Strategic Management of Hospitals:

Pharmacoeconomics as a Decision Tool

Hiren Mehta

Outline
Healthcare costs and choices Pharmacoeconomics Definitions Methods Applications Advantages and disadvantages

Canadian healthcare spending

1975-2005 (millions)
180,000 160,000 y = 1E-63e0.0782x R2 = 0.9662 140,000

120,000

100,000

80,000

60,000

40,000

20,000

0 1970

1975

1980

1985

1990

1995

2000

2005

2010

Healthcare costs by type

100%

80%

Other 60% Admin Public Health Capital Drugs Nursing, etc Physicians 40% Institutions Hospital

20%

0% 1975 1980 1985 1990 1995 2000 2005

Trends hospital $

(Source: CIHI)

Hospital share is decreasing

44.7% in 1975 29.9% in 2005 28.7% decrease in share
From

Hospital expenditures
$5.5

billion in 1975 [Total: $12 billion] $42.4 billion in 2005 [Total: $142 billion] 677% increase [Total: 1064%]

Trends drug $

Drug share increasing

8.5%

in 1985 17.5% in 2005 106% in share

Drug costs
$1.1

billion in 1975 $24.8 billion in 2005 2200% increase

Reasons for increases

Increase in utilization
More

people taking drugs

More population More >65, free drugs (access)

disease more drugs Longevity more disease more drugs

More

Increase in cost
Research

costs money New drugs research intensive

7

Canada: population increase 1966-2006

35

y =0.3007x - 571.25 R2 =0.992 30

25

20

15 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Average cost per citizen covered by BC Pharmacare

Year
1987 1991 1995 1999

Cost
$192 $354 $406 $478

Drug costs on the rise

10

Costs of therapy (cancer drugs)

30000 25000 26,000 18,000 20000 12,000 15000 7,600 10000 1,620 5000 0 600 4,980

$ per treatment

Fl ud ar ab in CH e O P+ G -C SF Ri tu xi CH m O ab P+ R itu xi m ab Bo rte zo m ib

bu ci l Ch lo ra m

CH

O P

Drug acquisition 11 costs

Selecting drugs in hospital

Open formulary
No

restriction Pay for all drugs prescribed

Formulary
Most

standard drugs available Medical staff + pharmacy decide on content

Problem: demand exceeds budget

Need

a method for judging relative merits

12

Background
Economics = the study of the allocation of resources Health economics: application of economic principles to healthcare Basis = value for money

Money

= common denominator for comparisons

13

Pharmacoeconomics
Pharmaco = drugs Application of health economics to drugs and drug services Techniques not different Interpretations parallel

14

Levels of analysis

Macro (population)
Most

PEA is this type Applies to the average in the population Requires translation to apply to patients

Meso (group)
Usually

applied at this level

Micro (Individual)
Never

done at this level in PEA

15

Definition
Pharmacoeconomics:
Evaluation of a drug against one or more comparators with respect to both costs

and outcomes.
Comparator
Placebo,

= depends on purpose

do nothing Standard treatment

16

Why?
Resources scarce Demands increasing Forced to make choice Pharmacoeconomics assesses value for money (common metric)

tool for decision making

17

Perspective

Whose viewpoint?
Need

to identify the audience for the report Need to specify the analytic viewpoint

Determines:
Data

collected Valuation of resources Interpretation of results

18

Analytic perspectives

Society (Comprehensive, overall)

All

costs considered, regardless of payer Usually includes indirect costs

Payer
Insurer,

government, individual + Ministry of Health (Canada)

19

Standard:
Societal

Types of cost
Direct costs Indirect costs

Economic NOT accounting definitions used in PEA

Overhead

costs included in hospital perspective

20

Direct costs

Costs of resources consumed in treating patients Cost centres:

Drugs

(preparation, administration, monitoring) Medical care (MD, specialist) Hospital (inpatient, units) Laboratory (blood, urine, x-ray, NMR, CAT scans) Allied healthcare (nursing, physio, massage, social work) Transportation to therapy (sometimes) Cost of managing ADRs

21

Using costs

Use standard lists for cost values

The

standard price that any person would pay Do NOT use special costs, bargains Exception: hospitals analyzing their own data

Select year of analysis

Usually

current year or immediate past year Standardize all costs to year of analysis
Use health component of Consumer Price Index or equivalent

22

Indirect costs

Lost productivity

Early death

Time totally lost forever Absenteeism due to disease On the job, being paid, not inefficient

