Introduction to Pharmacoeconomics

Introduction to Pharmacoeconomics
Marjorie Neidecker, PhD, MEng, RN Department of Pharmacology The Ohio State University College of Medicine I’d like to thank Dr. Karen Rascati, Professor of Health Outcomes & Pharmacy Practice at the University of Texas at Austin, for granting me permission to use material from her book, Essentials of Pharmacoeconomics (Lippincott, Williams & Wilkins, 2009). Material in this presentation is adapted with permission from Karen L. Rascati, PhD, author of Essentials of Pharmacoeconomics, Lippincott, Williams & Wilkins, 2009.

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. The objectives of this module are: 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

Topics 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 The topics we will cover are: Pharmacoeconomics – What is it? Why is Pharmacoeconomics Important? Relationship of Pharmacoeconomics to Other Research Types of Pharmacoeconomic Studies Cost-Minimization Analysis (CMA) Cost-Effectiveness Analysis (CEA) Cost-Utility Analysis (CUA) Cost-Benefit Analysis (CBA) Other Types of Analyses Essential Elements of a Pharmacoeconomics Study

I. Pharmacoeconomics – What is it?
 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. Determining the clinical effectiveness of any new health care intervention, including medications, is a critical step in determining the role of the new intervention in clinical practice. But a new treatment may offer only a modest advantage (or no advantage at all) over an existing treatment, and usually at a higher cost. 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. Clinicians and other decision makers typically use PE analyses to help decide if the added benefit of one pharmaceutical intervention worth the added cost of that intervention. Example: Patients who have the cardiac arrhythmia atrial fibrillation are often prescribed an anticoagulant to help prevent secondary stroke. For years, warfarin (Coumadin) was the drug of choice. Recently, three new oral anticoagulants (dabigatran, rivaroxaban, apixaban) have been approved for patients with atrial fibrillation. Some appear to outperform warfarin, but they are more expensive than warfarin and each have their own set risks for adverse events. PE analysis can help compare the additional costs and differences in outcomes of each of the novel anticoagulants to warfarin, and also to each other. One PE analysis we might perform would be to see if, compared to warfarin, the extra cost of dabigatran is worth the additional benefit it may offer. It is important to remember that PE is a tool in decision making, but not necessarily the final answer. Results from PE studies help inform decision makers, but do not dictate the decision, especially here in the U.S.

INPUT PHARMACEUTICAL OUPUT PRODUCT OR SERVICE Cost Analysis (a partial pharmacoeconomic study) Here is an equation or flow chart that shows the components of Pharmacoeconomics graphically: Center: a drug product or service being assessed, symbolized by Rx Left side: input; costs used to obtain and use the pharmaceutical product or service Right side: output; the health-related outcomes produced by the pharmaceutical product or service If just the left-hand side of the equation is measured without regard for outcomes, it is a cost analysis (or a partial economic analysis). If just the right-hand side of the equation is measured without regard to costs, it is a clinical or outcome study (not an economic analysis). To be a true pharmacoeconomic analysis, both sides of the equation must be considered and compared. Theoretically, at least two options must be compared to be a pharmacoeconomics study. Some assessments consist of a “with or without” comparison: estimate what would occur if the product or service was provided (e.g., immunization program) compared with no provision of the product or service. Clinical or Outcome Study (not an economic study) Pharmacoeconomic Analysis

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? Question: A health services researcher wants 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?

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. 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.

II. Why is Pharmacoeconomics Important?
Distribution of National Health Expenditures, by Type of Service (in Billions), 2010 Nursing Care Facilities & Continuing Care Retirement Communities, $143.1 (5.5%) Why is Pharmacoeconomics Important? Prescription drug costs, shown by the grey wedge, are 10% of all health care expenditures in the U.S. In 2010, the U.S. spent $259 billion on prescription drugs from all payment sources combined, including patient payments, insurance payments, and government-sponsored programs such as Medicare and Medicaid. NHE Total Expenditures: $2,593.6 billion 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: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at (see Historical; National Health Expenditures by type of service and source of funds, CY ; file nhe2010.zip). 8

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: 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. In 2010, the annual growth rate of national health expenditures: 3.9% Good news: the growth rate has been declining overall since 2002 (was 13% in 1980,9% in 2002, now about 4%) Bad news: it is still outpacing inflation and growth in income Prescription drug costs are projected to continue to exceed the growth rates for hospital care and other professional services, at least through 2019. Source: Kaiser Family Foundation, and Center for Medicare and Medicaid Services ( The rise in costs of prescription medicines affects all payers in the health care industry, including private insurers, public programs, and patients. Spending on prescription drugs continues to be an important health care concern, particularly in light of rising pharmaceutical costs, the aging population, and increased use of costly specialty drugs. Clinicians want their patients to receive the best care and outcomes available, and payers want to manage rising costs. In economics terms: We need to understand how limited resources can be used most efficiently and effectively. Pharmacoeconomics can help! Keep in mind, however, economic analyses are just one part of the decision-making process – social values as well as legal, ethical, and political considerations are also factors.

