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Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in this presentation is adapted with permission from Karen L. Rascati, PhD, author of Essentials of Pharmacoeconomics, Lippincott, Williams & Wilkins, 2009.

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Page 1: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

Introduction to Pharmacoeconomics

Marjorie Neidecker, PhD, MEng, RN

Department of Pharmacology

The Ohio State University

College of Medicine

Material in this presentation is adapted with permission from Karen L. Rascati, PhD, author of Essentials of Pharmacoeconomics, Lippincott, Williams & Wilkins, 2009.

Page 2: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

Objectives

Define pharmacoeconomics

Discuss the importance of pharmacoeconomics (PE) in medical decision making and health care policy

Identify the four types of PE studies and explain how they differ

Explain the difference between and usefulness of average and incremental cost effectiveness

Perform a simple cost-effectiveness analysis

Define quality-adjusted life years (QALYs) and its usefulness in cost-utility analysis (CUA)

Explain the importance of performing a sensitivity analysis in a PE study

Key information related to the objectives will appear in red throughout the presentation. This is the most important information for you to learn.

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Page 3: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

Topics

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I. Pharmacoeconomics – What is it?

II. Why is Pharmacoeconomics Important?

III. Relationship of Pharmacoeconomics to Other Research

• Cost-Minimization Analysis (CMA)• Cost-Effectiveness Analysis (CEA)• Cost-Utility Analysis (CUA)• Cost-Benefit Analysis (CBA)• Other Types of Analyses

IV. Types of Pharmacoeconomic Studies

V. Essential Elements of a Pharmacoeconomics Study

Page 4: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

I. Pharmacoeconomics – What is it?

4

Pharmacoeconomics Definition:

“The scientific discipline that assesses the overall value of pharmaceutical interventions “… and … “provides information critical to the optimal allocation of health care resources.” (Berger,2003)

Identifies, measures, and compares the costs and consequences of pharmaceutical interventions (products, services, and programs) to health care systems and society.

Helps answer the question: Is the added benefit of one pharmaceutical intervention worth the added cost of that intervention?

PE is a tool in decision making; not the final answer.

PE is sometimes referred to as cost-effectiveness analysis (CEA), although CEA is actually just one type of PE.

Page 5: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

I. Pharmacoeconomics – What is it?

INPUT PHARMACEUTICAL OUPUT PRODUCT OR SERVICE

5

Cost Analysis(a partial pharmacoeconomic study) Clinical or Outcome Study

(not an economic study)

Pharmacoeconomic Analysis

Page 6: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

I. Pharmacoeconomics – What is it?

Question:

A health services researcher plans to study the total cost

burden of type 2 diabetes on society. The costs will include prevention, drugs and other treatments, losses caused by morbidity and mortality, etc. Would this be a pharmacoeconomic analysis?

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Page 7: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

I. Pharmacoeconomics – What is it?

Question: A health services researcher plans to study the total cost burden

of type 2 diabetes on society. The costs will include prevention, all drugs and other treatments, losses caused by morbidity and mortality, etc. Would this be a pharmacoeconomic analysis?

Answer: No. A pharmacoeconomic analysis requires measuring and

comparing the costs of a pharmaceutical intervention (i.e., a drug, a product, or a service) and the outcomes that result from the pharmaceutical intervention. This study focuses on a disease and not an intervention. This type of study is referred to as a cost-of-illness study.

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Page 8: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

II. Why is Pharmacoeconomics Important?

Note: Other Personal Health Care includes, for example, dental and other professional health services, durable medical equipment, etc. Other Health Spending includes, for

example, administration and net cost of private health insurance, public health activity, research, and structures and equipment, etc.

Source: http://facts.kff.org/chart.aspx?ch=857; Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.hhs.gov/NationalHealthExpendData/ (see Historical; National Health Expenditures by type of service and source of funds, CY 1960-2010; file nhe2010.zip).