Decreased ability to work

Presenteeism

Caretaker time Problems

Leisure time, retired people

Consider lost time equal Use Friction method Counts only time to train replacement personnel

Under-employment/unemployment

23

Time horizon

Analysis must be over enough time to allow for all important outcomes
Cancer

drugs use lifetime Antibiotics (acute) 1 month/3 months Often use 1 year

Problem
Data

availability over time Must discount costs if >1 year

24

Discounting
Preference for benefits now and costs later NOT because of inflation Based on stable rates for safe investments (government bonds, GICs, cash market) Standard = 5%, vary in sensitivity analyses over range 0-10%

25

Summary: costs
A: Identify resources consumed B: Quantify resource use C: Qualify (cost) that use

Use

standard costs Discount if over >1 year

Total cost = S Resourcei*Costi Average across all patients Extrapolate to population using demographic statistics

26

Outcomes: ECHO model

Economic Dollars Clinical Positive: Cure, life saved, life-year gained Negative: Case avoided (disease, death) Humanistic Quality of life, patient preferences
27

QALYs

Quality adjusted life-years

e.g.,

cancer patient

Estimate duration of life remaining

Identify health states involved e.g., Phases II-IV Measure length of each health Adjust each by utility value: S Timei*Utilityi Average over all patients

state

Universal outcome
Can

compare across treatments Can compare across diseases

28

Utilities
Standard gamble Time tradeoff Visual analog scale Whose?

Patients

Accurate estimate of implications Problem: adaptation to the condition

Normals

(society)
29

Need to help them understand the disease

Preferred outcomes

Ultimate outcomes:
Cure,

life-year gained, QALY Avoided cases of:

Disease (vaccine) Death

Avoid intermediate outcomes

Decrease

in BP, serum cholesterol, units on a scale (pain, health status, etc.)

30

Types of analyses
Alternatives Costs only Outcomes only
Outcome assessment (e.g., Quality of Life measurement) Comparison of efficacy / effectiveness

Costs + Outcomes
Cost-outcome description (Noncomparative CBA)

One (No comparison of alternatives)

Cost description (Cost of Treatment, Burden of Illness) Cost comparison

Two or more alternatives

Cost-minimization Cost-effectiveness Cost-utility Cost-benefit

31

Cost analyses (non-PEA)

Burden of sickness Cost of illness Financial feasibility

Implementing

a new pharmacy service E.g., cost-revenue model

32

Burden of sickness/illness

Macro level (population based) Top down analysis Dollars spent on a disease Direct costs
Drugs,

MD, hospital

Indirect costs
Morbidity,

mortality, time lost from work, decreased productivity (presenteeism), etc.

33

Cost of illness/Cost of treatment

Micro level Bottom up analysis Individual based Itemize resources consumed

Drug,

visits to MD, tests, etc. Chart review, database analysis, modelled

34

Approaches to COI analysis

Incidence based
Start at onset of disease Follow until resolution/death

E.g., Gonzalez JC, Einarson TR. Cost of Type-2 diabetes in Colombia. PharmacoEconomics 2008 (in press).

Prevalence based
Cross sectional All cases in one year Example: Pain due to

multiple sclerosis: analysis of the prevalence and economic burden in Canada. Pain Res Manag 2007;12(4):259-65

35

Contribution

Identifies costs
Burden

to society Cost to treat individual

Basis for pharmacoeconomic evaluation (Baseline) BUT, does not address appropriateness or outcomes

36

COI Example: bisphosphonates

Resource Cost Bisphosphonate $5,421 Other Drugs $6,290 Hospital $18,229 Clinic $7,715 Laboratory $2,020 Imaging $3,355 Radiation $2,657 Physicians $2,170 Total $47,857
Kruk. Supportive Care in Cancer 2004; 12: 844-51.
37

Burden of ADRs (USA)

Resource Events Cost (millions) Physician visits 115,654,949 $7,460 Additional prescriptions 76,347,604 $1,933 Emergency visits 17,053,602 $5,321 Hospital admissions 8,761,861 $47,445 LTC admissions 3,149,675 $14,399 Deaths 198,815 Total $76,558
Johnson. Arch Intern Med 1995;155(18):1949-56.
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HOSPITAL CARE EXPENDITURE BY DIAGNOSTIC CATEGORY, CANADA, 1993 DIAGNOSTIC CATEGORY