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? A pharmacoeconomic analysis can help answer these types of questions. Should a new medication be added to the formulary*? Ex: new antibiotic, new chemotherapy agent, new anticoagulant Should a new pharmacy service be implemented? Ex: anticoagulation clinic, diabetes management clinic, asthma management clinic How do the different medications impact a patient’s health-related quality of life? Ex: comparing two different cancer treatments: one may offer longer survival, but the other a higher quality of life Is an immunization or vaccine plan cost-beneficial? Do the benefits, measured in dollars, of the vaccine for the Human Papillomavirus (HPV) outweigh the costs? *What is a formulary? A listing of drugs. In the hospital setting: list of all drugs commonly stocked in their pharmacies. For third-party organizations such as insurance companies: list of drugs that the company will cover under plan benefits. The development of formularies is based on evaluations of efficacy, safety, and cost-effectiveness of drugs.

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

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. 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.

III. Relationship of Pharmacoeconomics to Other Research
Pharmacoeconomics is actually a subset of other fields of study in healthcare. It overlaps with both health care economics and pharmacy-related outcomes research. The outcomes may either be clinical measures, such as percent of patients cured, or humanistic measures, like patients’ quality of life or satisfaction with their healthcare. Health care economics encompasses a broad range of topics -- examples: Supply and demand for health care resources Effects of health insurance Manpower supply Clinical or humanistic outcomes research is defined as the attempt to identify, measure, and evaluate the end result of health care services. It includes: Clinical outcomes Economic consequences Patients’ health status Patients’ satisfaction with their health care Pharmacoeconomics blends both disciplines into a singe analysis.

IV. Types of Pharmacoeconomic Studies
 Methodology Cost Measurement Unit Outcome Cost-Minimization Analysis (CMA) Dollars or Monetary Units Assumed to be equivalent in comparable groups Cost-Effectiveness Analysis (CEA) Natural units (life years gained, mm Hg blood pressure, mMol/L blood glucose) Cost-Utility Analysis (CUA) Quality-adjusted life year (QALY) or other utilities Cost-Benefit Analysis (CBA) Dollars or monetary units Recall that a pharmacoeconomic analysis compares two or more pharmaceutical products or services using: Costs as the input, and Outcomes, or consequences, as the output This table lists the four basic types of pharmacoeconomic studies. Each method measures costs in dollars (or some other type of monetary unit). But they differ regarding how health outcomes are measured and compared. A Cost-Minimization Analysis (CMA) doesn’t measure outcomes; instead it assumes the outcomes are equivalent in comparable groups of patients A Cost-Effectiveness Analysis (CEA) measures outcomes in natural units, such as life years gained for a chemotherapy agent, mm Hg blood pressure for a hypertension treatment, mmol/L blood glucose for an oral antidiabetic medication A Cost-Utility Analysis (CUA) measures outcomes in Quality-Adjusted Life Years (QALYs) or other “utilities” A Cost-Benefit Analysis (CBA) measures outcomes in Dollars or Monetary Units Rascati, 2009

IV. Types of Pharmacoeconomic Studies A
IV. Types of Pharmacoeconomic Studies A. Cost-Minimization Analysis (CMA) Definition Sample Problem Common Applications Advantages and Disadvantages Cost-Minimization Analysis (CMA) Assumed to be equivalent in comparable groups Dollars or Monetary Units

Cost-Minimization Analysis (CMA)
IV. Types of Pharmacoeconomic Studies A. Cost-Minimization Analysis (CMA) 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 Cost-Minimization Analysis (CMA) – Definition When we perform a PE analysis, we always compare two (or more) pharmaceutical interventions or alternatives. In a CMA, we assume that the alternatives have equivalent outcomes, so we are only concerned with the costs. The objective is simply to choose the least costly alternative among equally effective alternatives.

Statistical Difference
IV. Types of Pharmacoeconomic Studies A. Cost-Minimization Analysis (CMA) 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? Type of Cost Costs for Outpatients (n = 40) Mean (SD) Costs for Inpatients (n = 36) 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) CMA – Example Problem: A cost-minimization analysis of intracervical prostaglandin for cervical ripening in an outpatient versus inpatient setting (Farmer et al., 1996). Introduction: A study explored the costs associated with prostaglandin E2 gel administered intracervically to expectant mothers on the day before labor was to be induced (to help ripen/soften the cervix and allow labor to progress more easily). Two different settings were compared. Outpatient Group: administer medication  monitor 2 hours  send home overnight  admit next day  induce labor (administer oxytocin) Inpatient Group: administer medication  monitor 2 hours  send to maternity unit for the night  induce labor (administer oxytocin) The pre-dose characteristics of the patients in both groups were considered similar. The outpatient (n = 40) and inpatient (n = 36) groups were not different in terms of maternal age, race, parity (number of previous deliveries), gestational age, maternal weight, predose Bishop score (measure of the body’s readiness for delivery), or indication for delivery. Outcomes: The outcomes of the prostaglandin E2 therapy were similar for the two groups as measured the frequencies of failed inductions, abnormal fetal heart rate patterns, and cesarean sections. No adverse maternal or neonatal effects with the therapy were encountered in either setting. So the outcomes for each group were considered equivalent. Costs: Four categories of costs were collected (refer to the table). Significant results: The mean labor cost for the outpatient group was 36% lower than the inpatient group. Mean And mean hospital costs for the outpatient group was 24% lower than the inpatient group, primarily to do an additional day of length of stay. Would you recommend the outpatient program? The authors of this CMA was concluded yes , “Substantial cost savings were found with prostaglandin E2 therapy in an outpatient rather than an inpatient setting for patients who required an induction of labor and were candidates for outpatient cervical ripening.” 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): ; as reported in Rascati, 2009

