Pharmacoeconomics involves describing and analyzing the costs of drug therapy to healthcare systems and society. It identifies, measures, and compares the costs and outcomes of pharmaceutical products and services. Pharmacoeconomic analyses include cost-minimization analysis, cost-benefit analysis, cost-effectiveness analysis, and cost-utility analysis. These analyses consider various costs including direct medical costs, direct nonmedical costs, and indirect costs. Outcomes include clinical, economic, and humanistic outcomes. Performing a pharmacoeconomic analysis involves defining the problem, selecting the appropriate method, measuring costs and outcomes, and presenting the results.

1. Pharmacoeconomics
Topic-5-CPH-549

2. Pharmacoeconomics-What Is It and Why Do
It?
2
Pharmacoeconomics has been
defined as the description and
analysis of the cost of drug
therapy to healthcare systems and
society.
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3. 3
Pharmacoeconomic research
Identifying Measuring Comparing
the costs
Consequences of
pharmaceutical products and
services
COST ($) RX OUTCOMES
cost analysis
(or a partial economic analysis) Clinical or outcome study
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4. Relationship of Pharmacoeconomics to Outcomes
Research
4
Outcomes research
Attempt to identify Measure Evaluate End results of
HEALTH CARE SERVICES
clinical economic consequences outcomes
patient health status satisfaction with their health care
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5. Models of Pharmacoeconomic Analysis
5
Four Types of Pharmacoeconomic Analyses
Methodology
Cost
Measurement
Unit
Outcome Measurement Unit
Cost-minimization
analysis (CMA)
Dollars
Assumed to be equivalent in
comparable groups
Cost-benefit analysis
(CBA)
Dollars Dollars
Cost-effectiveness
analysis (CEA)
Dollars
Natural units (life years
gained, mm Hg blood
pressure, mmol/L blood
glucose)
Cost-utility analysis
(CUA)
Dollars
Quality-adjusted life year
(QALY) or other utilities
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6. Assessment of Costs - Types of Costs
6
Assessing costs &
consequences
the value of a
pharmaceutical
product or service
Perspective
Patient Provider Payer Society
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7. 7
 Direct medical costs are the costs incurred for
medical products and services used to prevent,
detect, and/or treat a disease.
 Medications
 Supplies
 Laboratory tests
 Healthcare professionals’ time
 Hospitalization
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8. 8
Direct medical costs
FIXED COSTS VARIABLE COSTS
“overhead” costs
(e.g., heat, rent, electricity)
medications,
fees for professional
services,
& supplies
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 Direct nonmedical costs are any costs for nonmedical
services that are results of illness or disease but do not
involve purchasing medical services.
 Transportation
 Food
 Family care
 Home aides
 Indirect nonmedical costs are the costs of reduced
productivity (e.g., morbidity and mortality costs).
 Lost wages (morbidity)
 Income forgone because of premature death (mortality)
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10. 10
 Intangible costs are those of other nonfinancial
outcomes of disease and medical care.
 Pain
 Suffering
 Inconvenience
 Grief
 Opportunity costs represent the economic benefit
forgone when using one therapy instead of the next
best alternative therapy.
 Lost opportunity
 Revenue forgone
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11. 11
 Incremental costs represent the additional cost that a
service or treatment alternative imposes over
another compared with the additional effect, benefit,
or outcome it provides.
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12. Consequences
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 Consequence is defined as the effects, outputs, or
outcomes of the program or drug therapy.
Humanistic
Economic
Clinical
ECHO MODEL
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13. 13
 Economic outcomes are the direct, indirect, and
intangible costs compared with the consequences of
medical treatment alternatives.
 Clinical outcomes are the medical events that occur as a
result of disease or treatment (e.g., safety and efficacy
end points).
 Humanistic outcomes are the consequences of disease
or treatment on patient functional status or quality of life
along several dimensions (e.g., physical function, social
function, general health and well-being, and life
satisfaction)
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14. 14
 A positive outcome is a desired effect of a drug
(efficacy or effectiveness measure), possibly
manifested as cases cured, life-years gained, or
improved health-related quality of life (HRQOL).
 A negative outcome is an undesired or adverse
effect of a drug, possibly manifested as a treatment
failure, an adverse drug reaction (ADR), a drug
toxicity, or even death.
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15. 15
 Intermediate and Final Consequences
 Intermediate outcomes can serve as a proxy for
more relevant final outcomes.
 Achieving a decrease in low density lipoprotein
cholesterol levels with a lipid-lowering agent is an
intermediate consequence that can serve as a proxy for a
more final outcome such as a decrease in myocardial
infarction rate
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16. Assessment of Outcomes
16
PHARMACO
ECONOMICS
Economic
Cost benefit
Cost effectiveness
Cost minimization
Cost utility
Humanistic
Quality of life
Patient preferences
Patient satisfaction
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17. Cost-Minimization Analysis
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 It involves the determination of the least costly
alternative when comparing two or more treatment
alternatives.
 Used when benefits are the same.
