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PRINCIPLES OF PHARMACOECONOMICS
WHAT AND WHY PHARMACOECONOMICS?
A set of method to evaluate the economic, clinical and humanistic outcomes (ECHO) of
pharmaceutical products and services.
OR
To compare the economic resources consumed (inputs) to produce the health and economic
consequences of products or services (outcomes)

Aim to spend less but getting better/higher outcomes.
5 TYPES OF PHARMACOECONOMIC ANALYSES:
1) COI (Cost Of Illness)
2) CMA (Cost Minimization Analysis)
3) CBA (Cost Benefit Analysis)
4) CEA (Cost Effective Analysis)
5) CUA (Cost Utility Analysis)

Method Cost Consequences
Cost Of Illness Partial Dollars / RM
Cost Minimization Analysis Dollars / RM Natural Units
Cost Benefit Analysis Dollars / RM Dollars / RM
Cost Effective Analysis Dollars / RM Dollars / RM
Cost Utility Analysis Dollars / RM QALY

COI (COST OF ILLNESS)
Cost-of-illness studies measure the economic burden of a disease or diseases and estimate
the maximum amount that could potentially be saved or gained if a disease were to be
eradicated (ie. study on the impact of illness to the society)
Direct cost : Money changes hand, eg. Health service use, out-of-pocket expenses etc.
Indirect cost : lost productivity from time-off due to illness / loss wages
Intangible cost : the `disvalue to an individual due to pain and suffering.
(Segala perbelanjaan yang termasuk dalam menangani sesuatu penyakit. Contoh. Bagi
seorang pesakit kanser, `direct cost adalah perbelanjaan yang dikeluarkan untuk
mendapatkan chemotherapy treatment, ubat-ubatan dan transportation, `indirect cost
adalah pendapatannya yang berkurangan disebabkan pemotongan gaji / cuti tanpa gaji
yang perlu dihadapi untuk pergi mendapat kanser treatment, `intangible cost adalah
These methods
differ by how you
measure the
consequences or
outcomes
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cost yang tak dapat diukur dengan wang ringit (monetary) iaitu kesengsaraan dan
kesakitan yang dialami oleh pesakit kanser ini).

Objectives & Benefits of COI / Interpretation of result:-
Help policy makers to decide which diseases need to be addressed first by healthcare
and prevention policy
Can indicate for which diseases cures would be valuable in reducing the burden of
disease
Can show the financial impact a disease has on public programs
Can show which diseases have an especially large effect on their costs
Provide important information for cost-effectiveness and cost-benefit analyses
Can demonstrate which diseases may require increased allocation of prevention or
treatment resources

How to calculate:-


COI = number of episodes X ( direct cost per episode + indirect cost per episode)


Case studies:-
Suppose you are conducting from a societal perspective a COI analysis to estimate the
economic burden of influenza in the United States. You are provided with the information
below from a representative sample.
Average direct cost of treating each case is $86 (range: $21$140).
Average indirect cost for treating each case is $190 (range: $ 44$560).
The sample yields an incidence rate of 7.5%. However, other studies indicate
that incidence rates are in the range of 4%12%.
What might be some of the direct cost components of influenza in the United States?
Answers: Direct costs include
physician services costs,
diagnostic/laboratory testing costs,
vaccination costs,
physician services costs in emergency departments,
prescription drug costs,
over-the-counter drug costs, and
costs for treating complications.
What might be some of the indirect costs for influenza in the United States?
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Answers: Indirect costs include
value of productivity losses from morbidity,
value of productivity losses from premature mortality, and
value of caregivers' productivity losses.
Will the results of a COI study that is based on estimating direct and indirect cost components
reflect the full economic burden of influenza in the United States? If not, what is the omitted
component?
Answers: No. The results of a COI study based on estimating only direct and indirect costs
will not reflect the full economic burden of influenza in the United States. The intangible
costs are an integral part of the COI estimates, although they are difficult to quantify and
often are discussed qualitatively in COI analyses.
Assuming that the population of the United States is 280 million, calculate the COI for
influenza by using the following formula:
COI =
Number of
cases
x
( Average direct cost per
case
+
Average indirect cost per
case )
where
Number of cases = Population x Disease Incidence rate
Number of cases = Population x Disease Incidence rate