IV. Types of Pharmacoeconomic Studies A
IV. Types of Pharmacoeconomic Studies A. Cost-Minimization Analysis (CMA) 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 CMA – Common Applications Some common CMA applications: Comparing two generic medications rated as equivalent by FDA Ex: Comparing two different generic antibiotics for the same type of infection; each may have different costs and possibly different adverse events, but their effectiveness is considered equivalent. Cost comparison of same drug therapy in different settings Ex: Comparing the cost of receiving IV antibiotics in a hospital setting vs. receiving IV antibiotics (same drug and dose) at home via a home health care service. CMA is not appropriate for comparing different classes of medications. Ex: Comparing an ACE inhibitor and a beta blocker for treating hypertension. A CMA would not be appropriate because one is not necessarily a substitute for the other.

Advantages and Disadvantages
IV. Types of Pharmacoeconomic Studies A. Cost-Minimization Analysis (CMA) Advantages and Disadvantages Advantage: simplest analysis to conduct Disadvantage: cannot be used when outcomes of each intervention are different CMA – Advantages and Disadvantages Advantage: CMA is the simplest analysis to conduct. Since the outcomes of the alternatives being compared are considered equivalent, only the costs need to be compared. Disadvantage: CMA cannot be used when the outcomes of the interventions are different and, therefore, CMA has limited use.

IV. Types of Pharmacoeconomic Studies B
IV. Types of Pharmacoeconomic Studies B. Cost-Effectiveness Analysis (CEA) Definition Sample Problem Common Applications Advantages and Disadvantages Exercise Cost-Effectiveness Analysis (CEA) Natural units (life years gained, mm Hg blood pressure, mmol/L blood glucose) Dollars or Monetary Units

Cost-Effectiveness Analysis
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 Cost-Effectiveness Analysis (CEA) – Definition A CEA is a PE analysis where outcomes are measures in natural or clinical units. Ex: mmHg for blood pressure, mg/dL for cholesterol levels, symptom-free days for allergic rhinitis, life-years saved for cancer treatment, percent of patients cured CEA is the most common type of PE analysis, although Cost Utility Analysis (CUA) is another common type of PE and is now seen more and more in the literature along with CEA. Note: We often hear “cost-effectiveness analysis” used as a generic term for any type of PE analysis, even when the analysis is really another type of PE. There are two basic 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 Average CER is calculated for a single intervention, while ICER is calculated for a comparison of two interventions. Assuming Intervention B is more effective, but also more costly, than intervention A, the ICER tells us the additional cost we must pay for B per unit of added benefit B offers.

A. Current Screening Program Only B. HPV Vaccine at 90% Efficacy
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? 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 / = $39,964 per case of cancer prevented $1400 / = $42,683 per case of cancer prevented CEA – Example Problem: Projected Clinical Benefits and Cost-effectiveness of a Human Papillomavirus 16/18 Vaccine (Goldie et al., 2004). This is a simplified example of a Cost-Effectiveness Analysis (CEA): Introduction: 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. Alternatives: A. Current (prior to 2006) strategy: screen adult women for cervical cancer using the Pap test. B. Proposed strategy: administer a new 3-dose vaccine to 11- and 12-year old girls and subsequently screening with Pap tests as adults. Outcomes: Percent of all women who received the intervention (either screening only or the vaccine plus subsequent screening) and avoided developing cervical cancer. Costs: In this study, the authors used the societal prospective to determine costs because the study was designed to assess a national program and not a hospital or insurance company policy. The costs included both direct medical costs and indirect medical costs: Direct medical costs: vaccine, screening, clinic visits, patient counseling and education, and treatment of precancerous lesions and cancer if developed Indirect costs: parent time to accompany adolescent to clinic visits Results: Average Cost-Effectiveness Ratio = Cost / Effectiveness Alternative A: $1111 / = $39,964 per case of cancer prevented Alternative B: $1400 / = $42,683 per case of cancer prevented Incremental Cost-Effectiveness Ratio = Costs B – Costs A / Effectiveness B – Effectiveness A ($ $1111) / ( – ) = $289 / = $57,800 per additional case of cancer prevented Interpretation: Average CER: With the vaccine and subsequent screening, the cost would be $42,683 per case of cancer prevented vs. $39,964 for the current screening program, about a 7% increase in cost per case of cancer prevented. Would you recommend the new HPV program based on the Average CER? Is the greater rate of cancer cases avoided worth the 7% greater cost per cancer case avoided? Hard to say… Incremental CER: The incremental cost-effectiveness is $57,800 per additional case of cancer prevented by employing the vaccine + screening alternative instead of the screening only alternative. You can think of it like this: assume that with either alternative, the cost of each case of cancer prevented for the first 2.78% of women avoiding cancer is the same, $39,964. For each case of cancer prevented beyond 2.78% and until 3.28% of women avoiding cancer, the cost is $57,800. Would you recommend the new HPV program? Is preventing one additional case of cervical cancer worth $57,800? This is a judgment call but our policy makers have said yes. Avoiding cervical cancer can save lives; also, there are other benefits to the HPV vaccine to consider, such as the avoidance of genital warts. Incremental Cost-Effectiveness Ratio (Δ Costs / Δ Effectiveness) ($ $1111) / ( – ) = $289 / = $57,800 per additional case of cancer prevented 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): ; as reported in Arnold, 2010