 Advantage: Relatively simple analysis
 Disadvantage: It can only be used where outcomes
are assumed to be identical
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 Applications:
 Cost comparison of two generic medications rated as
equivalent by FDA
 Cost comparison of same drug therapy in different
settings.
 Not appropriate for comparing different classes of
medications
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19. Cost-Benefit Analysis (CBA)
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 CBA is a method that allows for the identification,
measurement, and comparison of the benefits and
costs of a program or treatment alternative.
 The benefits realized from a program or treatment
alternative are compared with the costs of providing
it.
 Measures benefit in monetary units and computes a
net gain
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20. 20
 The results of a CBA can be presented in several
formats:
1. Net Benefit = Total Benefits – Total Costs
Cost beneficial if Net Benefit > 0
2. Benefit-to-Cost Ratio = Total Benefits / Total Costs
Cost beneficial if Benefit-to-Cost > 1
Common Applications : CBA is most useful when
 Analyzing a single intervention to determine whether its
total benefits exceed the costs, or
 Comparing alternative interventions to see which one
achieves the greatest benefit.
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 Advantages:
 Can determine if benefits exceed costs of program – less
subjective than CEA or CUA
 Can compare multiple programs with either similar or
unrelated outcomes (anticoagulation and diabetes clinics)
 Disadvantages:
 Difficult to place a monetary value on health outcomes
 Different methods of doing so may elicit different estimates
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22. Cost-Effectiveness Analysis
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 A CEA measures costs in dollars and outcomes in
natural health units such as cures, lives saved, or
blood pressure.
 The results of CEA are also expressed as a ratio
 Average cost-effectiveness ratio (ACER) or
 Incremental costeffectiveness ratio (ICER)
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 Average Cost-Effectiveness Ratio (ACER) =
Health care cost ($)
Clinical outcome (not in $)
 Incremental Cost-Effectiveness Ratio (ICER) =
Cost A ($) – Cost B ($)
Effect A (%) – Effect B (%)
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24. 24
 Common Applications
 Medications with the same type of primary outcomes, and
most often for treatment of the same types of health
condition
 CEA is only performed when the outcome of one
intervention is both better than another AND the cost is
greater.
 Advantages:
 Health units are common outcomes routinely measured in
clinical trials – familiar to clinicians
 Outcomes are easier to quantify than CUA or CBA
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 Disadvantages:
 Interventions with different types of outcomes cannot be
compared
 Can’t combine more than one important outcome
 Difficult to collapse both the effectiveness and the side
effects into one unit of measurement
 CEA estimates extra cost associated with each additional
unit of outcome, but who is to say that added cost is worth
added outcomes? Requires judgment call.
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26. Cost-Utility Analysis
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 CUA is a method for comparing treatment
alternatives that integrates patient preferences and
HRQOL.
 CUA can compare cost, quality, and the quantity of
patient-years.
 Cost is measured in dollars, and therapeutic
outcome is measured in patient-weighted utilities
rather than in physical units.
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27. 27
 Common Applications
 CUA is useful when utility adjustments are needed,
such as when:
 Length of life (quantity) and quality of life are different
 Length of life (quantity) is unaffected and quality of life is
different
 Outcomes are very different
 CUA is not warranted when:
 Number of life years saved (quantity) is different but quality of
each year of life is very similar
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 Advantages:
 Can incorporate both morbidity and mortality
 Can compare multiple programs with either similar or unrelated
outcomes (anticoagulation and diabetes clinics)
 Can use a threshold or cutoff cost per QALY (such as $50,000)
and decide somewhat objectively if an intervention is cost
effective
 Disadvantages:
 No consensus on calculating utility weights
 Utility weights are “rough estimates”
 Many clinicians are not familiar with QALYs
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29. Humanistic Evaluation Methods
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 HRQOL has been defined as the assessment of the
functional effects of illness and its consequent
therapy as perceived by the patient.
 These effects often are displayed as
 physical
 emotional
 social effects
ON THE PATIENT
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30. Performing an Economic Analysis
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 Step 1: Define the Problem
 Step 2: Assemble a cross-functional study team
 Step 3: Determine the Study's Perspective
 Step 4: Determine Specific Treatment Alternatives
and Outcomes
 Step 5: Select the Appropriate Pharmacoeconomic
Method or Model
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 Step 6: Measure Inputs and Outcomes
 Step 7: Identify the Resources Necessary to
Conduct the Analysis
 Step 8: Establish the Probabilities for the Outcomes
of the Treatment Alternatives
 Step 9: Construct a Decision Tree
 Step 10: Conduct a Sensitivity Analysis
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 Step 11: Present the Results
 Step 12: Develop a policy or an intervention
 Step 13: Implement policy and educate professionals
 Step 14: Followup documentation
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33. Reference:
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 Drug Information: A Guide for Pharmacists, 3rd Edition
Patrick M. Malone, Karen L. Kier, John E. Stanovich
 Sanchez Lisa A. Chapter 1: “Pharmacoeconomics:
Principles, Methods, and Applications” Pharmacotherapy:
A Pathophysiologic Approach, 7/e. New York: The
McGraw-Hill Companies, Inc, 2008. 1-14.
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