Cardiovascular Diseases Mental Disorders Cancer Injuries Digestive Diseases Respiratory Diseases Pregnancy Well-patient Care Musculoskeletal Diseases Genitourinary Diseases Nervous System and Sense Organ Diseases Endocrine and Related Diseases Perinatal Conditions Infectious and Parasitic Dieseases Birth Defects Skin and Related Diseases Blood Diseases Ill-defined Conditions TOTAL

1993 Cost ($1000)

4,862,322 3,631,788 2,467,408 2,253,487 2,093,374 1,788,230 1,649,707 1,349,205 1,285,910 1,075,828 792,862 526,785 518,012 345,071 231,923 223,015 156,808 844,567 26,096,300

% of Total
18.6 13.9 9.5 8.6 8.0 6.9 6.3 5.2 4.9 4.1 3.0 2.0 2.0 1.3 0.9 0.9 0.6 3.2 100.0

SUBCATEGORY
Coronary Heart Disease Stroke Chronic Bronchitis / Emphysema / Asthma Motor Vehicle Traffic Accidents Diabetes Female Cancers 1,571,999 1,258,063 636,491 283,106 274,621 206,068 6.0 4.8 2.4 1.1 1.1 0.8

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Pharmacoeconomic analysis
Properties Models Outcomes Issues

Pharmacoeconomic analysis

Compare 2 or more options

Need

to identify, describe each Usually a new drug trying to enter the market

Requires an estimate for each of:

Costs Outcomes

produced

Other requirements:
Analytic

time horizon, perspective, discount rate(s) Clinical consequences and their management
41

Purpose of PEA

Permission to market drug

NOC

in Canada License in other countries

Acceptance by formulary
Provided

by system (e.g., ODB) Paid by insurer (in whole or in part)

Purpose model, approach

42

Approaches: licensure
Population based model Evidence = Efficacy data

Data

source = RCTs

Assume full compliance, ideal conditions Per protocol analysis

Defined population Limited to eligible patients who take full treatment

Comparator

= placebo, standard

Viewpoint = societal
43

Approaches: formulary

Meso (Group) model Evidence = Effectiveness data

Data

source:
Real life experience Unselected patients Compliance matters Intent-to-treat analysis

Effectiveness trials

Model via RCT + other factors (adherence)

Population = all possible candidates

Comparator

= standard therapy
44

Viewpoint = payer

Product
Need to describe drug in detail Identify therapeutic category

ATC

system

Comparators
What

is being used now

Utilization rates, costs, burden Justify WHY this drug is being examined
45

Population

Indication
Disease

How diagnosed, classified, e.g., ICD-10 Mild, moderate, severe

Severity

Population
Types

of patients

Males, females Ages

46

Comparator

Placebo
Form

identical to drug of interest Do nothing alternative

Standard therapy
Guidelines

Actual

practice Expert panel

Hospital setting:
Usual

treatment
47

Pharmacoeconomic models
Prospective
Retrospective Predictive

48

Prospective models

Pharmacoeconomic RCT
Designed

specifically for PEA trials

Add-on to clinical RCT

Piggy-back

Collect data
Identify

resources used Cost concurrently or later

49

RCT advantages

Prospective data collection

Data are stochastic

Can calculate Mean, SD Ideal conditions

All factors controlled

Provides efficacy data

Valid for NOC, licensing

Disadvantages:

Sample not representative

Patients, conditions, drugs taken, age, sex, etc.

Cannot extrapolate results to real life

50

Retrospective models
Model

existing RCT Chart review Database analysis

51

Modelling RCTs

Easy to do
Efficacy

from trial Determine costs

Problems:
Retrospective

bias Artificial conditions (extrapolation) Requires expert input

52

Chart Reviews
Easy to do, not expensive (usually) Problems:

Time

consuming Missing data Outcomes Resources used (not planned for) Patients d/c, re-entry, move

53

Database Analyses
Available, easy to use Powerful - huge samples Versatile:

Cohort,

case control, matching Time series, cross sectional

54

Disadvantages

Missing data Diagnosis, outcomes, status (smoking, alcohol, etc) Confounding Causation = ?