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. CEA – Common Applications CEA compares medications with the same type of primary outcomes, and is most often used for treatment of the same types of health condition: Ex: Two chemotherapy agents for breast cancer – outcomes can be measured in life years saved Two ACE inhibitors for blood pressure reduction – outcomes can be measured in mm Hg (blood pressure reduction) Two screening programs for cervical cancer detection – outcomes can be measured in percentage of cervical cancer cases prevented CEA is only performed when the outcome of one intervention is better than another but it costs more. There’s no need to perform a CEA when the outcome is better and the cost is less. In that case, one intervention is obviously more cost-effective than another.

Advantages and Disadvantages
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. CEA – Advantages and Disadvantages Advantages: Health units are common outcomes that are routinely measured in clinical trials and, therefore, clinicians are familiar with these types of outcomes Outcomes are easier to quantify than cost-utility analysis (CUA) or cost-benefit analysis (CBA) Disadvantages: Interventions with different types of outcomes cannot be compared. Examples: Comparing outcomes of a HTN treatment (measured in reduction in blood pressure) with an asthma treatment (improvement in forced expiratory volume) Comparing outcomes of an anticoagulation clinic (time in INR range) with a diabetes clinics (Hemoglobin A1c). We can’t combine more than one important outcome in a CEA. Example: Hormone therapy has the benefit of reducing some troublesome menopausal symptoms (vasomotor symptoms and protecting bone density) but these benefits are measured in different units. It’s difficult to collapse both the effectiveness and the side effects of a treatment into one unit of measurement. Example: one chemo regimen may be more effective than another in lengthening the time until the disease progresses, but it may also have more toxic side effects. CEA estimates the extra cost associated with each additional unit of outcome, but who is to say that added cost is worth added outcomes? It requires a judgment call that is sometimes hard to make.

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? 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) CEA Exercise: Treating stomach ulcer symptoms. Given the costs and outcomes in the table, calculate: 1. The Average Cost-Effectiveness Ratios for each drug. 2. The Incremental Cost-Effectiveness Ratio for Drug B vs. Drug A. GI SFD = Gastrointestinal Symptom-Free Day

IV. Types of Pharmacoeconomic Studies B. Cost-Effectiveness Analysis (CEA) Answers to CEA Exercise: Treating stomach ulcer symptoms. 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 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. Answers to CEA Exercise: Treating stomach ulcer symptoms. 1. Average Cost-Effectiveness Ratio (CER) Drug A: $210/200 SFD = $1.05 per SFD Drug B: $530/250 SFD = $2.12 per SFD 2. Incremental Cost-Effectiveness Ratio (ICER) Drug B vs. Drug A: ($530-$210) / (250 SFD – 200 SFD) = $6.40 per extra GI SFD How do you interpret the CER and ICER (what do they tell you)? What does it mean that Drug B compared to Drug A costs $6.40 per extra GI SFD? 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. Drug A gives 200 SFDs for $210 Drug B gives an additional 50 SFDs for $6.40 each $210 + (50 SFDs x $6.40/SFD) = $530 (the cost of drug B) Can you tell which drug is most cost-effective? Is the extra cost of Drug B worth the extra benefit? It’s hard to say with this information alone if $6.40 per extra GI symptom-free day is reasonable. GI SFD – Gastrointestinal Symptom Free Day

IV. Types of Pharmacoeconomic Studies C. Cost-Utility Analysis (CUA)
Definition Sample Problem Common Applications Advantages and Disadvantages Question Cost Utility Analysis (CUA) Quality-adjusted life year (QALY) or other utilities Dollars or Monetary Units

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 Cost Utility Analysis (CUA) – Definition A Cost-Utility Analysis (CUA) is: A PE analysis which takes into account “quality” or “utility” of patients’ length of life resulting from treatment. It incorporates both morbidity (i.e., quality of life) and mortality (i.e., length of life). Measures outcomes based on years of life that are adjusted by “utility” weights ranging from 0 to 1, where 0 = dead 1 = perfect health Utility weights are based on patients’ preferences or desirability for a particular state of health resulting from a certain treatment. The most common utility is the Quality-Adjusted Life Year (QALY), although there are others. 1.0 QALY = 1 year of life in perfect health 0.0 QALY = death 0.0 < QALY < 1.0: when a year of a person’s health is diminished by disease or treatment Quality Adjusted Life Years (QALYs) weight the life years remaining by the utility weight (Quality Adjusted Life Year, or QALY) Ex: 4 years of life post cancer treatment at 0.6 QALY (utility wt) = 2.4 QALYs Similar to cost-effectiveness, there are two methods of reporting cost-utility: Average Cost per QALY = Cost of Intervention QALYs of Intervention Incremental Cost per QALY = Cost of Intervention B – Cost of Intervention A QALYs of Intervention B – QALYs of Intervention A Many consider CUA to be a special type of CEA, and is often referred to as a CEA in the literature.

