Drug and Therapeutics Committee Session 6. Evaluating the Cost of Pharmaceuticals

Introduction Adding medicines to the formulary involves careful consideration of— Efficacy Safety Quality Cost Cost factors are becoming more important Science of pharmacoeconomics is emerging

Objectives Define and understand the different types of cost analysis methods relevant to choosing medicines for the formulary Understand how to read and assess journal articles concerning an economic study Apply session materials to conduct a basic cost analysis for a medicine being requested for the formulary

Outline Introduction Key Definitions Cost-Evaluation Methods Cost-Minimization Analysis Cost-Effectiveness Analysis Evaluating Pharmacoeconomic Studies Activities Summary

Key Definitions (1) Pharmacoeconomics—the description and analysis of the cost of pharmaceutical therapy to health care systems Cost—the total resources consumed in producing a good or service Price—the amount of money required to purchase an item

Key Definitions (2) Medicine effectiveness—the effects of a medicine when used in real-life situations Medicine efficacy—the effects of a medicine under clinical trial conditions

Direct Costs of a Medicine Acquisition cost Transportation cost Supply management cost (i.e., storage facility cost) Cost of supplies and equipment to administer medicines, such as syringes and needles Personnel costs to prepare and administer such as physicians, pharmacists, and nurses Other direct costs (e.g., ADRs, hospital room charges, laboratory fees) Nonmedical cost (e.g., patient travel expenses)

Indirect Costs of a Medicine Indirect costs—examples Cost of illness to the patient Lost time from work Time required to care for somebody Intangible costs Costs associated with pain and suffering usually incorporated into utilities assigned to health states which reflect quality of life

Cost-Minimization Analysis Of two medicines with equal effectiveness, which is the least expensive? Most used cost-evaluation method Most accurate method when comparing cost between two therapeutically equivalent medicines

Cost-Minimization Analysis: Process Obtain acquisition price for each medicine and calculate the price for the course of treatment to be compared—dose per day, number of days of treatment. Calculate pharmacy, nursing, and physician costs associated with the use of each medicine. Calculate equipment cost associated with each medicine. Calculate laboratory cost associated with each medicine. Calculate cost of any other significant factor. Calculate and compare total medicine costs for each medicine.

Cost-Minimization Analysis: Example 1 Category Medicine A Medicine B Acquisition price USD* 8.00 USD15.00 Pharmacist salary 2.50 1.50 Nursing salary 2.50 2.00 Supplies 9.00 2.25 Laboratory services 4.00 1.00 Total USD 26.00 USD 21.75 *USD refers to U.S. dollar

Cost-Minimization Analysis: Example 2 Cost Categories Ampicillin Ceftriaxone Gentamicin (500 mg) (1 g) (80 mg) Acquisition price for one vial USD1.00 USD 8.00 USD 2.00 Doses per day 4 1 3 Price per day USD 4.00 USD 8.00 USD 6.00 Nursing salary at USD 0.75 per injection USD 3.00 USD 0.75 USD 2.25 Equipment: IV set at USD 1.00/set — USD 1.00 — _ Syringe/needle 0.50/set USD 2.00 — USD1.50 Laboratory tests USD 2.00 USD 2.00 USD 4.00 Total medicine costs/day USD 11.0 USD 11.75 USD 13.75 3,000 treatment-days/year 3,000 days 3,000 days 3,000 days Total medicine costs USD 33,000 USD 35,250 USD 41,250

Cost-Effectiveness Analysis (CEA) Of two medicines, A and B, with different effectiveness, what is the cost per patient cured for medicine A versus medicine B? Used to compare two or more medicines which are not therapeutically equivalent Effectiveness of therapy according to predetermined therapeutic measure, for example— Patients cured Deaths averted; years of life saved Decreased blood pressure or glycosylated hemoglobin

CEA: Steps Define objectives—which medicine regimen is preferred to achieve the desired clinical outcome (e.g., cure)? List the different options (medicines and other treatments) to achieve the desired clinical outcome. Identify and measure for each option: (1) cost and (2) clinical outcome. Calculate the incremental cost-effectiveness ratio. Perform sensitivity analyses. Adjust cost of variables and re-analyze to confirm or refute results.

