitions and outlines the main steps in conducting a CEA: [1] framing the problem and identifying baseline and alternative interventions, [2] selecting outcome measures, [3] identifying relevant costs, [4] constructing a decision model, [5] analyzing and interpreting results including calculating cost-effectiveness ratios, and [6] conducting sensitivity analysis and presenting results. Key points include that CEA measures cost in monetary units and outcomes in natural units like life years saved.

1. Methods of PE Evaluation
Mohammed Adem Mohammed
B.pharm, M.clinpharm
Clinical pharmacist and lecturer
Jigjiga University
mohzum@hotmail.com
Sep 2013
9/11/2013 Mohammed Adem 1

2. Methods of PE Evaluation
• Four main methods are used in economic evaluations:
• cost–effectiveness analysis (CEA)
• cost analysis (CMA),
• cost–utility analysis (CUA) and
• cost–benefit analysis (CBA)
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3. Types of Pharmacoeconomic Analysis
Methodology Cost measurement unit Outcome unit
Cost effectiveness Monetary Natural units (life
years, mg/dl blood
sugar, LDL
cholesterol)
Cost benefit Monetary Monetary
Cost minimization Monetary Various- but
equivalent in
comparative groups
Cost utility Monetary Quality adjusted life
years
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4. Cost Effectiveness Analysis
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5. Cost Effectiveness Analysis
Learning Objectives
• By the end of this session you should be able to
– Describe the steps necessary to perform CEA
– Critically evaluate CE studies
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6. Comprehensive Definition of
Cost-effectiveness
• A therapy is deemed to be a cost-effective strategy when
the outcome is worth the cost relative to competing
alternatives.
• In other words, scarce resources are utilized to acquire
the best value on the market.
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7. Cost-Effectiveness Analysis (CEA))
Is a PE analysis where,
– cost is measured in money and
– consequences are measured in non-monetary/ Natural units.
• as measured in physical units like cases cured, lives saved,
complications prevented, S/E reduced, or reduced morbidity.
• Some times it can be measured in terms of change in an intermediate clinical
outcome like cost per night free of pain, night free of wheezing or % change
in blood cholesterol level.
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8. Cost-Effectiveness Analysis (CEA))
• compares programs or treatment alternatives with different
safety and efficacy profiles.
• E.g: Two drugs have different degree of effectiveness, what is the cost per
child cured and for antibiotics A Vs antibiotic B.
• Compare treatments total costs and total effectiveness.
• is useful in balancing cost with patient outcome.
• It also helps to identify which treatment alternative represents
the best outcome per dollar or ETB.
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9. • During comparison, the new program/ drug therapy may be:
– Less costly and at least as effective
– less expensive and more effective
– More costly and more effective, with the added benefit worth the added
cost
– Less effective and less costly, with the added benefit of the alternative not
worth the added cost
N.B: Rx causing less cost with improved or equivalent Rx outcomes
can be selected. CE need not be reduction, but rather cost optimization.
• Challenge:
– Decision as to whether the added benefit worth the added cost
CEA…
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10. CEA…
• When two options are compared, the ICER is calculated
• The cost effectiveness ratio of each intervention is
– calculated and the two ratios are compared (e.g. the cost per life saved using
each intervention).
• ICER yields the additional cost required to obtain the additional
effect gained by switching from drug A to drug B.
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11. Incremental Cost-effectiveness/ICER