= 280,000,000 x 0.075

= 21,000,000

COI =
Number of
cases
x
( Average direct cost per
case
+
Average indirect cost per
case )

= 21,000,000 x ( $86 + $190 )

= $5,796,000,000

(the amount of COI or economic burden of influenza in the United States)

CMA (COST MINIMIZATION ANALYSIS)
Comparing all of the relevant costs and consequences of two or more therapeutic
interventions. The consequences of the interventions are shown to be equivalent. The
objective is to choose the least costly alternative among equivalent or equally efficacious
alternatives.
Eg 1: To determine the least costly alternatives (with the same efficacy) for treating recurrent
urinary tract infections. Alternatives should include both newer quinolones antibiotics and
older therapies.
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Eg 2: To determine the least costly alternatives (with the same efficacy) for treating allergic
rhinitis in adult. Alternatives can include original brand drugs and generic drugs (same
chemical entity, same dose, same pharmaceutical properties)
Eg 3: To determine the least costly alternatives (with the same efficacy) for using drug A as
intravenously (IV) or intramuscularly (IM).
Assumptions to be made:-
The two interventions are equally effective (can be found in published source of
equivalency rating, meta-analysis and statistical test)
We have included all the costs
There is no uncertainty associated with the clinical or economic parameters

Cost Minimization Analysis Decision Framework


Methodology approach in CMA
1) Search the literature to determine if the economic answer already exists
2) Use Pharmacoeconomic Analysis (10 steps)
i. Define the pharmacoeconomic problem
ii. Determine the studys perspective
iii. Determine the alternatives and outcomes
iv. Select the appropriate pharmacoeconomic method
v. Place monetary values on the outcomes
vi. Identify resources
vii. Establish the probabilities of the outcome event
viii. Use decision analysis
ix. Discount costs or perform a sensitivity or incremental cost analysis
x. Present the result
Pharmacoeconomic Problem
Determine the least costly alternative
Are outcomes being meausured?
Yes
Are outcomes equivalent?
Yes
CMA
No
CEA, CUA, CBA
No
Cost Analysis
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Conclusion:
CMA remains important tool in the evaluation of pharmaceuticals, even though its
applicability is limited to those situations where comparisons are made between
equally efficacious products.
CMA strengths is that it is simple and straight forward, because outcomes of
alternative therapies are assumed equivalent
CMA establishing criteria for equal efficacy

CBA (COST BENEFIT ANALYSIS)
An evaluative technique for comparing the value of all resources consumed (costs) in
implementing a program or intervention against the value of the outcome (benefits) from that
program or intervention, to see whether the program / project is worthwhile or to be funded
or not.
A cost benefit analysis finds, quantifies, and adds all the positive factors. These are the
benefits. Then it identifies, quantifies, and subtracts all the negatives, the costs. The
difference between the two indicates whether the planned action is advisable. The real trick to
doing a cost benefit analysis well is making sure you include all the costs and all the benefits
and properly quantify them.
Application of CBA:
If resources are limited, choose among competing projects the one that yields the
highest net benefit
If resources are not limited, choose all projects for which net benefits are positive.
Basic Calculation of CBA
Net benefit = when the lifetime of project is one year or less.

CBA = TOTAL OF ALL BENEFITS TOTAL OF ALL COSTS
= NET BENEFIT


If the answer is positive, the project is worthwhile to be continued, but if the answer is
negative, the project should not be funded.
Case study:
A proposal of `Drive Thru Pharmacy for long-term medications in your hospital to reduce
the waiting time in medication collection and provide conveniency to patients.
Calculation is projected for 1 year.
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Cost = the renovation for the drive through counter, purchase and installation of
computerised system, designated experience personnel to mann the counter (salary,
overhead, training), utility (power consumption), square footage (additional floor
needed for the location), insurance and etc.
Benefits = Increased in revenue, reduced waiting time, reduced labour cost, reduced
material cost etc.

CBA = Benefits Costs


= if the answer is positive , this is the net saving that your hospital would gain if
the project is implemented.
= if the answer is negative, this conclude that your hospital will experience loss if
the project is implemented.

