Methods of Pharmacoeconomic Analysis

Qais Alefan
B.Pharm, R.Ph., M.Pharm, PhD

Economic Evaluation
The identification, measure, and comparison
of the costs (i.e., resources consumed) and
outcomes (i.e., clinical, economic, and
humanistic) of interventions (e.g.,
pharmaceuticals, non-drug therapies, public
health programs)
Economics

Health Economics

Economic Evaluations

Cost-Effectiveness
Analysis
Statistics
Resource identification:
all resources consumed during the process of
healthcare provision (e.g., GP visits, drugs) have to
be identified
Resource measurement:
all resources have to be recorded in terms of
quantities used (e.g., no. of pills, no. of staff hours)
Resource valuation:
applying unit costs to each element of resource used

Benefits in economic evaluation, refers to the
therapeutic objectives that gave rise to the
intervention
All PE studies value costs in the same terms:
monetary units ($, JD, , , , SR)
Depending on the way benefits are measured, 4
types of PE studies are available:
Cost minimization analysis (CMA), Cost effectiveness
analysis (CEA), Cost utility analysis (CUA) & Cost benefit
analysis (CBA)
COI identifies & estimates the overall cost of a particular disease
for a defined populations
This evaluation method is often referred to as burden of illness
It involves measuring the direct & indirect costs attributable to a
specific disease
COI is not used to compare competing treatment alternatives
The costs of cancer in 2002 in the US was $171.6 billion (ACS,
2003),
$60.9 billion in direct medical costs
$15.5 billion in indirect morbidity costs
$95.2 billion in indirect mortality costs
In 2007, it was $226.8 billion
$103.8 billion for direct medical costs (total of all health expenditures)
$123.0 billion for indirect mortality costs (cost of lost productivity due to
premature death)
CMA involves the determination of the least costly
alternative when comparing 2 or more treatment
alternatives
With CMA, the alternatives must have an assumed or
demonstrated equivalency in safety & efficacy
Once equivalency in outcome is confirmed, the costs can
be identified, measured, & compared in monetary units
CMA is a straightforward & simple method
If no evidence exists to support, then a more
comprehensive method such as CEA should be employed
CBA identifies, measures, & compares the benefits & costs
of a program or treatment alternative
Both the costs & the benefits are measured & converted into
equivalent $ in the year in which they will occur
These cost & benefits are expressed as ratio (a benefit-to-
cost ratio, B/C), a net benefit, or a net cost
The highest net benefit or the greatest B/C ratio is desired:
If B/C > 1, the program or treatment is of value,
If B/C = 1, the benefits equal the cost,
If B/C < 1, the program or treatment is not economically
beneficial
CEA involves comparing programs or treatment alternatives with
different safety & efficacy profile
Cost is measured in $, & outcomes in terms of obtaining a specific
therapeutic outcome (e.g., physical units, lives saved, cases cured)
The results of CEA are expressed as a ratio either as an average CE
ratio (ACER) or as an incremental cost-effectiveness (C/E) ratio
The AC/E ratio:
AC/E = Healthcare costs ($)
Clinical outcome (not in $)
Using this ratio, clinician would choose the alternative with the least cost per
outcome gained
Less efficacious
Less costly
Less efficacious
More costly
More efficacious
Less costly
More efficacious
More costly
+
+
__
__
Effectiveness
Cost
The most cost-effective alternative is not always the least costly alternative
for obtaining a specific therapeutic objective
Often clinical effectiveness is gained at an increased cost, is the increased
benefit worth the increased cost?
Incremental CE analysis maybe used to determine the additional cost &
effectiveness gained
The additional cost that a treatment alternative imposes over another
treatment is compared with the additional effect, benefit, or outcome it
provides
The incremental C/E ratio (ICER): = Cost ($)
a
Cost ($)
b
Effect (%)
a
Effect (%)
b
This formula yields the additional cost required to obtain the additional effect gained by
switching from drug A to drug B.

Treatment A Treatment B
Total costs 325 450
Effectiveness 87% successful 91% successful
ACE
$325/0.87 = $373 per
success
$450/0.91 = $494 per
success
ICER
($450 - $325) / (0.91 - 0.87)
= $3125 for each additional success
CUA integrates patient preferences & health related quality of life
(QoL)
Cost is measured in $ & therapeutic outcome in patient-weighted
utilities, rather than in physical units
CUA tried to combine the quality & quantity of life in its outcome
measure
QALY is a common measure of health status used in CUA, combining
morbidity & mortality data.
When calculating QALYs, 1 year of life in perfect health has a score of 1.0 QALY
If a persons health is diminished by disease or treatment, 1 year of life in this
state is valued at less than 1.0 QALY
By convention, perfect health is assigned 1.0/year and death is assigned 0.0/year
Results of CUA are also expressed in a ratio, a cost-utility (C/U) ratio
CUA is used when comparing programs & treatment
alternatives that are:
life extending with serious SEs ( cancer chemotherapy)
those that produce reductions in morbidity rather than
mortality (medical treatment of arthritis)
when QoL is the most important health outcome being
examined
CUA is employed less frequently than other
economic evaluation methods because of:
lack of agreement in measuring utilities
difficulty comparing QALYs across patients and populations
difficulty quantifying patient preferences
The principles & methods of pharmacoeconomics provide
the means to quantify the value of pharmacotherapy
through balancing costs & outcomes
Providing quality care with minimal resources in the future
& the future is here
By understanding the principles, methods and application
of pharmacoeconomics,
pharmacists will be prepared to determine & quantify the value of
pharmacotherapy to the health care system & society

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What are the different types of economic evaluations discussed?

What does CUA measure and how does it differ from other evaluations?

Qais Alefan

B.Pharm, R.Ph., M.Pharm, PhD

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