1. Why to study Pharmacoeconomics? Expansion of medical knowledge Increase in the treatment options Burden on the health care professionals to provide effective care efficiently. Medical insurance or reimbursement systems Regulatory mandate

2. What Does ‘Cost’ Include? 1.Health Care Cost a)Variable Cost : Vary according to the patient number e.g. drug acquisition cost, cost of consumables (needles, syringes etc) b)Fixed Cost : Does not vary with patient number atleast in short term (1 yr) (Overhead) Eg. Capital Cost of building, equipment & staff salaries 2. Other financial Costs Eg. Prescription charges, Travel expense, loss of productivity 3. Intangible Costs : difficult to value financially Eg. Pain, anxiety, loss of energy, time given by the voluntary carers

3. Can also be classified as… Direct costs- directly associated with the health care intervention. - Medical - Nonmedical Indirect costs - associated with reduced productivity due to illness, disability and death. Intangible costs- psychological costs associated with illness or treatment, such as pain and suffering

4. Direct Costs Medical costs –Drug acquisition costs –Treatment costs (hospital, physician visits) –Monitoring (labs, physician visits) –Treatment of adverse events Non-medical –Home modifications (e.g., wheelchair ramp)

5. Indirect / Intangible Costs Lost productivity/time off work Value of lost productivity (lost income) Caregiver time Quality of life Pain and suffering

6. Opportunity Costs If a resource is used for one purpose, it cannot be used for another The benefits or opportunities foregone in the highest- valued alternative use of resources Opportunity costs are the most appropriate means of assigning costs to resources

7. Health Care Program Input (Cost) Output (Consequences) Whose perspective? Model of Economic Analysis of Health Care Cost Labour Equipment Building Consumable Eg. Drugs Outcome measure Monetary or non-monetary

8. Whose Perspective? Society – Most comprehensive view Providers (Hospital) – direct medical cost which affects the budget Patient – Direct, indirect and intangible Third Party payer – Costs which pertain to the reimbursement Pharmaceutical Industry Measurement of outcomes Monetary ($) Specific clinical outcomes Quality of life

9. Types of Economic Evaluations Cost-Minimization Analysis (CMA) Cost-effectiveness Analysis (CEA) Cost-Benefit Analysis (CBA) Cost-Utility Analysis (CUA) Cost Consequence Analysis (CCA) Increased complexity & sophistication

10. Cost-Minimization Analysis (CMA) Clinical evidences suggest equality of outcome Evaluation of input or cost only Useful for comparison of dosage forms of the same drugs or two generically equivalent drugs Not commonly used for drug therapies or health program

11. Example Comparing two IV dosage forms of Clindamycin for prevention of infection in postoperative patients undergoing surgery for perforated or gangrenous appendicitis. A Clindamycin 900 mg 8 hrly + Gentamicin 1.5 mg/kg 8 hrly B Clindamycin 600 mg 6 hrly + Gentamicin 1.5 mg/kg 8 hrly Outcome: Safety, efficacy & PK of B was comparable with A Cost : Total cost A > Total cost B (Annals Pharmacother,1989;23:980-3)

12. Cost-effectiveness Analysis Consequences identical for each alternatives Measured in non-monetary terms Expressed in natural units e.g. cost per years of life saved, cases cured, lives saved Cost effectiveness ratio = Cost / Outcome Choice is that of lower CER Can be used to evaluate programs, therapies or services. Disadvantage – Can not compare 2 different alternatives

13. Not Always Least expensive Alternative More expensive and additional benefit worth the cost Less expensive and at least as effective (non-inferior) Extra benefit is not worth the cost

14. Average cost-effectiveness ratios do not compare the costs and outcomes among health care alternatives, but instead reflect the cost per outcome of one alternative independent of other alternatives. Incremental cost-effectiveness Change in costs and health benefits when one health care intervention is compared to an alternative one. Eg. Outpatient surgery vs. short-stay surgery ICER = Difference in the costs/ Difference in the effectiveness

15. Example NewOld Cost (Rs per 100 pts treated) 10,0006400 yrs of lives saved 108 CER (Rs per yr of life saved) 1000800 ICER (Rs per additional life saved) 1800 ICER = Difference in the costs/ Difference in the effectiveness

16. Cost Benefit Analysis To compare alternative therapies where outcome is different. Eg. Prolonging life and quality of life Money - Common stable, consistent and plausible denominator Outcome = Benefit – Cost Most suitable when resources scarce and only one program can be implemented

17. Cost Benefit Analysis E.g. A hospital is considering either offering a diabetes counseling service or adding a MRI scan equipment section to the clinic. Assuming the following Rs. values for each alternative, which program will you choose?