CEA (COST EFFECTIVE ANALYSIS)
Goal is to identify, examine and compare the relevant cost and consequences of competing
drug regimens and interventions.
Costs are expressed in monetary terms. Consequences are measured in their natural units,
such as lives saved, cases cured, percentage of effectiveness etc.
Results are expressed as cost-effectiveness ratio, such as cost per case cured, cost per life
saved or cost per infection avoided.
Steps for conducting a CEA
1) Define the problem
Eg. We want to know the effectiveness of a few antibiotics to treat pneumonia

2) Identify treatment alternatives and outcomes
Eg. Antibiotic A vs Antibiotic C in treating pneumonia
Outcomes could be `cure or no cure or `percentage of patients cured

3) Select a study design
Best experimental study design is Randomized Controlled Trial ( RCT)
Observational design can also be used (questionnaires)
Simulation (modeling) : combine data from systematic review, meta-analysis,
literatures etc. Decision tree is the common form.
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4) Select and measure costs and outcomes
Collection of cost data from various healthcare resources to better reflect the
true cost
Measure outcomes appropriately

5) Report the result
Calculate the result using ICER formula
What is ICER?
Incremental Cost Effective Ratio
The cost required to achieve extra unit of outcome

Formula

ICER = Cost of intervention A Cost of intervention B
Outcome of A Outcome of B


Outcome A is the number of patient successfully treated with intervention A.
Outcome B is the number of patient successfully treated with intervention B.
The lower the ICER value, the more efficient the intervention is.
Intervention with an ICER below the threshold are normally funded
Intervention with high ICER may be funded on the basis of other considerations such
as the severity of condition and the availability of alternative treatment
Threshold of ICER is often referred to as the willingness to pay for health again.
Case study:
Cost of treating 100 patients with pneumonia with antibiotic A is RM7000 and antibiotic C is
RM8000. Effectiveness of antibiotic A is shown to be 75% and antibiotic C is 80%. What is
the ICER?
ICER = Cost antibiotic C Cost antibiotic A
Outcome of C Outcome of A

= RM8000 RM7000
80 75

= RM200 extra per pneumonia successfully treated with antibiotic C.

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Limitations in CEA
The ICER value is not always agreed by decision makers, depends on budgeting and
allocation decisions
ICER is entirely dependent on the data that being searched / generated
Many methodologic approaches to obtain data of costs and outcomes from multiple
studies in literatures need to be closely monitored.
Uncertain variables could occur

CUA (COST UTILITY ANALYSIS)
Compare the value of different interventions which has different health benefits (comparative
analysis of alternative courses of action in terms of both their costs and final consequences /
outcomes).
Types of situations appropriate for CUA
When HRQOL (QALY) is the outcome
When other intervention (to compare with) already measured using CUA
When the programme involved `morbidity and `mortality.
When programs compared have a wide range of different outcomes.
When having limited budget: decision maker needs to choose which programme has
the lowest cost but higher benefit (QOL)
When having limited resources
What is QALY?
Quality Adjusted Life Years, measure health by combination of duration of life and HRQOL,
compare the value of interventions across the full range of healthcare activities.
1 QALY is 1 year in perfect health.
How a QALY is calculated?

QALY = HRQOL (range between 0 to 1) x Time (year)

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HRQOL 1 = perfect or best imaginable health
HRQOL 0 = bad QOL or being dead
Case study:
Patient x has a serious, life-threatening condition.
If he continues receiving standard treatment he will live for 1 year and his quality of
life will be 0.4 (0 or below = worst possible health, 1= best possible health)
If he receives the new drug he will live for 1 year 3 months (1.25 years), with a
quality of life of 0.6.
The new treatment is compared with standard care in terms of the QALYs gained:
Standard treatment: 1 (year's extra life) x 0.4 = 0.4 QALY
New treatment: 1.25 (1 year, 3 months extra life) x 0.6 = 0.75 QALY
Therefore, the new treatment leads to 0.35 additional QALYs (that is: 0.75 -0.4 QALY = 0.35
QALYs).
The cost of the new drug is assumed to be RM10,000, standard treatment costs
RM3000.
The difference in treatment costs (RM7000) is divided by the QALYs gained (0.35) to
calculate the cost per QALY. So the new treatment would cost RM20,000 per QALY.

Thank you
`Yang benar dan baik datang dari Allah, yang salah dan silap datang dari saya
Nurulms1404