Assumptions (Consumption, indication, compliance)

Cost = large, delays long

55

Predictive decision models

Most common model Relatively easy to perform

Software

(TreeAge/Data)

Often require expert panel Applies to average patient Population based

56

Decision Types

Decision tree
Fixed

time period Non-recursive (one-way only) All outcomes included

Markov model
Recursive

model (can move backwards) Cumulates values over time Versatile

57

Markov model
Clinically Defined MS

EDSS 0-1.5
Second Event EDSS 2-2.5 EDSS 3-3.5 Monosymptomatic EDSS 4-4.5 EDSS 5-5.5 1st Year Transitions
Iskedjian et al. Multiple Sclerosis 2005; 11: 542-51

EDSS 6-6.5
Expanded Disability Status Scale
58

Markov model
EDSS 0-1.5 Second Event

EDSS 2-2.5 EDSS 3-3.5

Monosymptomatic EDSS 4-4.5 Multiple Year Transitions

Iskedjian et al. Multiple Sclerosis 2005; 11: 542-51

EDSS 5-5.5
EDSS 6-6.5
59

Base case analysis

Identify what happens to the typical patient

Number

of treatments undergone Components of each treatment

Resources consumed

What

happens if success, fail, etc.

60

Requirements for PEA

Drug of interest Comparator(s) Measurements of both

Success

(and/or other) rates Costs of inputs (in $) Patient outcomes

Outcomes expressed incrementally

61

Clinical efficacy

Source of data
RCT

Head-to-head or Indirect Observational studies Type of data Intention to treat Per protocol (completers)

62

PEA types
CCA = cost consequence analysis CBA = cost benefit analysis CMA = cost minimization CEA = cost effectiveness CUA = cost utility

63

Cost consequence (CCA)

No summary statistic calculated Costs valued in $ Outcomes quantified and listed Reader judges importance Could be in every PEA

64

Cost benefit (CBA)

Measurement:
$ Outcomes $
Costs

Benefit: Cost ratio calculated

B:C

>1 socially beneficial

Incremental ratio used

65

CBA example
If a program costs $2000 and produces $5000 in benefits, as compared with the existing program costing $1000 with benefits of $2000, Ratio1 = $5000/$2000 = 2.5 Ratio2 = $2000/$1000 = 2.0 Since ratio1:2 = 2.5/2.0 =1.25 >1, the new program produces more benefits and is preferred, if affordable

66

CBA

Advantages:
Theory

based Can use willingness to pay

Contingent valuation

Disadvantages
Valuations

Intangibles (pain, suffering)

67

Cost minimization (CMA)

All outcomes same

Must

be demonstrated

Consider only costs Decision rule: lowest cost is preferred choice Example: gent vs tobra ??

68

Cost-effectiveness (CEA)
Costs = $ Outcomes = natural units

Cures,

deaths avoided

Intermediate outcomes
Not

desirable (need linkage) e.g., Blood level (cholesterol)

69

Cost utility (CUA)

Cost = $ Outcome = patient utility QALY = quality adjusted life year Assess quality of life utility Quantify and adjust by utility
Compare incrementally between drugs

70

Interpreting outcomes

Incremental cost-outcome ratio:

Cost1 Cost2 __________________ Benefit1 Benefit 2

71

Incremental analysis

Compare costs and outcomes Ideal = lower cost + better outcomes Usual = more cost more outcome Problem = assessment

72

Incremental CEA
If cost lower + benefit greater = dominant If incremental cost cost/outcome, then CEA If lower cost + lower outcome, could be OK

73

Interpretation of PEA results

Outcome Outcome + Incremental Dominated CE Dominant ???

Cost + Cost -

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Interpretation: Suggestion

75

CEA example

New drug cost = $500, cure = 0.7 (70%) Old drug cost $400, cure = 0.5 (50%) ICER = ($500 - $400)/(0.7 0.5) = $500 per additional cure Old drug cost $400/0.5 = $800/cure; therefore, the new drug is cost-effective and should be adopted, if it can be afforded

76

CEA example 2
New drug cost = $500, cure = 0.7 Old drug cost $100, cure = 0.5 ICER = ($500 - $100)/(0.7 0.5) = $1,000 per additional cure Requires judgment (no real rules)

77

CEA interpretation
Dominant = adopt (if affordable) If the incremental cost cost/outcome of standard, then the new drug may be considered to be cost effective Otherwise, judgment required

78

Summary
PEA requires at least 1 drug and 1 comparison treatment PEA involves simultaneous analysis of costs AND outcomes Decision makers prefer dominant treatments they provide savings; incremental cost-effectiveness involves increased costs

79

Thank You

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