NHE Total Expenditures: $2,593.6 billion

Nursing Care Facilities & Continuing Care

Retirement Communities, $143.1

(5.5%)

Distribution of National Health Expenditures,

by Type of Service (in Billions), 2010

Page 9: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

II. Why is Pharmacoeconomics Important?

In the U.S., 2010: National health expenditures (NHE):$2.59 trillion Spending per capita: $8,402 (17.9% of GDP) Spending on medications: $259 billion (10.0% of NHE) Annual growth rate of NHE: 3.9%

Source: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html

Clinicians want their patients to receive the best care and outcomes available, and payers want to manage rising costs.

Need to understand how limited resources can be used most efficiently and effectively.

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Page 10: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

II. Why is Pharmacoeconomics Important?

Questions explored by Pharmacoeconomic Analyses: Should a new medication be added to the formulary? Should a new pharmacy service be implemented? How do the different medications impact a patient’s health-related

quality of life? Is an immunization or vaccine plan cost beneficial?

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Page 11: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

II. Why is Pharmacoeconomics Important?

Question:

Why do you think that governments in some other countries require pharmacoeconomic analyses of new medications but the US government does not?

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Page 12: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

II. Why is Pharmacoeconomics Important?

Question: Why do you think that governments in some other countries

require pharmacoeconomic analyses of new medications but the US government does not?

Answer: Many other countries provide health care coverage to all its

citizens via a single, centralized, nationalized system funded primarily by the government (taxes). This single payer system has a finite tax revenue and, therefore, an incentive to determine the cost-effectiveness of pharmaceuticals and medical technology for the citizens of its country.

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Page 13: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

III. Relationship of Pharmacoeconomics to Other Research

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Page 14: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

14

Methodology Cost Measurement Unit

Outcome Measurement Unit

Cost-Minimization Analysis (CMA) Dollars or Monetary Units Assumed to be equivalent in comparable groups

Cost-Effectiveness Analysis (CEA) Dollars or Monetary Units Natural units (life years gained, mm Hg blood pressure, mMol/L blood glucose)

Cost-Utility Analysis (CUA) Dollars or Monetary Units Quality-adjusted life year (QALY) or other utilities

Cost-Benefit Analysis (CBA) Dollars or Monetary Units Dollars or monetary units

Rascati, 2009

Page 15: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

A. Cost-Minimization Analysis (CMA)

15

Dollars or Monetary Units Assumed to be equivalent in comparable groups

Definition Sample Problem

Common Applications

Advantages and

Disadvantages

Page 16: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

Cost-Minimization Analysis (CMA) PE analysis where outcomes of two or more interventions are

assumed to be equivalent Thus, only costs of intervention are compared

Objective: choose the least costly alternative

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IV. Types of Pharmacoeconomic Studies

A. Cost-Minimization Analysis (CMA)

Page 17: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

Example Problem: Administration of prostaglandin E2 gel intracervically to expectant mothers on the day before labor was to be induced.

Outpatient Group: administer medication monitor 2 hours send home overnight admit next day induce labor

Inpatient Group: administer medication monitor 2 hours send to maternity unit for the night induce labor

Would you recommend the outpatient program?

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Type of Cost Costs for Outpatients(n = 40)

Mean (SD)

Costs for Inpatients(n = 36)

Mean (SD)

Statistical Difference

Labor cost $575 ($366) $902 (482) Yes (p = 0.002)

Delivery cost $471 ($247) $453 ($236) No (p = 0.754)

Pharmacy cost $150 ($102) $175 ($139) No (p = 0.084)

Hospital Costs $3835 ($2172) $5049 ($2060) Yes (p = 0.015)

Farmer KC, Schwartz III WJ, Rayburn WF, Turnbull G. A cost-minimization analysis of intracervical prostaglandin for cervical ripening in an outpatient versus inpatient setting. Clin Ther. 1996;18(4):747-756 .; as reported in Rascati, 2009

IV. Types of Pharmacoeconomic Studies

A. Cost-Minimization Analysis (CMA)

Page 18: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

Common Applications Common CMA application:

Cost comparison of two generic medications rated as equivalent by FDA

Cost comparison of same drug therapy in different settings Not appropriate for comparing different classes of medications

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IV. Types of Pharmacoeconomic Studies