• 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
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12. LOOKING AT EFFECT ON THE COST-EFFECTIVENESS PLANE
12
 C
 E
Comparator
intervention
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13. LOOKING AT COST ON THE COST-EFFECTIVENESS PLANE
13
New treatment more costly
New treatment less costly
 C
 E
Comparator
intervention
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14. COST-EFFECTIVENESS PLANE
Exercise:
1. Assume, the new program / drug therapy falls into the southeast (SE)
quadrant of the cost-effectiveness plane.
– How could it be interpreted?
– Which program/ drug therapy is dominant and should be chosen? Why?
2. What if the new program / drug therapy falls into the SW, NE, NW ???
3. In which quadrant if it falls, will the existing program/ drug therapy will be
more useful than the new program / drug therapy?
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15. New treatment more costly (+)
New treatment less costly (-)
New treatment
more effective (+)
New treatment
less effective (-) Existing
treatment
Existing treatment dominates
New treatment more effective
and more costly (trade-off)
New treatment less effective and less
costly (trade-off)
New treatment dominates
MAKING DECISIONS WITH THE COST-EFFECTIVENESS
PLANE
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16. Cost Effectiveness Plane
Cost-Effectiveness Analysis (CEA)
Cost Effectiveness Plane
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17. • Misuse of CEA
– In the absence of data on both cost and effectiveness
– When effectiveness is demonstrated in the absence
of data on cost
– Narrow Definition:- Limiting it to cost saving
CEA…
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18. How to conduct CEA?
1. Frame the problem to be analyzed
2. Identify the baseline and options to be analyzed
3. Identify the outcome measure
4. Identify the relevant costs
5. Construct the decision model
6. Analyze and interpret the results
7. Perform sensitivity analysis
8. Prepare presentation of results
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19. Step 1: Framing the Problem
• Define the study questions
• Determine the perspective of the study
• Time Frame and Analytic Horizon
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20. Step 2: Identify the Baseline and Alternative
Interventions
• Baseline
– Reference point for the analysis
– Can be placebo, exiting Rx or current standard of
care
• Alternative intervention
– New drug or intervention
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21. Step 3: Selecting Health Outcome Measures
• Must be relevant to the study questions
• Can be categorized into
• Intermediate outcome
• Final outcome
• Both positive and negative outcomes should be
addressed
– Positive outcomes: drug’s efficacy measure
– Negative outcomes: ADR and treatment failure
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22. Intermediate Measures Final Measures
Morbidity Number of persons screened
Number of disease
cases
Mortality
Number of hospital re-
admissions
Number of deaths
Disability
Number of assisted living
days
Number of chronic
disabilities
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23. Step 4: Identify Relevant costs
• Relevant costs include
 cost of intervention,
 cost of disease averted,
 cost of productivity losses averted, and
 future unrelated health costs
• Costs to be included depends on the perspective chosen
Controversy: on the inclusion of productivity costs and cost of future
unrelated health care costs
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24. HOW TO TREAT FUTURE COSTS
Intervention
maintains years of
life lived anyway
Intervention extends
life years
“Related” medical
and non medical
costs Include Include
“Unrelated” medical
and non medical
costs Don’t include
May be included in
sensitivity analysis
Source: McGuire and Drummond. (2001). Economic evaluation in health care, Oxford: Oxford University Press.

