Introduction to Pharmacoeconomics

Rene J. Goldberg Arnold PharmD President & CEO Arnold Consultancy & Technology LLC

ReneJ.GoldbergArnoldPharmD ISPORDistanceLearningProgram

LearningObjectives
BytheendoftheIntroductiontoPharmacoeconomics moduleyouwillbeableto:

y y y

StatetheroleofPharmacoeconomics(PE)in medicaldecisionmaking DefinethetypesofPE/costeffectiveness analyses(CEA) Explainthesocietal,patientandpayertradeoffs involvedinusingPEformedicaldecision making

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LearningObjectives(contd.)
y

Understandthedifferencebetweenand usefulnessofaverageandincremental (marginal)CEA y Statethedefinitionofutility measurementanditsuseincostutility analysis y Understandtheelementsessentialtoa publishedCEA

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Introduction
y y

Canthehealthsystemsupporttheadditionalcostfor eachlifesavedifthenewdrugisbothmorecostly andmoreeffectivethanprevioustherapies? Ifanewdrugordeviceislesscostly,butless effective,thanexistingtherapies,howmuchofa diminutioninefficacycansociety/payers/patients withstandinordertosavemoney? Howmuchmoneymustbesavedinordertomakeit "costeffective"toacceptareductioninefficacyover existingstrategies?

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UseofPharmacoeconomics/ CostEffectivenessAnalyses
y y y y

drugregistration formularydecisionmaking therapeuticguidelinedetermination individualpatientdecisions

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BenefitsfromPEAnalysisofHealth CarePrograms
y Intangiblebenefits(valueofhealthperseto individualconsumer) y Futurehealthcostsavoided y Increasedproductiveoutputduetoimprovedhealth status y Useofevidencebasedmedicinetomakebestchoices forpopulationandindividuals

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OutcomesAssessmentand Pharmacoeconomics
y Outcomesassessment:determinationofendresultofuse ofhealthcaretechnology y Finitesocietalresourcesrequireconsiderationof opportunitycosts(valueofalternativeusesofthose resources) y Healthcarereformhasrequiredmethodstoevaluate economicandsocietalvalueofgoodsandservices y Pharmacoeconomicsevaluatesvalueformoneyexpended onhealthcaretechnologies

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ObjectivesofPharmacoeconomics
y Applicationofeconomicprinciplestodrug therapyinterventions(preventionand/or cure) y Researchthatidentifies,measures,and comparesthecosts(resourcesconsumed) andconsequencesofpharmaceutical productsandservices Improveindividualandpublichealth outcomes Provideformorerationaldecisionmaking
o o o

Formularymanagement Medicationchoice Systemresourceallocation

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Stepsinevaluatingtypeofanalysis
y Efficacy:optimalcircumstances y Effectiveness:usualcircumstances y Efficiency:costeffectiveness Comparisonwithalternative therapy/therapies Requiresconsiderationofcoststobe included,perspective,timeframe, effectivenessmetric,discountrate, assumptions Diseaseendpointsassessedbyindicesof therapeuticoutcome

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InfluenceofCompliancewith MedicationonCostEffectiveness
DBP Full Partial Compliance Compliance ($/QALY) ($/QALY)

105 mmHg 95-104 mmHg

$4,850 $9,880

$10,500 $20,400

Kozma CM, Reeder CE, Schulz RM: Economic, clinical and humanistic outcome: A planning model for pharmacoeconomic research. Clin Ther 15:1121-1132, 1993.

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Questions
y Isthetreatmenteffective? y Whatwillitcost? y Howdothegainscomparewiththecosts? Typically,onechoosestheoptionwiththeleastcost perunitofmeasuregained Representedbyratioofcosttoeffectiveness(C:E) Calledcosteffectivenessanalysis(CEA)

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TypesofCEA
y Costminimizationanalysis(CMA) Determinescostsassumingequivalent benefits Maybepresentedascostconsequence y Costbenefitanalysis(CBA) Measuresbenefitinmonetaryunits Difficulttovalue,e.g.,alife y Costeffectivenessanalysis(CEA) y Costutilityanalysis(CUA) Incorporatesqualityoflifeadjustments intoeffectivenessmetric

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DefinitionofUtilities
y Quantifiedpreferencesforspecifichealthstates

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ExpressionofUtility
y Utilitymeasuresyieldasinglevaluethatreflectsoverall qualityoflife(QoL) y Preferenceweightedmeasureusedtoproducepointin timeexpressionofwellbeing y 1.0(forasymptomaticfullfunction) y 0(fordeath) y UsedtoimpartQoL componenttoaneffectivenessvalue, suchaslifeyearsgained,toestablishQALYs

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FrameworkforDetermining Costs
y y y y y

Inputs Units Values Timing Uncertainty

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Cost/QALY Comparisons

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DirectandIndirectCost
y Directmedicalandnonmedicalcosts
Medical:Relatedtoprovidingmedicalservices,e.g.,hospitalcare,

physicianfees,drugcosts,costsofadverseevents Nonmedical:Expenses,suchastransportationcosts,thataredirect resultofillness MostfrequentlyincludedinCEA y Indirectcostassociatedwithchangesofindividualproductivity Example:losttimefromwork(absenteeism)andunpaidassistance fromafamilymember y Intangiblecosts(painandsuffering)

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Consequences
y Monetarybenefits y Effectiveness:yearsoflifesaved,hospitalizations averted,complicationfreeepisodes,etc. y Utilitymeasurements:qualityadjustedlifeyears (QALYs)

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AverageandMarginal(Incremental) CostEffectiveness
y AverageCostEffectiveness =resourcesconsumedperunitofoutput
y

Averagecostisderivedbydividingtotalcostbyvolumeor quantityofoutput

y Marginal(Incremental)CostEffectiveness =changeintotalcostofproducingoneadditional(orone less)unitofoutput.