A. Cost-Minimization Analysis (CMA)

Page 19: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

Advantages and Disadvantages Advantage: simplest analysis to conduct Disadvantage: cannot be used when outcomes of each

intervention are different

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IV. Types of Pharmacoeconomic Studies

A. Cost-Minimization Analysis (CMA)

Page 20: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

B. Cost-Effectiveness Analysis (CEA)

20

Dollars or Monetary Units Natural units (life years gained, mm Hg blood pressure, mmol/L

blood glucose)

Definition Sample Problem

Common Applications

Advantages and

DisadvantagesExercise

Page 21: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

B. Cost-Effectiveness Analysis (CEA)

Cost-Effectiveness Analysis PE analysis where outcomes are measured in natural or

clinical units CEA is most common type of PE analysis

Two methods of reporting cost-effectiveness: Average Cost-Effectiveness Ratio (CER) =

Cost of Intervention

Effectiveness of Intervention Incremental Cost-Effectiveness Ratio (ICER) =

Cost of Intervention B – Cost of Intervention A

Effectiveness of Intervention B – Effectiveness of Intervention A

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Page 22: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

B. Cost-Effectiveness Analysis (CEA)

Example Problem: In 2006, a federal vaccine advisory panel recommended that 11- and 12-year-old girls receive the human papillomavirus (HPV) vaccine designed to protect against cervical cancer.

Would you recommend the new HPV vaccine program?

Would you recommend the new HPV vaccine program?

22

Adapted from Goldie SJ, Kohli M, Grima D, Weinstein MC, Wright TC, Bosch FX, et al. Projected Clinical Benefits and Cost-effectiveness of a Human Papillomavirus 16/18 Vaccine. J Natl Cancer Inst. 2004;96(8):604-615; as reported in Arnold, 2010

A. Current Screening Program Only(“PAP test”)

B. HPV Vaccine at 90% Efficacy + Screening Program

Total Lifetime Costs $1111 $1400

Women avoiding cervical cancer during lifetime due to intervention

2.78% 3.28%

Average Cost-Effectiveness Ratio (Cost / Effectiveness)

$1111 / 0.0278= $39,964 per case of cancer prevented

$1400 / 0.0328= $42,683 per case of cancer prevented

IncrementalCost-Effectiveness Ratio(Δ Costs / Δ Effectiveness)

($1400 - $1111) / (0.0328 – 0.0278)= $289 / 0.0050

= $57,800 per additional case of cancer prevented

Page 23: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

B. Cost-Effectiveness Analysis (CEA)

Common Applications Common CEA application: medications with the same type of

primary outcomes, and most often for treatment of the same types of health condition

CEA is only performed when the outcome of one intervention is both better than another AND the cost is greater.

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Page 24: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

B. Cost-Effectiveness Analysis (CEA)

Advantages and Disadvantages Advantages:

Health units are common outcomes routinely measured in clinical trials – familiar to clinicians

Outcomes are easier to quantify than CUA or CBA Disadvantages:

Interventions with different types of outcomes cannot be compared Can’t combine more than one important outcome Difficult to collapse both the effectiveness and the side effects into

one unit of measurement CEA estimates extra cost associated with each additional unit of

outcome, but who is to say that added cost is worth added outcomes? Requires judgment call.

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Page 25: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

B. Cost-Effectiveness Analysis (CEA)

CEA Exercise: Treating stomach ulcer symptoms.

Given the costs and outcomes below, calculate:

1. The Average Cost-Effectiveness Ratios for each drug.

2. The Incremental Cost-Effectiveness Ratio for Drug B vs. Drug A.

How do you interpret the CER and ICER?

Can you tell which drug is most cost-effective?

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Drug A Drug B

Cost $210 per year $530 per year

Outcome: GI SFD 200 SFD 250 SFD

Average Cost-Effectiveness Ratio (CER)

? ?

Incremental Cost-Effectiveness Ratio (ICER)

?

GI SFD = Gastrointestinal Symptom-Free Day

Page 26: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

B. Cost-Effectiveness Analysis (CEA)

Answers to CEA Exercise: Treating stomach ulcer symptoms.