Example Problem 1 Human papillomavirus (HPV) vaccine +screening vs. screening only. Would you recommend the new HPV vaccine program? A. Current Screening Program Only (“PAP test”) B. HPV Vaccine at 90% Efficacy + Screening Total Lifetime Costs $1111 $1400 Quality-Adjusted Life Expectancy QALYs QALYs Average Cost-Utility Ratio (Cost / QALYs) $1111 / x QALYs = $42.76 per QALY $1400 / QALYs = $53.86 per QALY CUA – Example Problem 1: Projected Clinical Benefits and Cost-effectiveness of a Human Papillomavirus 16/18 Vaccine (Goldie et al., 2004). We’ll again use the PE study of the human papillomavirus (HPV) vaccine as an example. Same alternatives as the CEA example: Current (in 2006) strategy: screening adult women for cervical cancer using the Pap test. Proposed strategy: administering a new 3-dose vaccine to 11- and 12-year old girls and subsequently screening with Pap tests as adults. Outcomes: In the CEA, the outcome of this study was percent of cancer cases avoided. Another outcome of this study is quality-adjusted life expectancy, reported in quality-adjusted life years (QALYs). It combines the life expectancy of a woman receiving each intervention, adjusted (multiplied) by utility weights which reflect the quality of life during those years. The QALY calculations for this study are actually quite complicated. They take into account things like the quality of life at various ages of life for cancer-free women and the quality of life for women who develop cervical cancer. Also considered were the age at which a woman typically develops cervical cancer, the cancer stage at the time it was discovered, and the corresponding life expectancy. The difference in QALYs for each intervention seems small ( vs ) because 97-98% of the women don’t develop cervical cancer and are assumed to have no difference in quality of life. Costs: Same costs as the CEA example: Costs were considered from the societal prospective because this study is designed to assess a national program and not a hospital or insurance company policy. Direct medical costs: vaccine, screening, clinic visits, patient counseling and education, and treatment of precancerous lesions and cancer if developed Indirect costs: parent time to accompany adolescent to clinic visits Interpretation: Average Cost-Utility Ratio: With the vaccine and subsequent screening, the cost would be $53.86 per QALY vs. $42.76 per QALY for the current screening program, about a 26% increase in cost per QALY. Is an additional quality-adjusted life year worth the extra 26% cost? Again, hard to know. Incremental Cost-Utility Ratio: The cost is $24,286 per additional QALY by employing the vaccine + screening alternative instead of the screening only alternative. This means that beyond the first QALYs for the current screening program, it will cost $24,286 per QALY to reach the QALY level (which is just a little over 1 QALY greater). Is the new vaccine program cost-effective? Consider that, in health economics, a year of someone’s life in perfect health is generally considered to be worth between $50,000 and $100,000 or more. A guideline sometimes used is that a program for which the incremental cost-utility ratio is less than $75,000 per QALY is considered “cost-effective.” So in this case, we would conclude that the new HPV vaccine program is cost-effective. Incremental Cost-Utility Ratio (Δ Costs / Δ QALYs) ($ $1111) / ( – ) = $289 / = $24,286 per additional QALY 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): ; as reported in Arnold, 2010

Example Problem 2 Dabigatran 150 mg twice daily vs. warfarin for stroke prophylaxis in 70-year-old patients with atrial fibrillation. Would you recommend dabigatran over warfarin? 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 CUA – Example Problem 2: Cost-effectiveness of dabigatran for stroke prophylaxis in atrial fibrillation (Shah et al., 2011). Here is a simplified example of a Cost-Utility Analysis (CUA): Introduction: Warfarin, an anticoagulant, has been the standard therapy for stroke prophylaxis in patients with atrial fibrillation. Recently several novel anticoagulants have been approved, the first of which was dabigatran. A study was conducted to measure the cost-effectiveness and cost-utility of dabigatran as compared to warfarin. The cost and quality-adjusted life expectancy were calculated for dabigatran 150 mg twice daily vs. warfarin for stroke prophylaxis in 70-year-old patients with atrial fibrillation. Outcomes: The quality of survival was measured in quality-adjusted life years (QALYs). Patients taking dabigatran were determined to experience a higher quality of survival than patients taking warfarin (8.65 vs QALYs) because dabigatran has a slightly lower mortality rate and warfarin requires regular monitoring. Occurrence and severity of stroke and MI were also considered in the QALY calculation. Costs: Costs were considered from the payer’s prospective (insurance company or Medicare/Medicaid) because this study is designed to help determine if dabigatran belongs on the insurer’s formulary. The total cost includes the cost of the drug and the cost of treating adverse events. Interpretation: Average Cost-Utility Ratio: Warfarin therapy would cost $2738 per QALY vs. $5052 per QALY for dabigatran, about an 85% increase in cost per QALY. Are an additional quality-adjusted life years worth the extra 85% cost? It’s hard for us to say. Incremental Cost-Utility Ratio: The added cost is $82,800 per additional QALY for treating with dabigatran instead of warfarin. This means that beyond the first 8.40 QALYs that warfarin patients experience, it will cost $82,800 per QALY to reach the 8.65 QALY level. Is the new anticoagulant cost-effective? Consider that, in health economics, a year of someone’s life in perfect health is generally considered to be worth between $50,000 and $100,000, or sometimes even more. In this study, a treatment for which the incremental cost-utility ratio was less than $50,000 per QALY was considered “cost-effective.” So in this case, we would conclude that dabigatran is not cost-effective compared to warfarin. The actual study considered subgroups of patients according to stroke and bleeding risk, and the results showed that dabigatran was indeed cost-effective in patients with a high stroke risk (for this group, the Incremental Cost-Utility Ratio was less than $50,000). This CUA is called a CEA by the authors, which is not uncommon since many consider CUA to be a special type of CEA. Incremental Cost-Utility Ratio (Δ Costs / Δ QALYs) ($43,700 - $23,000) / (8.65 – 8.40) = $20,700 / 0.25 = $82,800 per additional QALY Adapted from Shah S, Gage B. Cost-effectiveness of dabigatran for stroke prophylaxis in atrial fibrillation. Circulation 2011;123(22):

