Pharmacoeconomics

Presentation Developed for the

Academy of Managed Care Pharmacy
Updated: February 2015
 Objectives
• Define the term pharmacoeconomics
• Differentiate between the types of
pharmacoeconomic evaluation methods
• Discuss various considerations essential to
evaluating a pharmacoeconomic design
• Provide examples of how pharmacoeconomics
is applied in practice and various roles for the
pharmacist
 Definition of Pharmacoeconomics
• The process of identifying, measuring, and
comparing the costs, risks, and benefits of
programs, services, or therapies
• To determine which alternative produces the
best health outcome for the resource invested
• Most impactful when making decisions about
a population rather than individual
• “Costs vs. Consequences of Alternatives”
 Types of Economic Evaluation
• Cost of illness evaluation (COI)
• Cost minimization analysis (CMA)
• Cost benefit analysis (CBA)
• Cost effectiveness analysis (CEA)
• Cost utility analysis (CUA)
 Cost of Illness Evaluation
• Also termed, cost consequence model
• Description: Estimates the cost of a disease on
a defined population
• Application: Provides a baseline for evaluating
the impact of prevention/treatment options
• Measurement Units: Monetary ($)
• Example: Cost of peptic ulcer disease
 Cost Minimization Analysis
• Description: Identifies intervention cost
differences between similar alternatives
• Application: Identify least costly alternative
when outcomes/consequences are identical
• Measurement Units: Monetary for
intervention costs (no outcomes measured)
• Example: Comparing costs of Drug A and Drug
B, which have evidence of equal efficacy for a
given condition and safety (incidence of ADRs)
 Cost Benefit Analysis
• Description: Identifies net cost impact of an
intervention
• Measurement Units: Monetary for both
intervention costs and outcomes
• Calculated: Benefit($)/Cost ($)
• Application: Compare programs or agents with
different objectives or 1 program against a
return on investment benchmark
• Example: Clinical pharmacy service vs. other
institutional service
 Cost Effectiveness Analysis
• Description: Compares costs of two or more alternatives versus
outcomes measured in natural units
• Measurement Unit: Monetary for cost, outcome in physical
measures i.e., event avoided
• Incremental cost to achieve a one unit increase in outcome
ICER = ∆Cost/∆Effect
= (CTx1 – CTx2)/(ETx1 – ETx2)
• Application: Compare treatment alternatives for a given
condition that differ in outcomes and costs
• Example: Osteoporosis Drug A vs Drug B on fracture risk
reduction ($/fracture avoided)
 Cost Utility Analysis
• Description: Subset of cost effectiveness analysis -
outcomes are measured in utility units
– Utilities represent patient preferences and quality of
life/functional status associated with disease and/or
treatment
• QALY: Quality adjusted life year – factor of life
expectancy and utility
– e.g., 4 years at 25% QOL = 1 year at 100% QOL
• ICER = (CTx1 – CTx2)/(QALYTx1 – QALYTx2)
• Application: Same as CEA, useful when treatment
extends life and/or effects quality of life
• Example: Compare cancer chemotherapy regimens
 Cost Effectiveness Plane

500

∆ Cost
400

More Costly, Less Effective

Quadrant II or NW
300 More Costly, More Effective
Standard treatment dominant Quadrant I or NE
200
Trade off
100

∆ Effectiveness 0
-1 -0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1
-100

-200
Less Costly, Less Effective Less Costly, More Effective
Quadrant III or SW -300 Quadrant IV or SE
Trade off New treatment dominant
-400

-500

10
 Cost Effectiveness Plane

$500

∆ Cost
$400

More Costly, Less Effective

Quadrant II or NW
$300 More Costly, More Effective
Standard treatment dominant Quadrant I or NE
$200
Trade off
$100

∆ Effectiveness
$0
-1 -0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1
-$100

-$200
Less Costly, Less Effective Less Costly, More Effective
Quadrant III or SW -$300 Quadrant IV or SE
Trade off New treatment dominant
-$400

-$500

11
Recap of Pharmacoeconomic Analyses

Model Type Units Outcomes Comparison

Cost Minimization Costs in $ Assumed to be 2+ similar alternatives
equal
Cost Benefit Costs and Can differ by type 2+
benefits in $ of outcome interventions/program
s or 1 vs. benchmark

Cost Costs in $, Presumed to differ, 2+ alternatives

Effectiveness/Utilit benefits in non $ but must be same
y units type of outcome
 Considerations for Designing or Evaluating
Pharmacoeconomic Studies
• Costs
– Direct medical/nonmedical, indirect, intangible
• Perspective
– Patient, Provider, Payer, Society
• Discounting - value of money changes over time
• Sensitivity Analysis - challenges results and tests
assumptions by altering certain variables
• Accuracy and transparency
– Clearly documented study design, assumptions, inputs
• Face Validity
– Do the assumptions/input and alternatives reflect reality
 Economic Modeling
• Analytic models to predict economic consequences of
coverage, treatment, and access decisions
– budget impact, cost effectiveness, cost minimization
– E.g., evaluate the impact of adding drug A to the formulary
• Constructed by health plans, pharmaceutical
manufacturers, academic groups, and consultants
• Good practice guidelines for model development should
utilized in constructing models
– Promote transparency, minimize bias
• Guidelines also exist to facilitate the evaluation of
pharmacoeconomic studies
Applications in Practice & Roles of the Pharmacist

• Assist in the design and implementation of research

studies
• Evaluate pharmacoeconomic literature
• Apply results to clinical decision making
– Individual patient care
– Formulary/utilization management
– Disease management
– Resource allocation
 Helpful Resources
• Navarro RP, ed. Managed Care Pharmacy Practice. 2nd edition. Jones
and Bartlett Publishers: Sudbury, MA; 2009.
• Rice TH, Unruh L. The Economics of Health Reconsidered 3rd ed.
Chicago, IL. Health Administration Press, 2009.
• www.ispor.org
• http://www.ispor.org/workpaper/Modeling-Good-Research-
Practices-Overview.asp. Assessed Sept. 16, 2013.
• Husereau D, Drummond M, Petrou S, et al. Consolidated Health
Economic Evaluation Reporting Standards (CHEERS)—Explanation
and Elaboration: A Report of the ISPOR Health Economic Evaluation
Publication Guidelines Good Reporting Practices Task Force. Value
in Health. 2013; 16:231-250.
 Conclusion
• Pharmacoeconomic evaluations consider cost
compared to consequences of treatment alternatives
• Results are used to support population-level
decisions regarding medication coverage and use
• Best-Practice principles should be used in designing
pharmacoeconomic studies to optimize transparency
and reduce bias
Thank you to AMCP member
Carrie McAdam-Marx for
updating this presentation for
2015