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Pharmacoeconomics and
Management in Pharmacy VII
2013 [UNIT PH 3340] 1
[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]
2013 [UNIT PH 3340] 2
News review
[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]
J. Vella [PH 3340]
Comparative salaries
3
J. Vella [PH 3340]
Discussion
• Malta has the second lowest tax rate of 18%
• Cyprus is last with 12% (it is now broke)
• An Italian has a higher average gross wage
• €28,230 as opposed to €21,446, but €12,521 as
compared to €3,860
• Highest minimum wage in Luxembourg, lowest in
Bulgaria
4
J. Vella [PH 3340]
Discussion
• COL varies from country to country
• Take-home is more important than gross
remuneration
• The figures are skewed due to higher earning
directors and self-employed owner/directors
• A median figure would have been more
appropriate
5
J. Vella [PH 3340]
Countrywide figures
6
J. Vella [PH 3340]
More notes
• Average drops when one considers the public
sector
• Worst off are construction sector employees at
€12,665
• Best paid are financial services employees at
€18,159
• Pharmacists seem to be well remunerated at
around €24-25,000
7
J. Vella [PH 3340]
Concierge medicine?!
8
J. Vella [PH 3340]
Perverse resource allocation?
• Is the pool of doctors available to the man in the
street being reduced?
• Or is the number of patients turning to mass
service hospitals thus diminished and increasing
access to less wealthy individuals?
• An issue in the US where primary care doctors are
at a premium
9
J. Vella [PH 3340]
Shortage of GPs
10
J. Vella [PH 3340]
Physicians per 100,000 pop.
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J. Vella [PH 3340]
Money is the cause
• Recent studies calculate a shortage of 50,000
primary care physicians in the US in the next
decade
• Specialisation is more lucrative and less
demanding
• Reimbursement is the issue
• 60% of primary care activities are not reimbursed
12
J. Vella [PH 3340]
Local situation
• Retention rate in Malta has improved with the
renegotiation of doctors’ remuneration
• This has led to improved staffing and patient
access to primary care
13
J. Vella [PH 3340]
Morally unacceptable!
14
J. Vella [PH 3340]
Unaffordable healthcare
• Initial tests amounted to $ 50,000!
• Adding on preliminary treatment bill went up to $
89,000
• Insurance costing almost $ 500 monthly not
sufficient
• Life-saving treatment beyond the average
individual
15
J. Vella [PH 3340]
Local fears
• Could the advent of private healthcare lead to such
a situation?
• Could the farming out of state procedures to
private hospitals eventually entail payment or an
increase in SSC contributions?
• Private insurance premiums are bound to rise with
an increase in the amount of tests prescribed
16
J. Vella [PH 3340]
Demographics US 1900
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J. Vella [PH 3340]
Demographics US 1995
18
J. Vella [PH 3340]
Paying for organ donation?
19
J. Vella [PH 3340]
Going too far or about time?
• A radical suggestion!
• From a financial aspect, the cost of the kidney
transplant would be balanced out in 18months by a
less costly care regimen for the patient
• Such a step would have to be heavily regulated
and pass through a multitude of legal, moral and
social discussions and consideration
20
J. Vella [PH 3340]
Theory is only a guideline (i)
• A new book published recently, Models behaving
badly (E. Derman) 1
• It puts forward a thesis that is gaining much ground
recently
• Economics is not an exact science and cannot
accurately predict financial markets
• 1 Previously a physicist and financial modeler
21
J. Vella [PH 3340]
Theory is only a guideline (ii)
• The main reason for this is that human nature
plays an important role
• This is a principle that we must take forward into
our daily professional practice and evaluation of
economic situations
22
J. Vella [PH 3340]
Discussion
• It brings us back to the very basic ECHO model for
pharmacoeconomic analyses
• One cannot separate the human element from the
economic and clinical aspects
• After all, the first element is the reason for the
existence of the other two
23
J. Vella [PH 3340]
A different take on the US
24
J. Vella [PH 3340]
Life expectancy is not an accurate
indicator • The US finished at the top of the table, with Japan
in the middle
• Japan leads the life expectancy table
• Thus LE is not always a good surrogate for
healthcare outcomes
• There is a case for measuring outcomes at the
point of intervention
25
J. Vella [PH 3340]
Counterfeit Avastin!
26
J. Vella [PH 3340]
Money talks!
• A worrying article in the Economist
• 19 separate instances of a fake oncological drug in
the United States
• Criminals tend to forge copies of costlier
medication, without regard for the fact that
innocent people might die
27
J. Vella [PH 3340]
But is it really worth it!