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 CUA – Common Applications When are utility adjustments (CUA) needed? Useful when: Quality of life and length of life (quantity) are different Ex: cancer treatments Quality of life is different but length of life (quantity) is unaffected and Ex: hearing loss, seasonal allergies, erectile dysfunction Outcomes are very different Ex: comparing outcomes for heart disease with prenatal care Not warranted when: Number of life years saved (quantity) is different but quality of each year of life is very similar Basically, useful when: QUALITY of life is different (QUANTITY may or may not be different) Outcomes are different

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 CUA - Advantages and Disadvantages Advantages: Can incorporate both morbidity and mortality, that is, quality of life and quantity/length of life. Can compare multiple programs with either similar outcomes 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. These are shortcoming of CEA. Main disadvantages: There is no consensus on calculating utility weights. Utility weights are “rough estimates” and are based on averages; individual preferences may vary widely. QALYs and CUA are not well understood by many clinicians and policy makers, and therefore are often viewed with skepticism.

Question: Do negative QALYs make sense? Question: Do negative QALYs make sense?

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. 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.

IV. Types of Pharmacoeconomic Studies D. Cost-Benefit Analysis (CBA)
Definition Sample Problem Common Applications Advantages and Disadvantages Exercise Cost-Benefit Analysis (CBA) Dollars or Monetary Units Dollars or Monetary Units

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 Costs Cost beneficial if Net Benefit > 0 2. Benefit-to-Cost Ratio = Total Benefits / Total Costs Cost 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 Cost-Benefit Analysis (CBA) – Definition A PE analysis in which both costs and benefits are valued in monetary units. CBA can be presented in three formats: 1. Net Benefit = Total Benefits – Total Costs The treatment is cost beneficial if Net Benefit > 0 2. Benefit-to Cost Ratio = Total Benefits / Total Costs The treatment is cost 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 After IRR is calculated, it is compared with a specific hurdle rate (e.g., interest rate available for savings accounts or secured bonds) Decision rule: accept all projects with an IRR greater than the hurdle rate Break-even point = The time required to recoup the investment This applies to projects with an upfront investment, such as purchase of equipment, software development, and training of staff CBA do not typically include an incremental analysis that combines the costs and benefits of two alternatives. Instead, the CBA results for each alternative is compared side-by-side.

Example problem: Implementation of a pharmacy bar-code system to reduce medication dispensing errors. Was the bar-code system a good financial decision? 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 CBA - Example Problem: Cost-Benefit Analysis of a Hospital Pharmacy Bar Code Solution (Saverio et al., 2007). Introduction: One of the most effective methods to prevent medical errors is to use bar coding to identify medications at the unit-dose level for dispensing and administration. Brigham and Women’s Hospital in Boston implemented a pharmacy bar-code system in Although the hospital was not the first to use bar coding to reduce medication errors, it was among the first to implement a bar-code system that tracked medications from practitioner order entry, to pharmacy dispensing, to delivery on the nursing unit, and to medication administration to the patient. A cost-benefit analysis was performed of the new program over a 5-year time horizon. The analysis took an incremental approach, calculating the costs and benefits of the new bar code system as compared to the “do nothing” alternative. Costs: The costs included all relevant incremental costs (i.e., costs over and above the current system of dispensing medications), which included software development, hardware purchases, preimplementation planning costs, staff training, equipment lease. The total incremental cost over the 5 year time horizon was $2.24 million, adjusted for inflation and the time value of money. Benefits: Researchers at the hospital tracked medication errors at the dispensing stage of the medication use system before and after the implementation of the system. The primary benefit was a decrease in adverse drug events from dispensing errors (517 events annually, estimated to cost a hospital roughly $4000 each). The total incremental benefit realized from avoidance of adverse drug events was $5.73 million over the 5-year time horizon, again adjusted for inflation and the time value of money. Cost-Benefit Analysis: Net Benefit: Net-Benefit = Total Benefits – Total Costs $5.73 million - $2.24 million = $3.40 million (a Net Benefit > 0 is cost beneficial) Benefit to Cost Ratio = Total Benefits / Total Costs $5.73 million / $2.24 million = 2.56 (a cost to benefit Ratio > 1 is cost benefit) Rate of Return: 104% annualized return on investment (calculation is beyond the scope of this lecture); In business, a rate of return over 10%-12% is typically considered to be a good investment. Break-Even Point: Within the first year of operation (calculation is beyond the scope of this lecture) Was the bar-code system a good financial decision? Most definitely! Internal Rate of Return 104% annualized return on investment Break-Even Point Within the first year of operation Adapted from Saverio M, et al. Cost-Benefit Analysis of a Hospital Pharmacy Bar Code Solution. Arch Intern Med. Apr 23, 2007;167(8):

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. CBA – Common Applications CBA is most useful when you are analyzing a single intervention to determine whether its total benefits exceed the costs (could be a “with or without” comparison) or when you are comparing alternative interventions to see which one achieves the greatest benefit.