26

Drug A Drug B

Cost $210 per year $530 per year

Outcome: GI SFD 200 250

Average Cost-Effectiveness Ratio (CER)

$210/200 SFD =$1.05 per SFD

$530/250 SFD = $2.12 per SFD

Incremental Cost-Effectiveness Ratio (ICER)

($530-$210) / (250 SFD – 200 SFD) =$6.40 per extra GI SFD

GI SFD – Gastrointestinal Symptom Free Day

The Average CER of Drug B is approximately double that of Drug A ($2.12 vs. $1.05 per GI symptom-free day). The Incremental CER tells us that if we treat an average patient with Drug B instead of Drug A, that patient will have an additional 50 SFDs at a cost of $6.40 for each of those 50 days. It’s hard to say with this information alone if $6.40 per extra GI symptom-free day is reasonable.

Page 27: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

C. Cost-Utility Analysis (CUA)

27

Dollars or Monetary Units Quality-adjusted life year (QALY) or other utilities

Definition Sample Problem

Common Applications

Advantages and

DisadvantagesQuestion

Page 28: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

C. Cost-Utility Analysis (CUA)

Cost-Utility Analysis (CUA) A PE analysis which measures outcomes based on years of life that are

adjusted by “utility” weights (patient preferences); range [0, 1] Most common utility is the Quality-Adjusted Life Year (QALY)

1.0 QALY = 1 year of life in perfect health 0.0 QALY = death 0.0 < QALY < 1.0: a year when health is diminished by disease or treatment

Quality Adjusted Life Years (QALYs) weight the life years remaining by the utility weight (QALY)

Ex: 4 years of life post cancer treatment at 0.6 utility wt = 2.4 QALYs Average vs. Incremental Cost per QALY: (similar to CEA):

Average Cost per QALY = Incremental Cost per QALY = Cost of Intervention Cost of Intervention B – Cost of Intervention

A QALYs of Intervention QALYs of Intervention B – QALYs of

Intervention A

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Page 29: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

C. Cost-Utility Analysis (CUA)

Example Problem 1Human papillomavirus (HPV) vaccine +screening vs. screening only.

Would you recommend the new HPV vaccine program?

Would you recommend the new HPV vaccine program?

29

Adapted from Goldie SJ, Kohli M, Grima D, Weinstein MC, Wright TC, Bosch FX, et al. Projected Clinical Benefits and Cost-effectiveness of a Human Papillomavirus 16/18 Vaccine. J Natl Cancer Inst. 2004;96(8):604-615; as reported in Arnold, 2010

A. Current Screening Program Only(“PAP test”)

B. HPV Vaccine at 90% Efficacy + Screening

Total Lifetime Costs $1111 $1400

Quality-Adjusted Life Expectancy 25.9815 QALYs 25.9934 QALYs

Average Cost-Utility Ratio (Cost / QALYs)

$1111 / x 25.9815 QALYs= $42.76 per QALY

$1400 / 25.9934 QALYs= $53.86 per QALY

IncrementalCost-Utility Ratio(Δ Costs / Δ QALYs)

($1400 - $1111) / (25.9934 – 25.9815)= $289 / 0.0119

= $24,286 per additional QALY

Page 30: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

C. Cost-Utility Analysis (CUA)

Example Problem 2Dabigatran 150 mg twice daily vs. warfarin for stroke prophylaxis in 70-year-old patients with atrial fibrillation.

Would you recommend dabigatran over warfarin?

Would you recommend dabigatran over warfarin?

30

Adapted from Shah S, Gage B. Cost-effectiveness of dabigatran for stroke prophylaxis in atrial fibrillation. Circulation 2011;123(22):2562-70.