• Treatment with Avastin costs around $4,400
monthly ($3.5 billion annual sales globally)
• In a case of emotion trumping reality, further
investigation of the evidence shows us that Avastin
only prolongs life by a few months, and may or
may not offer significant advantages over other
therapies
28
J. Vella [PH 3340]
Difficult situations (i)
• At the same absolute cost a healthcare system
administrator could launch promotional campaigns
against obesity and save countless more lives per
monetary unit
• These are the quandaries that individuals
entrusted with the responsibility of controlling
pharmaceutical resources are faced
29
J. Vella [PH 3340]
Difficult situations (ii)
• In such cases reason and cold numbers should
always hold precedence over emotional, knee-jerk
decisions
• The lack of formal PE evaluation and transparent
procedures is evident locally
30
J. Vella [PH 3340]
Are our beliefs flawed?
31
J. Vella [PH 3340]
Does money or patient welfare
drive healthcare?
32
J. Vella [PH 3340]
Editorial
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J. Vella [PH 3340]
Social conscience or cost-based
rationale to spending? • This editorial makes the point that social welfare
and advancement should be used as a yardstick
for decision-making
• Rather than a set of hard-and-fast cost
effectiveness based algorithms
• What is socially beneficial or not gives rise to the
argument of how to develop indicators to measure
such an impact
34
J. Vella [PH 3340]
The Malta Medicines List (i)
• A useful addition to the e-resources available
• The only easily accessible compendium of locally
available medicine
• No need for a regular purchase of a physical drug
register
• Free of charge
• Updated by the competent authorities and thus
credible and reliable
35
J. Vella [PH 3340]
The Malta Medicines List (ii)
36
J. Vella [PH 3340]
Drawbacks
• No field to reference local distributor
• No hierarchy in the database
• Variants of the same AI are listed as a separate
entry, thus bloating the amount of items in the
initial search field
• Despite the above, an invaluable addition to the
few IT/web-based tools available locally
37
J. Vella [PH 3340]
No public awareness on generics!
38
J. Vella [PH 3340]
The general public is in the dark
• The article states that 85% of people are not aware
of the advantages of generic medicines
• Yet no news of a nationwide campaign to educate
the public!
• The larger originator companies still wield
considerable, and in some cases, undue influence,
to the detriment of the consumer
39
J. Vella [PH 3340]
Conflicting evidence!?
40
J. Vella [PH 3340]
Flawed conclusions?
41
J. Vella [PH 3340]
No more statins for all?
42
J. Vella [PH 3340]
Points about statins
• The current mantra has been to promote statins for
all adults at a risk of CVS, and even as a primary
care strategy to all adults of a certain age
• This study discredits this approach, also citing the
fact that studies supporting statin-led interventions
were funded from within the pharmaceutical
industry
43
J. Vella [PH 3340]
The worth of the statin market
44
2013 [UNIT PH 3340] 45
International price variations
[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]
J. Vella [PH 3340]
Expenditure per capita
46
J. Vella [PH 3340]
Cheaper Europe!
47
J. Vella [PH 3340]
Analysis
• Uniformity across the EU
• Great disparity to the United States
• North Americans accuse Europe of rent seeking or
taking advantage of the R&D funded by higher
prices in the US & Canada
• The reimbursement system incentivises higher
prices and price fixing
48
J. Vella [PH 3340]
Point of argument
• One of the greatest sources of debate in any
country
• Consumers always compare to cheaper countries
or regions and accuse retailers or suppliers of
profiteering
• The real picture is not so clear-cut
• The following slide lists the main reasons for inter-
country pharmaceutical price variation 49
J. Vella [PH 3340]
Main reasons for price differences
International Price Variation
Cost of living (adjusted by PPPs)
Manufacturer Strategy
Insurance payer or state subsidy
Reference pricing
Presence of generic variants
Fixed price control
Monopoly market situation (distribution or retail)
Market throughput volume (purchasing power)
Geographic or logistical factors
50
2013 [UNIT PH 3340] 51
Are innovative medicines
only for the wealthy?
[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]
J. Vella [PH 3340]
The rich live longer!
52
J. Vella [PH 3340]
Discussion
• A higher GDP leads to longer lives
• Are longer lives due to better education and thus
healthier lifestyles and habits
• Or does a wealthier country afford a higher
standard of healthcare and pharmaceutical
expenditure that leads to the prolonging of its
inhabitants existence?