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 CBA – Advantages and Disadvantages Major advantages: The decision rules are clear in determining if benefits exceed costs of program. It’s not subjective as CEA or CUA are. We can compare multiple programs with either similar or unrelated outcomes (ex: anticoagulation and diabetes clinics). Disadvantage: It’s difficult to place a monetary value on health outcomes. Different methods of doing so may elicit different outcomes estimates and consequently different results to a 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? 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 CBA Exercise: Asthma vs. Coagulation Medication Management Clinic A Medication Management Clinic utilizes pharmacists who: Work with primary care providers to maximize the benefits of medication regimens Assess the effectiveness of medications Help minimize side effects of medication Suppose a hospital system would like to offer a medication management clinic and is considering either opening an asthma clinic or a coagulation clinic. The costs are shown in the table above. Calculate the Net-Benefit and the Benefit to Cost Ratio for each program. Cost-Benefit Analysis: Net Benefit: Net Benefit = Total Benefits – Total Costs Asthma Clinic: $40,000 - $20,000 = $20,000 Coagulation Clinic: $75,000 - $50,000 = $25,000 Benefit-to-Cost Ratio = Total Benefits / Total Costs Asthma Clinic: $40,000 / $20,000 = 2.0 Coagulation Clinic: $75,000 / $50,000 = 1.5 Which clinic is a better financial decision? 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 considerations the decision makers may want to think about: How much money is available for investment? (The asthma clinic only requires $20,000 investment vs. $50,000 for the coagulation clinic). What is the return on investment? (The coagulation clinic has a high benefit-to-cost ratio, so it will have a higher return on investment.) What goals of the organization are more important, programmatic or financial? Saverio M, et al. Cost-Benefit Analysis of a Hospital Pharmacy Bar Code Solution. Arch Intern Med. Apr 23;167(8):

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. 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 = $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 Answers to CBA Exercise: Asthma vs. Coagulation Medication Management Clinic Calculate the Net-Benefit and the Benefit to Cost Ratio for each program. Cost-Benefit Analysis: Net Benefit: Net Benefit = Total Benefits – Total Costs Asthma Clinic: $40,000 - $20,000 = $20,000 Coagulation Clinic: $75,000 - $50,000 = $25,000 Benefit-to-Cost Ratio = Total Benefits / Total Costs Asthma Clinic: $40,000 / $20,000 = 2.0 Coagulation Clinic: $75,000 / $50,000 = 1.5 Which clinic is a better financial decision? 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 to consider: How much money is available for investment? (The asthma clinic only requires $20,000 investment vs. $50,000 for the coagulation clinic). What is the return on investment? (The coagulation clinic has a high benefit-to-cost ratio, so it will have a higher return on investment.) What goals of the organization are more important, programmatic or financial? Saverio M, et al. Cost-Benefit Analysis of a Hospital Pharmacy Bar Code Solution. Arch Intern Med. Apr 23;167(8):

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. Other Types of Pharmacoeconomic 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) Not a true pharmacoeconomic analysis because outcomes are not considered. Attempts to measure the Total economic burden of a particular disease on society Includes cost of prevention, treatment, losses caused by morbidity and mortality, etc. The costs included are both: Direct costs – the costs associated with provided treatment or prevention (e.g., medical services) Indirect costs – the costs attributable to loss of productivity of patients with that disease or condition COI studies are used to indicate the magnitude of resources needed for a specific diseases or condition, they may be used to compare: -the economic impact of one disease versus another (e.g., costs of schizophrenia verses cost of asthma) -or the economic impact of a disease on one country compared with another (e.g., costs of HIV in the United States vs. cost of HIV in Zimbabwe). These estimates are sometimes used -by pharmaceutical firms to determine the market potential for a new product, or -by payers to set priorities for reimbursement.

V. Essential Elements of a Pharmacoeconomics Study
2+ Pharmaceutical Interventions Incremental Analysis of Costs and Outcomes Perspective: Societal, Payer, or Patient? Discounting of Costs and Benefits Sensitivity Analysis To follow best practices in performing a PE study, the following elements should be included: 2+ Pharmaceutical Interventions Incremental Analysis of Costs and Outcomes Perspective: Societal, Payer, or Patient? Discounting of Costs and Benefits Sensitivity Analysis

A. 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 2+ Pharmaceutical Alternatives In order to perform a pharmacoeconomic analysis, usually at least two pharmaceutical interventions are required for comparison. All clinically relevant alternatives should be considered, including a “do nothing” alternative, if that’s appropriate. All relevant costs and consequences/outcomes should be carefully determined and included. If the costs and consequences do not reflect the true values, then the results of the analysis are unreliable.