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DecisionMakinginPE Analysis
More Effective More Costly Trade-off Less Effective Reject (dominant) Trade-off

Less Costly

Accept (dominant)

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Perspective
y Societalvs payervs patient y NHSandothernationalized payersystemssuggest societalperspective;benefitinQALYs y Shorttermoutcomes;employersponsoredvs countrysponsored
y

ExamplesofbenefitsheremightbeMIavoidedor complicationfreeepisodes

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PopulationSegmentation
y Developingcountries y Age y Race(antihypertensiveagentapprovedonlyfor AfricanAmericanpatients) y Gender(WeinsteinandStason CVmodel1) y Healthsystem(e.g.,presentstateofscreening)

Weinstein MC, Stason WB (1985). Cost-effectiveness of interventions to prevent or treat coronary heart disease. Annu Rev Public Health, 6, 41-63.

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Discounting
y Futurecostsandeffectsarediscounted y Positiverateoftimepreference y Prefer: y Receivedollarsnow y Payoutdollarslater y PV=FCxDF(n,r)

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SensitivityAnalysis
y Analysisofuncertainvaluesaroundkey variables

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Uncertainty
y Parameter y Structural

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Implications
y Giventhattheprocessofestimating subgroupspecificinputparametersusually involvesreducingsamplesize,itisevenmore importanttoassesstheimplicationsof parameteruncertaintyfully.

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CEAReportingFormats
y Journalarticles y Policydecisions

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CEAReportingFormats(elements)
y y y y y y y

Background Viewpoint/perspective Analytictype Patientpopulation Comparators Source/Qualityofmedicalevidence Range/Measurementofcosts(physical andmonetaryterms) y Measureofbenefit(e.g.,LYG,QALYs)

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CEAReportingFormats(elements, cont.)
y y y y

Adjustingtimingofcosts/benefits Dealingwithuncertainty Incrementalanalysisofcosts/benefits Overallstudyresultsandlimitations

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y June29,2006:Afederalvaccine advisorypanelunanimously recommendedthat11 and12yearold girlsreceiveanewvaccinedesignedto protectagainstcervicalcancer. Wall StreetJournal

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CaseStudy:HPVVaccineCEA
y GoldieSJ,Kohli M,Grima D,etal. Projectedclinicalbenefitsand

costeffectivenessofahumanpapillomavirus 16/18vaccine.JNatl CancerInst.2004;96(8):60415. y Goldieandcolleaguesdevelopedacostutilitymodeltoevaluate cancerincidenceandmortality,lifetimecosts,lifeexpectancyand incrementalcosteffectivenessratiosprojectedtobeassociatedwith cervicalcancerandhumanpapillomavirus (HPV)vaccineinthe preventionofcervicalcancer.Thiscasestudywillbeusedasan exampleoftheuseofCEAinmedicaldecisionmaking.

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Should CEA be uniformly applied in medical decision-making?

y Pro y Allowexplicitmodelingofdecision points y Finiteresources y Objective y Commongood y Con y Individualpatients

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Summary
y Ratioofcosttoeffectiveness y Evaluatesadditionalcostforadditionalunitof effectiveness y CEAmaybeusedtomakepolicydecisions amongcompetingtherapieswithfixed resourcesavailable

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References
1. ArnoldR. Useofinteractivesoftwareinmedicaldecisionmaking.In: Ekins S,ed.ComputerApplicationsinPharmaceuticalResearchand Development.Hoboken:JohnWiley&Sons,Inc.;2006. 2. DrummondM,Sculpher M,TorranceG,O'BrienB,Stoddart G. MethodsfortheEconomicEvaluationofHealthCareProgrammes.3rd ed Oxford:OxfordUniversityPress;2007. 3. ArnoldRJ. Costeffectivenessanalysis:shoulditberequiredfordrug registrationandbeyond?DrugDiscov Today.2007;12(2122):9605. 4. GoldieSJ,Kohli M,Grima D,etal. Projectedclinicalbenefitsand costeffectivenessofahumanpapillomavirus 16/18vaccine.JNatl CancerInst.2004;96(8):60415.
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References
y Detsky AS,Laupacis A. Relevanceofcosteffectivenessanalysisto

cliniciansandpolicymakers.JAMA.2007;298(2):221224. y Rascati K.EssentialsofPharmacoeconomics;Philadelphia:Lippincott Williams&Wilkins;2008. y GoldbergArnoldR. Healtheconomicconsiderationsin cardiovasculardrugutilization.In:Frishman W,Sonnenblick E,eds. CardiovascularPharmacotherapeutics.2nded.NewYork:McGraw Hill,Inc.;2003:43. y GoldMR.CosteffectivenessinHealthandMedicine;Oxford:Oxford UniversityPress:1996.

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References
y Muennig P,KhanK.DesigningandConductingCostEffectiveness

AnalysisinMedicineandHealthCare;JosseyBass;2002. y DrummondM.EconomicEvaluationinHealthCare:Merging TheorywithPractice;Oxford:Oxford UniversityPress;2007. y Bootman L,TownsendR,McGhan W.Principlesof Pharmacoeconomics.3rded.Cincinnati:Harvey WhitneyBooks;2004.

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