25. Step 5: Decision Model
• Critical step
• Can use software, decision tree or done by hand
• Requires epidemiologic and economic data
• Outcome and economic data
– RCT
– Peer reviewed published literatures
• Balance between realism and simplification
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26. Step 6: Analyze and Interpret result
• Calculate the summary measure-CE ratio
– The basic components of a C/E ratio are:
• Numerator: Net cost C
• Denominator: Health Outcome
• Cost-effective compared to what?
– No public health intervention is cost-effective by itself -- it is
either more or less cost-effective than another intervention.
• The ratio may take either of the following forms
– Average C/E ratio (ACER)
– Marginal C/E ratio (MCER)
– Incremental C/E ratio (ICER)9/11/2013 26Mohammed Adem

27. 6.1 Average Cost Effectiveness Ratio (ACER)
– Ratio of costs to outcomes for a single intervention (strategy A)
– Use to evaluate the average cost per health outcome for a
single program
– Use to allocate resources between independent programs
• Example: HBV vaccination Vs HIV testing
– Not used to evaluate mutually exclusive (competing)
strategies
Cost Strategy A
Outcome Strategy A
Step 6: Analyze and Interpret result…
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28. Step 6: Analyze and Interpret result…ACER
Example: Average Cost-effectiveness
• Average cost-effectiveness of Agent A
50.00 ETB
50 units of effect = 1.00 ETB per unit
• Average cost-effectiveness of Agent B
150.00 ETB
90 units of effect = 1.60 ETB per unit
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29. Step 6: Analyze and Interpret result…
6.2 Marginal Cost Effectiveness Ratio (MCER)
• Ratio of additional costs to outcomes obtained from one
additional unit of an intervention.
• Examines effects of scale (within a single program)
– Does cost per health outcome increase or decrease as
program changes size?
Cost Strategy A’ - Cost Strategy A
Outcome Strategy A’ - Outcome Strategy A
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30. Step 6: Analyze and Interpret result…
6.3 Incremental Cost Effectiveness Ratio/ ICER
• Ratio of additional costs to outcomes obtained when one intervention is
compared to the next most effective intervention
• When comparing 2 therapies, ICA assesses what the added cost
per net effect for alternative therapy would be
• ICA is the difference in total costs of 2 therapies divided by
difference in effectiveness of the 2 therapies
Cost Strategy B - Cost Strategy A
Outcome Strategy B - Outcome Strategy A
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31. Step 6: Analyze and Interpret result…ICER
Example:
Therapy A: costs 2500 ETB and saves 10 lives
C/E ratio = 250 ETB /life saved
Therapy B: costs 5000 ETB and saves 15 lives
C/E ratio = 333 ETB /life saved
ICA: 5000 ETB - 2500 ETB  500 ETB /life saved
15 -10
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32. • When to Use??
– between mutually exclusive (competing) interventions
• Mutually Exclusive Interventions
– Patient-level
• e.g., ANC Visits
– Global-level
• e.g., targeted vs. universal routine HIV testing
Step 6: Analyze and Interpret result…ICER
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33. • Exclusion of Dominated Alternatives
– Strongly Dominated and be eliminated :
• If intervention is both less effective and more costly than the next most
effective alternative-
– Extended or Weak Dominance :
• An intervention can also be dominated when its ICER is higher than that of the
next most effective intervention. NE
Step 6: Analyze and Interpret result… ICER
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34. Step 7: Sensitivity Analysis
• Conduct sensitivity analysis on the variables that have uncertain
values
• How sensitive are the results to different values of key variables
• “What if” scenarios, e.g.,
a. Assume different cost of drug or outcome
b. Assume different probability of an outcome
• Types and approaches for undertaking SA will be discussed
separately
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35. Step 8: Presenting CEA results
• Guide: Panel on CEA in Health and Medicine of the US public
Health Services (Gold et al 1996)
• Presentation of a CEA should include the following (Haddix et al 2003)
– The study perspective, time frame and analytic horizon
– The study question
– The assumptions used to build the model
– A description of the intervention
– Evidence of the effectiveness of the intervention
– Identification of all relevant costs
• Inclusion or exclusion of productivity costs
• Discount rate
• Results of incremental analysis
• Results of sensitivity analysis
• Discussions
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36. Group Assignment on CEA
• Group I: Low-Molecular-Weight Heparins Compared with
Unfractionated Heparin for Treatment of Acute Deep Venous
Thrombosis
• Group II: A cost-effectiveness analysis of artemether
lumefantrine for treatment of uncomplicated malaria
• Group III: Cost-Effectiveness of Treating Multidrug-Resistant
Tuberculosis
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37. Exercise :
CEA calculations
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38. Ovarian cancer
Facts :
• 70% responses to first-line therapy
• 60–80% of these patients have been found to experience
persistence/recurrence and finally die of the disease.
• The median overall survival of ovarian cancer is 5 yr (60 mo).
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39. Ovarian cancer
1. platinum refractory :
– patients with a treatment-free interval of < 6 months were
designated as
– Suggestion  supportive care or recurrence regimen
2. platinum sensitive :
– patients with a treatment-free interval of > 6 months
– Suggestion  carboplatin + paclitaxel
• Clinically low-volume or focal recurrence after disease-free interval > 6-
12 mo
– consider secondary cytoreductive surgery then carboplatin +paclitaxel or
carboplatin + gemcitabine or recurrence regimen
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40. Developing countries
Policy of treating EOC
• Usually, the national policy of developing
countries in treating EOC stresses on first-line
therapy due to its cost-effectiveness, while
salvage therapy is not.
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41. Drug cost = 1000ETB/cycle
 Number of cycles are 6 times
 Therefore, total drug cost of treatment is equal to
6x1000ETB
6,000 ETB
,
Cost-effectiveness Ratio: Cost of Rx /Overall
survival time = 6,000 ETB/ 60m
= 100 ETB /mo
,
CEA of First-line Therapy
Assume the following scenario in TAH
• Treatment CP: carboplatin
 Drug cost = 1000ETB/cycle
 Number of cycles are 6 times
• Overall survival time = 60 months
– What is the Cost-effectiveness Ratio?