B. 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 Type of Analysis We have discussed the four types of PE analyses : Cost-Minimization Analysis (CMA) Cost-Effectiveness Analysis (CEA) Cost-Utility Analysis (CUA) Cost-Benefit Analysis (CBA) For CEA and CUA, it is most helpful to present both The average cost analysis of each alternative, Cost Effectiveness Ratio Cost Utility Ratio And the incremental cost analysis of one alternative over another, Incremental Cost Effectiveness Ratio Incremental Cost Utility Ratio

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. To determine what costs are important to measure, the perspective of the study must be determined. Societal Perspective – measuring all costs to all sectors, such as: Cost to insurance company, Cost to patient, Cost to other sectors, and Indirect costs because of loss of productivity Most appropriate and comprehensive perspective according to conventional economic theory Not common in pharmacoeconomic literature (difficult and time consuming) Why not use societal perspective: difficult and time consuming Most cases, researchers are not interested in the overall costs of each treatment alternative Instead they are interested in the differences in costs between two alternatives If they don’t expect differences in any costs except for direct medical costs, measurement of other types of costs would not be relevant. Most common perspectives used in pharmacoeconomic studies: Institution or Provider Perspective – measuring costs to hospital/clinic/physician practice/ pharmacy/etc. Costs used are actual cost to institution/provider Payer Perspective – measuring costs to Medicaid, Medicare, private insurance plan, patient, or combination of these Costs used are reimbursed amounts For patient, out-of-pocket expenses are used (copays, deductibles, lost wages, and transportation costs) Using Charges is not considered best practice

Essential Elements of a Pharmacoeconomics Study
D. 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 If I asked to borrow $1000 from you today and assured you I would pay you back the $1000 in 3 years, would you agree, even if I assured you there would be no inflation? There is a time value associated with money and goods, because people/businesses prefer to receive money/goods today rather than later. So money promised in the future is valued at a lower rate than money received today. Discounting of Costs and Benefits – a method used to adjust future costs and benefits to their present market value. When treatment costs are collected from more than 1 year, it’s not fair to compare the costs without some kind of adjustment because treatment costs tend to go up each year. So when costs are estimated from information collected over more than 1 year, costs should be adjusted or valued at one point in time. Bring future costs to the present when evaluating a new drug or service. Bring past costs to present when performing a retrospective study. Use a discount rate, typically between 3% and 5% Discounting can also apply to outcomes

E.  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 There’s nearly always some uncertainty in the cost and outcome values we use for a PE analysis. We do a sensitivity analysis to see how much the results would change if our assumptions are off, and then we see if those changes would affect the conclusions of the study. Sensitivity Analysis – determine how the results of an analysis would change when “best guesses,” or assumptions, are varied over a range of values The analysis is repeated with high and low estimates of the costs and outcomes to determine the range of answers. For example: Suppose we are conducting a cost-effectiveness analysis for a new name brand drug that has just been approved, and we’re not sure what the price will be. We can assume (or “guess”) a certain price and conduct our CEA. Based on the analysis, we’ll draw a conclusion as to whether or not the new drug is a cost-effective alternative to the current therapy. Then we can ask, what if the price is really higher – how would our results and conclusion change? And then ask the same for if the price is lower. The results are insensitive when they do not change over the entire range. This strengthens our confidence in study results. So if our CEA showed the new drug is a cost-effective alternative to the current therapy, and if the results of the sensitivity analysis using a higher drug cost show the new drug is still cost-effective, then the results are insensitive to changes in the drug cost. The results are sensitive when they vary depending on the range of a variable. This weakens our confidence in study results. If our CEA showed the new drug is a cost-effective alternative to the current therapy, but if the results of the sensitivity analysis using a higher drug cost show the new drug is no longer cost-effective, then the results are sensitive to changes in the drug cost.

Review Questions Identify which type(s) of PE analyses could be performed for each scenario (CMA, CEA, CUA, and/or CBA): 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. 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. Review Question: Identify which type(s) of PE analyses could be performed for each scenario (CMA, CEA, CUA, and/or CBA): 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 causes the adverse event of infusion sight reaction that requires additional care. 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.

Review Questions 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. Answer to Review Question: 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. The outcome is not influenced by an infusion sight reaction because the event is typically temporary and minimally impacts quality of life.

Review Questions 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. Answer to Review Question: 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. Answer: Cost-Effectiveness Analysis (CEA), Cost-Utility Analysis (CUA), or Cost-Benefit Analysis (CBA). 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 therapy for constipation. The type of PE study performed depends upon the type of outcome measured: If the outcome measurement is pain relief only, then a CEA is appropriate. However, the discomfort of constipation is not be addressed. If the outcome measurement includes quality of life, then a CUA is appropriate. Both pain relief and discomfort of constipation is addressed. If the outcome measurement is monetary, then a CBA is appropriate. The outcome must include a monetary value for pain and suffering and could also potentially include income lost by missed work days.

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 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, each differ according to how the outcomes are measured: Cost-minimization analysis (CMA) – outcomes are equivalent Cost-effectiveness analysis (CEA) – outcomes are natural units Cost-utility analysis (CUA) – outcomes are utilities, or patient preferences Cost-benefit analysis (CBA) – outcomes are monetary units 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 – social values and legal, ethical, and political considerations are also factors

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

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.

Introduction to Pharmacoeconomics

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