Incremental Cost-Effectiveness Ratio (Net costs treatment A – Net costs treatment B) ÷ (Net effects treatment A – Net effects treatment B) = Additional cost per additional benefit

Example of CEA: Medicine Costs Cost/unit (USD)* No. of units patients Total cost (USD) Medicine A Medicine cost 40 12 100 48,000 Lab cost 20 1 2,000 Adverse event 50 2 10,000 Physician 25 5,000 Total 65,000 Medicine B 30,000 4,000 3 15,000 7,500 56,500 *USD equals U.S. dollar

Example of CEA: Benefits Effectiveness Medicine A Medicine B 25/100 patients 19/100 patients Clinical outcome: number of patients with ≥ 1% decrease in glycosylated hemoglobin over one year

Example of CEA: Incremental Cost-Effectiveness Comparison between medicines A and B for 100 patients for 1 year Medicine A Medicine B Net costs USD* 65,000 56,500 Effectiveness No. patients with ≥ 1% decrease in glycosylated hemoglobin 25 19 Incremental Cost Effectiveness Ratio = (65,000-56,500)/(25-19) = USD1,416.67 per extra patient with ≥ 1% decrease in glycosylated hemoglobin.

CEA of Two Thrombolytics in Acute Myocardial Infarction (MI) in Australia (1) Cost of treatment and mortality rates Usual care (UC) of MI: 3.5 million Australia dollars (AUD)/1,000 cases, 120 die UC+ Streptokinase (SK): AUD 3.7 million /1,000 cases, 90 die UC + tissue plasminogen activator (tPA): AUD 5.5 million /1,000 cases, 80 die Source: Australian Prescriber, 1996, 19(2): 52–54.

CEA of Two Thrombolytics in Acute MI in Australia (2)

CEA of Two Thrombolytics in Acute MI in Australia (3) 2. Difference between UC + tPA and UC of MI: Cost of treatment = AUD 5.5 – 3.5 million/1,000 cases = AUD 2.0 million/1,000 cases = AUD 2,000/case Number of deaths prevented = 120 80 = 40 deaths/1,000 cases treated Incremental cost effectiveness of tPA vs. UC = AUD 2.0 million/40 lives = AUD 50,000/life saved

CEA of Two Thrombolytics in Acute MI in Australia (4) 3. Difference between tPA and SK treatments for MI: Cost of treatment = AUD 2.0 - 0.2 million/1000 cases = AUD 1.8 million/1000 cases = AUD 1,800/case No. of deaths prevented = 90 - 80 = 10 deaths/1,000 cases treated Extra cost effectiveness of tPA over SK = AUD 1.8 million/10 lives = AUD 180,000/life saved

CEA of Two Thrombolytics in Acute MI in Australia (5)

CEA of Two Thrombolytics in Acute MI in Australia (6)

Other Controversial Cost Analyses Cost-Utility Analysis—a type of cost-effectiveness analysis in which the desired clinical outcome or benefit is measured in utilities, for example, in quality-adjusted life years (QALYs) and disability-adjusted life years (DALYs) Cost-Benefit Analysis—a comparison of the costs and benefits of an intervention by translating the health benefits into a monetary value, so that both the costs and benefits are measured in the same monetary unit

Sensitivity Testing

Discounting Used in cost evaluations to account for a future cost of a benefit from the medicine (or intervention) Method to account for effects of the medicine (or intervention) over prolonged periods of time (because of the effects of inflation) The discount rate must be tied to the economics of the country where the medicine or intervention would be provided—5% in the United States; treasury rate in the United Kingdom The discount rate is not known for sure in any pharmacoeconomic study and any arbitrary rate used will have a dramatic effect on the results of the economic study

Evaluating Pharmacoeconomic Studies (1) Important new area but difficult to evaluate Study may not be relevant to the reader’s country No “gold standard” for pharmacoeconomic studies Quality of studies varies widely Bias of many studies to support sponsor Negative outcome research seldom gets into the literature

Evaluating Pharmacoeconomic Studies (2) Key questions to ask in reading an article Is patient selection in the study similar to those in your community? Is the study applicable to your setting? Are costs of medicines fully described? Are costs of benefits or assumptions of effectiveness fully disclosed? Has a sensitivity analysis be done? Who is the sponsor?

Evaluating Pharmacoeconomic Studies (3) Key questions to ask (continued) Are all the costs associated with medicine treatment, including good and bad outcomes described (not just prices)? Costs associated with nonpharmaceutical treatments (equipment) and negative outcomes (side-effects) may be missing Has discounting been used to reflect the costs of any future benefits or consequences in present day values? Different discounting rates for medicine costs and future benefits may be used to emphasize a medicine’s cost-effectiveness ratio

Activities Activity 1—Cost Minimization Analysis of NSAIDs Activity 2—Cost-Effectiveness Analysis of Two Antimalarial Treatments

Summary Cost analysis of medicines is becoming much more important. Comprehensive analysis of medicines is necessary to fully assess the real cost of medicines and the benefits from medicine use. Pharmacoeconomic studies are very difficult to assess. Appropriate analyses should— Rely on data from clinical trials or reasonable extrapolations of these trials Use basic verifiable costing—cost minimization and cost effectiveness whenever possible