A. Warfarin B. Dabigatran

Total Costs $23,000 $43,700

Quality-Adjusted Life Expectancy 8.40 QALYs 8.65 QALYs

Average Cost-Utility Ratio (Cost / QALYs)

$23,000 / 8.4 QALYs= $2738 per QALY

$43,700 / 8.65 QALYs= $5052 per QALY

IncrementalCost-Utility Ratio(Δ Costs / Δ QALYs)

($43,700 - $23,000) / (8.65 – 8.40)= $20,700 / 0.25

= $82,800 per additional QALY

Page 31: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

C. Cost-Utility Analysis (CUA)

Common Applications CUA is useful when utility adjustments are needed,

such as when: Length of life (quantity) and quality of life are different Length of life (quantity) is unaffected and quality of life is

different Outcomes are very different

CUA is not warranted when: Number of life years saved (quantity) is different but quality of

each year of life is very similar

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Page 32: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

C. Cost-Utility Analysis (CUA)

Advantages and Disadvantages Advantages:

Can incorporate both morbidity and mortality Can compare multiple programs with either similar or unrelated

outcomes (anticoagulation and diabetes clinics) Can use a threshold or cutoff cost per QALY (such as $50,000) and

decide somewhat objectively if an intervention is cost effective Main disadvantages:

No consensus on calculating utility weights Utility weights are “rough estimates” Many clinicians are not familiar with QALYs

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Page 33: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

C. Cost-Utility Analysis (CUA)

Question:

Do negative QALYs make sense?

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Page 34: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

C. Cost-Utility Analysis (CUA)

Question:

Do negative QALYs make sense?

Answer: Some researchers point out that there are disease states

worse than death – such as living in uncontrollable, excruciating pain, or living in a coma – so negative QALYs may be needed to depict these values. Whether or not negative QALYs make sense is debatable.

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Page 35: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

D. Cost-Benefit Analysis (CBA)

35

Dollars or Monetary Units Dollars or Monetary Units

Definition Sample Problem

Common Applications

Advantages and

DisadvantagesExercise

Page 36: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

D. Cost-Benefit Analysis (CBA)

Cost-Benefit Analysis (CBA) A PE analysis in which both costs and benefits are valued in

monetary units The results of a CBA can be presented in several formats:

1. Net Benefit = Total Benefits – Total CostsCost beneficial if Net Benefit > 0

2. Benefit-to-Cost Ratio = Total Benefits / Total CostsCost beneficial if Benefit-to-Cost > 1

3. Internal Rate of Return (IRR) = The rate of return that equates the present value of benefits to the present value of costs

4. Break-Even Point = The time required to recoup the investment

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Page 37: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

D. Cost-Benefit Analysis (CBA)

Example problem: Implementation of a pharmacy bar-code system to reduce medication dispensing errors.

Was the bar-code system a good financial decision?

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5-year time horizon Pharmacy Bar-Code System

Total (Incremental) Costs $2.24 million

Total (Incremental) Benefits $5.73 million

Net-Benefit = Total Benefits – Total Costs

$5.73 million - $2.24 million =$3.40 million

Benefit to Cost Ratio = Total Benefits / Total Costs

$5.73 million / $2.24 million =2.56

Adapted from Saverio M, et al. Cost-Benefit Analysis of a Hospital Pharmacy Bar Code Solution. Arch Intern Med. Apr 23, 2007;167(8):788-94.

Internal Rate of Return104% annualized return on investment

Break-Even PointWithin the first year of operation

Page 38: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

D. Cost-Benefit Analysis (CBA)

Common Applications CBA is most useful when

Analyzing a single intervention to determine whether its total benefits exceed the costs, or

Comparing alternative interventions to see which one achieves the greatest benefit.

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Page 39: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

D. Cost-Benefit Analysis (CBA)

Advantages and Disadvantages Major advantages:

Can determine if benefits exceed costs of program – less subjective than CEA or CUA

Can compare multiple programs with either similar or unrelated outcomes (anticoagulation and diabetes clinics)

Disadvantage: Difficult to place a monetary value on health outcomes

Different methods of doing so may elicit different estimates

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Page 40: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

D. Cost-Benefit Analysis (CBA)

CBA Exercise: Determine whether an asthma clinic or coagulation clinic is more cost-beneficial.Calculate the Net-Benefit and the Benefit-to-Cost Ratio for each program.

Which clinic is a better financial decision?

