1. Pharmacoeconomics evaluates the costs and outcomes of drug therapy and helps healthcare decision-makers determine which services and drugs provide the best value. 2. There are several types of pharmacoeconomic analyses including cost-minimization analysis, cost-benefit analysis, cost-effectiveness analysis, and cost-utility analysis. 3. These analyses help compare the relative costs and benefits or cost-effectiveness of different treatment options to inform decisions about allocating limited healthcare resources.

2. Why High Drug Costs
1. New drugs innovative and valuable to society
2. Drug R&D costs are high
3. Producing drugs is risky
4. Drug companies donate millions dollars of free drugs
5. Good value; impossible to put a value on good health

3. • Relatively low cost
• Irrational use of drugs (Unnecessary,
inappropriate)
• Use of newer and expensive drugs
• Poly pharmacy
• Interest of hospital & prescriber

4. Pharmacoeconomics
 Pharmacoeconomics is the area of health care
research that evaluates and compares the cost and
outcomes associate with drug therapy.
 Financial resources are limited and that the
organizational needs generally exceed available
resources.
 Pharmacoeconomical research help administrators
and other managers to decide which services to
implement within their organization.
 Provides valuable information that is used by a
number of health care decision makers.

5. Pharmacoeconomics-2
 Pharmacoeconomical outcome research is concerned
with evaluating the drug in the “real world”.
 Provide information that helps to determine which
drugs provide the most clinical benefit for the money
spent.

6. Causes of Increase in Drug Cost
1. Increased per capita drug use
 Some related to aging population
 But some pure increase in drug #s/use
2. Increased prices of individual drugs
 Rising significantly higher than inflation
rate
3. Shift to newer more expensive drugs

7. Some terminology
 Outcome
 Outcome is consequence of drug therapy intervention
 Clinical outcomes
 Include the results of treatment with a drug and may be
both favorable and unfavorable.
 Humanistic outcomes
 Look at a therapy from the patients points of view.
 Economic outcomes
 The costs associated with a therapy. Different types of
costs are measured in pharmacoeconomical research.

8. Some terminology-2
 Direct costs
 May be both medical and non-medical cost.
 Indirect costs
 Associated with loss of productivity (e.g. loss of income, days
of school missed) due to illness.
 Intangible costs
 These are costs associated with pain and suffering of disease
and may greatly affect a patient’s well being and quality of
life. Difficult to assign.
 Discounting costs
 Value of the rupee today is worth more than its value in the
future. Discount rate used in most studies is often between
5% and 10%.

9. Pharmacoeconomical study designs
1. Cost minimization analysis
2. Cost benefit analysis
3. Cost effectiveness analysis
4. Cost utility analysis

10.  Compares the cost of two or more alternatives,
assuming equal outcomes of each alternative.
 Generally least costly alternative is selected.
 Outcomes of the alternatives being evaluated
are identical in all respects, which is very
difficult to demonstrate.
E.g. investigator wants to evaluate two
antibiotics of same class for the treatment of
community acquired pneumonia.
 Both equal in terms of outcomes.
Cost minimization analysis (CMA)

11. Cost minimization analysis (CMA)
Cost/day (Rs) Antibiotic A Antibiotic
B
Drug 20.00 40.00
Supply 5.00 7.50
Labor 5.00 10.00
Monitoring 10.00 10.00
Total 40.00 67.50
 Antibiotic A is selected
 For valid CMA the duration, efficacy and toxicity all
must be same for both drugs.
 Normally carried out for generic vs brand name, once
daily vs multiple daily dosing of the same agent)

12. Cost benefit analysis (CBA)
 Costs and the outcomes (benefits) of the alternatives
are measured in monetary units.
 Outcomes of the alternatives being studied are not
considered to be equal.
 Benefit to cost (B/C) ratio is calculated to determine
which alternative provides the greatest benefit relative
to cost.
 If B/C >1, benefits exceed the cost, alternative is
favorable.
 If B/C <1, benefits less that costs, alternative is
rejected.

13. Cost benefit analysis (CBA)
 CBA is conducted when resources are limited
and choices must be concerning most
appropriate alternative.
 Difficulties is to assign rupee value on clinical
outcomes.
 CBA is more useful in conducting an
economical analysis of health care services
than the therapies.

14. Cost benefit analysis (CBA)
CBA for TDM services,
Costs Rs Benefits Rs
Salaries 40,000 Reduction 150,000
Office supplies 10.000 in length of stay (1 day/patient x 500
x300)
Fewer days of IV
Therapy, including
IV supplies 50,000
(2 days/patient x500x50)
Total 50,000 200,000
B/C=4:1, Organization saves Rs 4 for every Rs 1 spent on the service

15. Cost effectiveness analysis (CEA)
 Outcomes of the alternatives are measured in natural
or physical units (e.g. years of life saved, complication
avoided) rather in monetary units.
 Does not assume equal outcomes, compare
alternatives with similar objectives (e.g. prevention or
treatment of same disease).
 CEA is primarily used when decision concerning the
relative costs and benefits of alternative therapies are
not apparent.

16. Cost effectiveness analysis (CEA)
Interpreting cost effectiveness analysis
 CEA are performed by decision analysis, decision
analysis or tree is created.
 Plots all possible outcomes and the potential costs
associated with each of the outcomes.
Outcome Cost
Higher cost Lower cost
Higher effectiveness May be cost effective Cost effective
Lower effectiveness Not cost effective May be cost effective

17. Cost utility analysis (CUA)
 Similar to CEA but the measured outcomes take
into account patient health preferences or
“utilities”.
 Outcomes are measured as quality adjusted life
years (QALYs), which considers the fact that not
each year of life gained from a therapy is valued by
a patient equally.
 E.g., a patient with cancer may not perceive a year
of life saved in the same way as an otherwise
healthy patient with a very manageable condition
such as hypertension.

18. Cost utility analysis (CUA)
No universally accepted method for
measuring patient utilities.
More difficult to perform.
CUA is important in comparing therapies
when quality of life is an important
consideration (e.g. antineoplastic agents)