42. Drug cost = 1800ETB/cycle
 Number of cycles are 6 times
 Therefore, total drug cost of treatment is equal to
6x1800 ETB
10,800 ETB
,
• Cost-effectiveness Ratio: Cost of Rx
/Overall survival time
• 10,800 ETB/ 60 months = 180ETB/mo
,
CEA of First-line Therapy
• Treatment TP: carboplatin + paclitaxel
 Drug cost = 1800ETB/cycle
 Number of cycles are 6 times
• Overall survival time = 60 months
– What is the Cost-effectiveness Ratio?

43. Cost-effectiveness Ratio = 3,000/45= 67 ETB/mo
Cost / Effectiveness Ratio=
3,000/ 20= 150ETB/mo
,
CEA of First-line Therapy
• Let , the Cost of cyto-reductive surgery = 3,000 ETB and
– No residual: overall survival time = 45 months
 What is the Cost-effectiveness Ratio?
• Residual : overall survival time = 20 months
• What is the Cost-effectiveness Ratio?

44. Cost/Effectiveness Ratio:
Cost of Rx /Overall survival time = 2,500/36 mo
= 70 ETB/ mo
,
CEA of First-line Therapy
• Let, Hospital cost for supportive care = 2,500 ETB and
– Overall survival time = 36 months
• What is the Cost-effectiveness Ratio?

45. total drug cost of treatment is equal to 6x1,120 ETB
6,720 ETB
Cost / Effectiveness Ratio =
6,720 ETB/ 29 =
232 ETB/mo
CEA of TP Regimen in Platinum-sensitive EOC
• Treatment TP:
– Drug cost = 11,200 ETB/cycle
– Number of cycles are 6 times
• Overall survival time = 29 months
• What is the Cost-effectiveness Ratio?
–

46. total drug cost of treatment is equal to 5x1,600 ETB
8000 ETB
Cost / Effectiveness Ratio =
8,000 ETB/ 14.5 =
552 TB/mo
CEA of L.doxorubicin in platinum refractory
• Liposomal doxorubicin: :
– Drug cost = 1,600 ETB/cycle
– Number of cycles are 5 cycles
• Overall survival time = 14.5 months
• What is the Cost-effectiveness Ratio?

47. total drug cost of treatment is equal to 4 x2 00 ETB
800 ETB
Cost / Effectiveness Ratio =
800 ETB/ 6 =
133 ETB/mo
Megestrol acetate in platinum refractory
• Megestrol acetate:
– Drug cost = 200 ETB/cycle
– Number of cycles are 4 cycles
• Overall survival time = 6 months
• What is the Cost-effectiveness Ratio?

48. Summary of Cost-effective EOC therapy
Patients receiving salvage therapy
1. Supportive care
2. Platinum-sensitive EOC
3. Platinum-refractory EOC
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49. 2. Surgery: with residual + TP + supportive care
150 + 332 + 70 = 552 ETB/ mo
3. TP + supportive care
332 + 70 = 402 ETB/ mo
,
Summary of Cost-effective EOC therapy
Platinum-sensitive EOC : options
1. Surgery: no residual + TP + supportive care
67 + 332 + 70 = 469 ETB/ mo

50. 2. Lip doxorubicin + megestrol acetate + supportive care
552 + 133 + 70 = 755 ETB/ mo
3. Megestrol acetate + supportive care
133 + 70 = 203 ETB/ mo
,
Summary of Cost-effective EOC therapy
Platinum-refractory EOC: options
1. Liposomal doxorubicin + supportive care
552 + 70 = 622 ETB/ mo