18. Cost Benefit Analysis DiabetesMRI scan programequipment CostsRs.20,000Rs.120,000 BenefitsRs.1,20,000Rs.360,000 Net Benefits (B-C) Rs.1,00,000Rs.240,000 B/C Ratio53

19. Controversial aspects of Cost-Benefit Analysis All outcomes can not be converted into monetary terms Eg. Loss of vision Costs and Benefits are distributed heterogeneously in the society. E.g Kidney Transplantation Patients with limited life expectancy Patients with potential for productive life Economical but not humanitarian

20. Discounting Future Cost and Benefits Positive value of time preference People prefer to defer costs to the future and to acquire benefits sooner rather than later. Discounting reflects the present value of a cost or health benefit that will occur at some future date. The effect of discounting is to give future costs and health benefits less weight in an economic analysis. Both costs and benefits should be discounted Most appropriate discount rate debatable

21. Discounting Future Cost and Benefits Example Benefits in terms of QOL Rx of Hypertension Vs Rx of CHF Short term decrease in QOL Short term increase in QOL Long term increase in QOL Appears more attractive Discounted “Not useful for programs with preventive intention”

22. Cost Utility Analysis Utility is desirability for a particular state of health Basic purpose is to improve Quality of life in patients Accounts for physical, social and psychological well being. Patient satisfaction Quality – Adjusted Life Year (QALY) Disability – Adjusted Life Year (DALY)

23. Quality of Life Physical Function Social & Role Function Psychological Function General well- being Multiple dimensions of HrQoL AFFECT FUNCTION

24. How to measure QOL? Difficult – lacks precision and clarity; too broad Health related quality of life (HRQOL) a)Generic instruments – for all diseases and patient groups Eg. Sickness impact profile Nottingham health profile SF-36 b)Specific instruments – Eg. Hospital anxiety depression scale Arthritis impact measurement scale Desirable properties – Reliability, validity, sensitivity Sensitive to value judgment

25. Quality – Adjusted Life Years (QALys) QALYs = number of years lived x utility* Patient 1: Utlity – 0.9 Number of years = 10 QALYs = 0.9 x 10 = 9 QALY Patient 2: Utlity – 0.6 Number of years = 15 QALYs = 0.9 x 10 = 9 QALY *Utility can be ranged from 0 (worst health state) to 1 (best health state / healthy) Quantity of Life Quality weight that represents HRQOL

26. Disability – Adjusted Life Year (DALY) DALY captures the impact of morbidity and mortality in a common unit of measurement DALY was developed primarily to compare relative burdens among different diseases and among different population DALY measures disease impact rather than measuring impact of the interventions to improve health.

27. QALY and DALY QALY = number of years lived x utility = 0.7 X 60 = 42 years DALY = numbers of years lived X disability + number of years lost (perfect health) = 0.3 X 60 + 20 = 38 years QALY DALY DisabilityUtilityHealth Weightingstate 01Perfect 10Death 0.30.7CHF 6080

28. Cost Consequence Analysis (CCA) Definition: An analysis in which resources and outcomes are calculated but not aggregated into cost- outcome ratios Characteristics –Resources are measured in monetary units –Outcomes are measured in multiple ways –Results are presented in a tabular format Objective: To assist decision makers for choosing the most relevant resource-outcome ratio

29. CCA Advantages –Transparency –Flexibility –Conceptually the simplest –Avoids controversies –Most comprehensive Limitations: –Labor/resource intensive

30. Summary of PE Methodologies “It is cost minimization when I stand at the bar and choose the cheapest beer available When I compare the price per liter to see which one satisfies my thirst for the least money this is a cost-effectiveness analysis When I also take into account the flavor and alcoholic strength to decide which beer I prefer overall, I am performing a cost-utility study When I decide whether to buy a beer at all, to buy something else entirely, or save my money, and take into account the effect of the drink on my productivity the next day, that is a cost-benefit analysis” Thornton JG. Br J Hosp Med 1997; 58(11): 547-550

31. Types of Economic Analyses

32. Applications of Pharmacoeconomics Industry Decision making during drug development Early stages - Go/ not to go decisions Later stages - Rational prescribing and utilization Pricing a new medicine/ repricing an existing medicine Convincing the regulatory authorities for marketing approval

33. Applications of Pharmacoeconomics Health Policy Makers Implied value and incremental cost effective analysis are crucial while making health policy decisions. Economic analyses are used while programming budget. The more cost effective alternatives are replaced for the less cost effective ones.

34. OR in India POST–GRADUATE DIPLOMA IN HEALTH ECONOMICS, HEALTH CARE FINANCING AND HEALTH POLICY Indian Institute of Public Health (IIPH), Delhi TRAINING COURSE ON BASIC HEALTH ECONOMICS AND FINANCING, National Institute of Health & Family Welfare

35. ISPOR in India International Training Course on Promoting Rational Drug Use in the Community International Training Course on ARV Drugs Supply Chain management in resource poor settings September/October ISPOR–India Annual meeting

36. Pharmacoeconomics Research Information Cost Effectiveness VALUE Is a pharmaceutical product worth its price? In which patients does it produce the optimal benefit (both cost and quality) ?