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Asthma Clinic Coagulation Clinic

Total Costs $20,000 $50,000

Total Benefits $40,000 $75,000

Net Benefit = Total Benefits – Total Costs

? ?

Benefit-to-Cost Ratio = Total Benefits / Total Costs

? ?

Saverio M, et al. Cost-Benefit Analysis of a Hospital Pharmacy Bar Code Solution. Arch Intern Med. Apr 23;167(8):788-94.

Page 41: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

D. Cost-Benefit Analysis (CBA)

Answers to CBA Exercise: Asthma clinic vs. Coagulation clinic.

Both clinics are cost beneficial, but it’s not clear which is a better investment. The coagulation clinic has a better net benefit value ($25,000 vs. $20,000), but the asthma clinic has a better benefit-to-cost ratio (2.0 vs. 1.5). There are several additional factors the decision makers may want consider.

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Asthma Clinic Coagulation Clinic

Total Costs $20,000 $50,000

Total Benefits $40,000 $75,000

Net Benefit = Total Benefits – Total Costs

$40,000 - $20,000 =$20,000

$75,000 - $50,000 =$25,000

Benefit-to-Cost Ratio = Total Benefits / Total Costs

$40,000 / $20,000 =2.0

$75,000 / $50,000 =1.5

Saverio M, et al. Cost-Benefit Analysis of a Hospital Pharmacy Bar Code Solution. Arch Intern Med. Apr 23;167(8):788-94.

Page 42: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

IV. Types of Pharmacoeconomic Studies

E. Other Types of Analyses

More than one type of analysis in a single study e.g., CEA and CUA, or CEA and CBA

Cost-Consequence Analysis (CCA) List of costs and list of various outcomes presented No direct calculations or comparisons of costs and outcomes

Cost-of-Illness (COI) Analysis or Burden of Illness Estimate Total economic burden of a particular disease on society

Includes cost of prevention, treatment, losses caused by morbidity and mortality, etc.

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Page 43: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

V. Essential Elements of a Pharmacoeconomics StudyA. 2+ Pharmaceutical Interventions

B. Incremental Analysis of Costs and Outcomes

C. Perspective: Societal, Payer, or Patient?

D. Discounting of Costs and Benefits

E. Sensitivity Analysis

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Page 44: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

V. Essential Elements of a Pharmacoeconomics StudyA. 2+ Pharmaceutical Alternatives

All clinically relevant alternatives should considered, including a “do nothing” alternative, if appropriate

All relevant costs and consequences/outcomes should be carefully determined and included

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Page 45: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

V. Essential Elements of a Pharmacoeconomics StudyB. Incremental Analysis of Costs and Outcomes

For CEA and CUA, present both Average cost analysis of each alternative

Cost Effectiveness Ratio Cost Utility Ratio

Incremental cost analysis of one alternative over another Incremental Cost Effectiveness Ratio Incremental Cost Utility Ratio

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Page 46: Introduction to Pharmacoeconomics Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine Material in

V. Essential Elements of a Pharmacoeconomics Study

C. Perspective – economic term that describes whose costs are relevant (being measured) based on the purpose of the study

Societal Perspective – measuring all costs to all sectors, Payer Perspective – measuring costs to Medicaid, Medicare,

private insurance plan, patient, or combination of these Institution or Provider Perspective – measuring costs to

hospital/clinic/physician practice/ pharmacy/etc.

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Essential Elements of a Pharmacoeconomics StudyD. Discounting of Costs and Benefits – a method used to adjust future costs and benefits to their present market value. If performing a retrospective study (i.e., looking at past

costs), bring past costs to the present Use a discount rate, typically between 3% and 5% Discounting can also apply to outcomes

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V. Essential Elements of a Pharmacoeconomics StudyE. Sensitivity Analysis – determine how the results of

an analysis would change when “best guesses,” or assumptions, are varied over a range of values Analysis is repeated with high and low estimates of costs and

outcomes to determine range of answers Results are insensitive when results do not change over entire

range Strengthens confidence in study results

Results are sensitive when results vary depending on the range of a variable Weakens confidence in study results

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Review Questions

Identify which type(s) of PE analyses could be performed for each scenario (CMA, CEA, CUA, and/or CBA):

1. A comparison of Emend™ administered orally vs. intravenously to treat chemotherapy-induced nausea and vomiting. Both formulations have shown similar efficacy. The IV drug is less expensive but often has additional administration costs due to an occasional infusion sight reaction.