51. Summary of Cost-effective EOC therapy
Salvage therapy
• Supportive care Platinum-sensitive Platinum-refractory
70 (ETB /mo) 402- 552 (ETB /mo) 203-755 (ETB /mo)
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52. Exercise 1: Calculate the ICER
Mutually Exclusive
Interventions
Total Outcomes
(Life Years)
Total Costs
(ETB)
ICER
Treatment A 11 110,000
Treatment B 9 90,000
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53. Exercise 1: Calculate the ICER…
Mutually Exclusive
Interventions
Total Outcomes
(Life Years)
Total Costs ICER
Treatment B 9 $ 90,000
Treatment A 11 $110,000
Step 1: Arrange in order of increasing effectiveness
Mutually Exclusive
Interventions
Total Outcomes (Life
Years)
Total Costs
(ETB)
ICER
Treatment B 9 90,000
Treatment A 11 110,000
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54. Exercise 1: Calculate the ICER…
Mutually
Exclusive
Interventions
Total
Outcomes
(Life Years)
Change in
Effectiveness
Total
Costs
Change in
Cost
(ETB)
ICER
Treatment B 9 90,000
Treatment A 11 2 110,000 20,000
Step 2: Check and Exclude dominated Alternatives
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55. Exercise 1: Calculate the ICER- Cont
Mutually
Exclusive
Interventi
ons
Total Outcomes
(Life Years)
Change in
Effectiveness
Total
Costs
Change
in Cost
ICER
Treatment
B
9 90,000
Treatment
A
11 2 110,000 20,000 10,000
Step 3: Calculate the ICER
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56. Exercise 2
Suppose you work for ministry of health as a program director/
supervisor.
You have some budget available for 3 independent national
programs.
The costs and benefits of each programme, compared to a relevant
alternatives are presented in the following table.
1. How do you decide the most cost effective program for your
organization?
2. Which program should you choose to maximize total benefits?
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57. Exercise 2: Results of a C-E Study
Averted Cases Cost
Program A 100 50,000 ETB
Program B 150 130,000 ETB
Program C 110 170,000 ETB
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58. Step 1: Order by Increasing Effectiveness
Averted Cases Cost
Program A 100 50,000 ETB
Program C 110 170,000 ETB
Program B 150 130,000 ETB

59. Step 2: Check for Dominance
Averted
Cases
Increm.
Effec.
Cost
Increm.
Cost
ICER
Program A 100 50,000 ETB
Program C 110 10
170,000
ETB
Program B 150 40
130,000
ETB

60. Step 2: Check for Dominance
Averted
Cases
Increm.
Effec.
Cost
Increm.
Cost
ICER
Program A 100 50,000 ETB
Program C 110 10
170,000
ETB
120,000
ETB
Program B 150 40
130,000
ETB
(-40,000)
ETB

61. Step 2: Check for Dominance
Averted
Cases
Increm.
Effec.
Cost
Increm.
Cost
ICER
Program A 100 50,000 ETB
Program C 110 10
170,000
ETB
120,000 ETB 12,000
Program B 150 40
130,000
ETB
(-40,000)
ETB
-1,000

62. Step 3: Eliminate Dominated Programs
Averted
Cases
Increm.
Effec.
Cost
Increm.
Cost
ICER
Program A 100 - 50,000 ETB -
Program C 110 10
170,000
ETB
120,000
ETB
12,000
Program B 150 40
130,000
ETB
(-40,000)
ETB
-1, 000

63. Step 4: Re-Calculate ICER without dominated
programs
Averted
Cases
Increm.
Effec.
Cost
Increm.
Cost
ICER
Program A 100
50,000
ETB
Program B 150 50
130,000
ETB
80,000
ETB

64. Step 4: Calculate ratios without dominated
programs
Averted
Cases
Increm.
Effec.
Cost
Increm.
Cost
ICER
Program A 100 -
50,000
ETB
- -
Program B 150 50
130,000
ETB
80,000
ETB
1,600
ETB