53
J. Vella [PH 3340]
More money, bigger budgets
54
J. Vella [PH 3340]
More money, more drugs
55
J. Vella [PH 3340]
Global inequality
• The majority of pharmaceutical sales are
concentrated in North America, Europe and Japan
• Less developed regions are ignored as they do not
offer the potential for huge profits
• Most R&D is targeted at diseases of the Western
world and Japan, to the detriment of the rest
56
J. Vella [PH 3340]
Levelling the playing field
• Legislation for orphan drugs and neglected
diseases has been introduced, with drug
companies given fast-track approval and tax
credits for investing in such areas
• Deals have been struck, such as forward
purchasing agreements, by GAVI, which enable 3rd
world countries to purchase vaccines at marginal
cost
57
J. Vella [PH 3340] Source: IMS
Worldwide distribution of pharmaceutical
sales 2003
J. Vella [PH 3340] Source: IMS MIDAS, MAT February 2006 (totals do not add due to rounding)
47,0%
30,0%
10,7%
8,2%4,2%
North America (USA,
Canada)
Europe
Japan
Africa, Asia
(excl.Japan) & Austr.
Latin America
Worldwide distribution of pharmaceutical
sales 2005
J. Vella [PH 3340] Source: IMS Health (totals do not add due to rounding)
Worldwide distribution of pharmaceutical
sales 2010
J. Vella [PH 3340]
Patented/generic market shares
J. Vella [PH 3340] 62
Patented/generic market shares
J. Vella [PH 3340]
Pricing of an innovative pharmaceutical
product • Typical pricing strategies for new innovations:
• Market skimming strategy (high initial
prices)Signals market that innovation is significant
and can recoup development expenses (assuming
there’s demand)
• Attracts competitors, may slow adoption
J. Vella [PH 3340]
Pricing of a generic pharmaceutical
product • Generics adopt Penetration Pricing (very low
price or free to gain market share)
• Accelerates adoption, driving up volume
• Requires large production capacity be established
early
• Manufacturing must be efficient as it the resale
price is much closer to the marginal cost of
production
J. Vella [PH 3340]
Average wholesale margins in Europe
J. Vella [PH 3340]
Average retail margins in Europe
J. Vella [PH 3340]
VAT Rates on medicine
J. Vella [PH 3340]
Generic penetration 24-months post expiry
2013 [UNIT PH 3340] 69
Value Based Healthcare
[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]
J. Vella [PH 3340]
Value Based Healthcare
• This is a conceptual framework of thought That has
been dealt with in depth by Dr. Michael Porter of
Harvard Business School
• His initial work was on competition, clusters and
the competitive advantages of nations
• His latest labors have been devoted to the
insoluble quandary that is the United States
healthcare system
70
J. Vella [PH 3340]
Why bother?
• The perversity of the situations that what I am
teaching today is the past not the future
• Presently we are adopting a silo mentality to
treatment budgeting and costing
• The cost of a treatment intervention or a
pharmaceutical cycle is based on a narrow Cost
Effectiveness Evaluation or a Cost Minimisation
Analysis
71
J. Vella [PH 3340]
Inverse incentives
• Economics is all about incentives
• Individuals or organisations tend to act in the
manner that profits them the most
• Rewards are directed towards providers or
administrators that supply treatment at a lower cost
• This has led to a situation ideal for zero sum
competition
72
J. Vella [PH 3340]
Zero sum competition
• In zero sum competition, service providers
compete on a narrow range of determinants and
erode each other's positions by abrasive
competition on price and service levels
• The end consumer, in this case the patient, is not
better off, the quality of the care provided is the
same, at best, if not decreased
73
J. Vella [PH 3340]
Positive sum competition
• In positive sum competition, various service
providers compete on the quality weighted
outcomes of their product, with better health
outcomes for patients being incentivised
• Instead of prizing the provision of cheaper health
services, we must reward healthcare plans
providers that produce healthier patients and
citizens
74
J. Vella [PH 3340]
Refocus
• In an effort to more efficient in the economic sense,
we have lost track of the aim!
• The centre of all healthcare is the patient, and yet
he/she does not figure in the evaluation of
treatment interventions
• The key of value driven care is to crystallise the
concept of a better outcome as opposed to a
cheaper one 75
J. Vella [PH 3340]
Simple!