2. A comparison of two opioids for the treatment of chronic pain, one is more effective at controlling pain but often requires medication to treat the side effect of constipation.

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Review Questions

1. A comparison of Emend™ administered orally vs. intravenously to treat chemotherapy-induced nausea and vomiting. Both formulations have shown similar efficacy. The IV drug is less expensive but often has additional administration costs due to an occasional infusion sight reaction.

Answer: Cost-Minimization Analysis (CMA).

The outcomes of each treatment are equivalent (both treat chemotherapy-induced nausea and vomiting equally well), but the alternatives have different costs. The costs differ in both drug cost and in the cost to treat the infusion sight reaction.

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Review Questions

2. A comparison of two opioids for the treatment of chronic pain, one is more effective at controlling pain but often requires medication to treat the side effect of constipation.

Best Answer: Cost-Utility Analysis (CUA) [Cost-Effectiveness Analysis (CEA) or Cost-Benefit Analysis (CBA) also possible answers]. The outcomes of each treatment are different (each provide different levels of pain relief), so CMA is not appropriate. The costs would include the cost of the opioid and the cost of the constipation therapy. The type of PE study performed depends upon the type of outcome measured.

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Summary

Pharmacoeconomics measures and compares the costs and consequences of pharmaceutical products and services

Pharmacoeconomics helps balance the desire of clinicians and patients to deliver/receive the best care and outcomes available, and payers to manage rising costs.

Four basic types of pharmacoeconomic studies, based on how outcomes are measured: Cost-minimization analysis (CMA) Cost-effectiveness analysis (CEA) Cost-utility analysis (CUA) Cost-benefit analysis (CBA)

Incremental cost effectiveness ratio provides the additional cost per unit of added benefit of one intervention over another

Quality-adjusted life year (QALY) is an outcome which combines life years gained and patient preferences for various health states

Economic analyses are but one part of the decision-making process

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Examples of Published Studies

Attached to this presentation are the published studies used in this lesson to demonstrate the various types of pharmacoeconomic studies. These studies are NOT required reading. I have included them for your reference and so that you may see the complexity and level of detail that is typically involved in a well conducted study.

CMA: Farmer KC, Schwartz III WJ, Rayburn WF, Turnbull G. A cost-minimization analysis of intracervical prostaglandin for cervical ripening in an outpatient versus inpatient setting. Clin Ther. 1996;18(4):747-756.

CEA (also a CUA): Goldie SJ, Kohli M, Grima D, Weinstein MC, Wright TC, Bosch FX, et al. Projected Clinical Benefits and Cost-effectiveness of a Human Papillomavirus 16/18 Vaccine. J Natl Cancer Inst. 2004;96(8):604-615.

CUA (also a CEA): Shah S, Gage B. Cost-effectiveness of dabigatran for stroke prophylaxis in atrial fibrillation. Circulation 2011;123(22):2562-70.

CBA: Saverio M, et al. Cost-Benefit Analysis of a Hospital Pharmacy Bar Code Solution. Arch Intern Med. Apr 23, 2007;167(8):788-94

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References

Berger ML, Bingefors K, Hedblom EC, Pashos CL, Torrance GW (editors), Dix Smith (managing editor). Health Care Cost, Quality, and Outcomes. International Society for Pharmacoeconomics and Outcomes Research, 2003.

Drummond MF, Sculpher MJ, Torrance GW, O’Brien BJ, Stoddart, GL. Methods for the Economic Evaluation of Health Care Programmes (3rd ed.). Oxford: Oxford University Press, 2005.

Goldberg Arnold, RJ. Introduction to Pharmacoeconomics, ISPOR Distance Learning Program, 2009.

Rascati, KL. Essentials of Pharmacoeconomics, Baltimore: Lippincott Williams & Williams, 2009.

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