65. Step 5: Choose program with ICER <= perceived value
Interpretation:
– Program B costs you 1,600ETB per cases averted.
– 1,600 ETB is the unit of cost of additional case averted as a
result of program B use than program A.
Choice: depends on willingness-to-pay and its threshold budget, ……..
• If perceived value of an averted case >= 50,000 and < 1,600,
choose Program A;
• If perceived value of an averted case >= 1,600, choose Program
B.
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66. Exercise 3 anticoagulant
• Suppose you work for a hospital as a ward pharmacist in oncology
clinic.
• During a major MD ward round, chief oncology resident asked
you about CEA of low molecular weight heparin (LMWH)
compared with warfarin for the secondary prevention of venous
thromboembolism /VTE in patients with cancer.
• The costs and benefits of each drug therapy are presented in the
following table.
• Perform cost-effectiveness analysis and interpret the result?
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67. Exercise 3…
CE of LMWH Compared with Warfarin for the 2ry
Prevention of VTE
9/11/2013 Mohammed Adem 67
Strategy Life expectancy
(Yrs)
Total Costs
(ETB)
LMWH 1.442
15,329
Warfarin 1.377 7,720

68. Exercise 4 Influenza mgt stratagies
• Assume you are a practicing pharmacist in internal medicine
ward and a member of DTC at TAH .
• As a member of the committee, you are expected to perform CEA
of testing and antiviral treatment strategies for adult influenza to
forward your recommendation for the hospital administration.
• You have obtained the over all costs and benefits of each
strategies as presented in the following table.
• Perform cost-effectiveness analysis for both strategies and
interpret the ICER of strategy/ies in your analysis?
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69. Exercise 4… Influenza mgt stratagies
Strategy Illness Days Avoided Cost (ETB)
No testing or treatment 0 92.70
Amantadine 0.54 97.50
Rimantadine 0.59 119.10
Zanamivir 0.74 137.10
Testing then amantadine 0.44 115.00
Testing then rimantadine 0.48 125.50
Treating then zanamivir 0.60 134.30
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70. Exercise 5
• Perform cost-effectiveness analysis for the drug
therapies presented in the table (next slide) and
interpret the ICER after analysis?
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71. Exercise 5…
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Mutually Exclusive
Intervention
Total Outcomes
(QALYs )
Total Costs
(ETB)
Drug therapy A 35 250,000
Drug therapy B 40 350,000
Drug therapy C 35 300,000
Drug therapy D 10 50,000