• A healthy patient is an inherently cheaper one
• Simple thoughts, but very difficult to breakdown
into policy and process frameworks
• This is the next challenge for health and
pharmacoeconomics
76
J. Vella [PH 3340]
A pervasive mentality
• This type of radical paradigm shift can only take
place if various conditions are in place
• Opposition to change is always encountered, with
fear and vested interests the main contrary factors
• Unless the health professionals entrusted
introduce a sense of change and a ‘can do’
approach, then the status quo will persist
77
J. Vella [PH 3340]
Requirements for change Factors required
Political will and consensus on all sides, to enable legislation to be approved and stable
Public backing, obtained by the right educational approach and sub-population targeting
Well mapped process implementation and modelling, followed by the appropriate dry-runs and pilot
systems
Full scale involvement for the health professionals running the day-to-day processes, to enable practicality
and ease of use
Intensive training for all health professionals involved
Wholesale utilisation of IT systems available to eliminate or reduce fragmentation of data and the time
required to enter, process and retrieve it 78
J. Vella [PH 3340]
Variations on PE
• The US and the UK have been working on
adaptions of their current systems of apportioning
healthcare resources
• In the US the PCORI1 has been set up to
supersede traditional methods of distribution, and
the UK VBP2 is being discussed, prior to
introduction in 2013
1Patient-Centred Outcomes Research Institute
2 Value Based Pricing
79
J. Vella [PH 3340]
PCORI
• The establishment of PCORI limits formal
measures such as the cost per QALY metric
• A broad set of criteria, including ‘impact on national
expenditures’
• The NCCN1 is piloting a CTI2 categorising products
as preferred, appropriate or acceptable
1National Comprehensive Cancer Network
2Comparative Therapeutic Index 80
J. Vella [PH 3340]
Reaction
• The private sector is moving in response
• HMO’s are reacting by re-arranging their tiered
formularies to reflect the effectiveness and impact
of a pharmaceutical
• This behaviour, in the long term, could lead to a
better correlation between the cost and effect of a
medicine
81
J. Vella [PH 3340]
UK – Value Based Pricing
• The UK has utilised as system of price control for
branded medicines known as the PPRS1 since
1957
• This is to be replaced by a system called VBP
• Concerns are being voiced that if pricing is linked
to a system of indexing, R&D will be curtailed – 1 Pharmaceutical Price Regulation Scheme
82
J. Vella [PH 3340]
Not all agree!
83
J. Vella [PH 3340]
VBP (ii)
• The government, on the other hand wants to
ensure that new and innovative drugs are
accessible to all, and not just the wealthy or the
ones selected through a healthcare lottery
• Such as system would reward breakthrough drugs
and put less emphasis on product-line extensions
and me-too drugs
84
J. Vella [PH 3340]
The QALY again!
• The QALY is being mooted as a measure for the
establishment of the relative efficacy and pricing of
a pharmaceutical intervention
• The QALY is utilised in PE evaluations world-wide
• Its present application is limited in scope, and
subject to the criticism that it is not flexible enough
to accommodate all illnesses
85
J. Vella [PH 3340]
A compromise?
• The British proposition is to create thresholds for
different ranges of diseases and provide for
flexibility and societal relevancies
• With greater weighting given to medicines with a
higher social benefit it is anticipated that R&D in
the UK will move to increase investment in the
same areas1
1 4 billion sterling at last estimation
86
J. Vella [PH 3340]
Time for action!
• More investment is required locally to establish a
unit specifically entrusted with collecting, collating
and analysing data regarding pharmaceutical
healthcare expenditure
• Only when this is up and running can we take
stock of the current situation and create solutions
and alternatives to the status quo
87
2013 [UNIT PH 3340] 88
Discussion time
[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]
J. Vella [PH 3340]
Discussion points
• Why did you become a pharmacist?
• What would you consider the role of a pharmacist
• What would you consider the best segment of
pharmacy that you would practice so far?
• Would you choose the same course again?
• Do you think that pharmaco/health economics is
relevant to the profession?
89
J. Vella [PH 3340]
Discussion points
• Should wealthy people pay more SSC and tax to
fund care for poorer citizens?
• Or should bigger contributors obtain better care in
view of their investment?
• Are SSC and taxes a social equaliser or simply a
means of investing for the future?
• Should social and healthcare equity be a primary
aim in healthcare system administration?
90
J. Vella [PH 3340]
Practice morals?
• Where does a pharmacist’s loyalty lie?
• Is the well-being of the patient the prime factor or
does the advancement of financial aims (self-
employed or not) take precedence?
• Walking a tightrope
• One can make a living and at the same time be
morally justified and correct
91