72. Exercise 6
Assume you have some budget available for 4 independent
investment programs.
The costs and benefits of each programme, compared to a
relevant alternative are presented in the following table.
Perform CEA for your program and choose the program
which is cost-effective for your organization?
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73. Exercise 6
Mutually Exclusive
Intervention
Total Outcomes (Life
years)
Total Costs
Program A 30 $ 200,000
Program B 10 $ 50,000
Program C 15 $ 130,000
Program D 11 $170,000
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74. Exercise 6
Mutually Exclusive
Intervention
Total Outcomes (Life
years)
Total Costs
Program A 30 $ 200,000
Program B 10 $ 50,000
Program C 15 $ 130,000
Program D 11 $170,000
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75. Exercise 6
Mutually Exclusive
Intervention
Total Outcomes (Life
years)
Total Costs
Program B 10 $ 50,000
Program D 11 $170,000
Program C 15 $ 130,000
Program A 30 $ 200,000
Step 1; Arrange in increasing order of effectiveness
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76. Exercise 6
Mutually
Exclusive
Intervention
Total
Outcomes (Life
years)
Change in
Outcome
Total Costs Change in cost
Program B 10 $ 50,000
Program D 11 1 $170,000 $120,000
Program C 15 4 $ 130,000 (-$40,000)
Program A 30 15 $ 200,000 $ 70,000
Step 2; Calculate change in outcome and cost
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77. Exercise 6
Mutually
Exclusive
Intervention
Total
Outcomes
(Life years)
Change in
Outcome
Total Costs Change in
cost
ICER
Program B 10 $ 50,000
Program D 11 1 $170,000 $120,000 120,000
Program C 15 4 $ 130,000 (-$40,000) (-10,000))
Program A 30 15 $ 200,000 $ 70,000 4,667
Step 3; Calculate the ICER
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78. Exercise 6
Mutually
Exclusive
Intervention
Total
Outcomes
(Life years)
Change in
Outcome
Total Costs Change in
cost
ICER
Program B 10 $ 50,000
Program D 11 1 $170,000 $120,000 120,000
Program C 15 4 $ 130,000 (-$40,000) (-10,000))
Program A 30 15 $ 200,000 $ 70,000 4,667
Step 4; Remove dominated program
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79. Exercise 6
Mutually
Exclusive
Intervention
Total
Outcomes
(Life years)
Change in
Outcome
Total Costs Change in
cost
ICER
Program B 10 $ 50,000
Program C 15 5 $ 130,000 $ 80,000 16,000
Program A 30 15 $ 200,000 $ 70,000 14,000
Step 5; Calculate the ICER by removing strongly dominated program
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80. Exercise 6
Mutually
Exclusive
Intervention
Total
Outcomes
(Life years)
Change in
Outcome
Total Costs Change in
cost
ICER
Program B 10 $ 50,000
Program C 15 5 $ 130,000 $ 80,000 16,000
Program A 30 15 $ 200,000 $ 70,000 14,000
Step ; Remove Program C as there is weak dominance
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81. Exercise 6
Mutually
Exclusive
Intervention
Total
Outcomes
(Life years)
Change in
Outcome
Total Costs Change in
cost
ICER
Program B 10 $ 50,000
Program A 30 20 $ 200,000 $ 150,000 $ 7,500
Step Recalculate the ICER
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82. Example of CEA: Medicine Costs
Cost/unit
(USD)*
No. of
units
No. of
patients
Total cost
(USD)
Medicine A
Medicine cost 40 12 100 48,000
Lab cost 20 1 100 2,000
Adverse event 50 2 100 10,000
Physician 25 2 100 5,000
Total 65,000
Medicine B
Medicine cost 25 12 100 30,000
Lab cost 20 2 100 4,000
Adverse event 50 3 100 15,000
Physician 25 3 100 7,500
Total 56,500
*USD equals U.S. dollar

83. Example of CEA: Benefits
Drug B
Cost of drug = $44.50 Cost of drug $56.00
Effectiveness of drug =
Average decrease in
A1C = 1.5
Effectiveness of drug =
Average decrease in
A1C = 0.8
Cost-effective ratio
$29.33/1 unit of A1C
Cost-effective ratio
$70.00/1 unit of A1C
Effectiveness
Medicine A Medicine B
25/100 patients 19/100 patients
Clinical outcome: number of patients with ≥ 1%
decrease in glycosylated hemoglobin over one year

84. Example of CEA: Incremental Cost-Effectiveness
Comparison between medicines A and B for 100 patients for 1
year
Medicine A Medicine B
Net costs USD* 65,000 56,500
Effectiveness
No. patients with ≥ 1%
decrease in glycosylated
hemoglobin 25 19
Incremental Cost Effectiveness Ratio =
(65,000-56,500)/(25-19) = USD1,416.67 per extra patient with ≥
1% decrease in glycosylated hemoglobin.

85. Common Misconceptions When Applying
Pharmacoeconomic Principles
• 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
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86. Average Cost-effectiveness
• Specifies the cost of an agent required to achieve each
unit of effect. No comparison is made to alternative
agents.
Average cost-effectiveness
Cost of drug
Resulting effect = Cost per unit of effect achieved
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87. Steps to Pharmacoeconomic Literature Evaluation
• 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?
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88. Cases for Development
• Formulary decision making (policy)
– Appropriate place for eplerenone (Inspra®) and spironolactone (generic) on
Inpatient formulary of tertiary care academic medical center
• Clinical decision making for acute therapy (bedside)
– Choosing between low molecular weight heparin or unfractionated heparin for the
treatment of acute proximal deep vein thrombosis
• Clinical decision making for chronic therapy (bedside)
– Choosing between selective cyclooxygenase inhibitor and traditional non-steroidal
anti-inflammatory agent for management of osteoarthritis pain
• Other suggestions?
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89. Thanks
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