Presentation on theme: "Chapter 23 Pharmacoeconomic Calculations"— Presentation transcript:
1 Chapter 23 Pharmacoeconomic Calculations Ellen S. Campbell, Ph.D.Associate ProfessorDivision of Economic, Social & Administrative Pharmacy
2 Outline Case Study Pharmacoeconomics defined PE Analyses StepsPerspectivesAlternativesExamples of 4 typesSensitivity analysisDiscountingPricing Issues
3 Case Study backgroundBob is director of pharmacy for a large MCO where he manages all aspects of the health plan’s pharmacy budget.The health plan has more than 300,000 membersLast year more than $78 million was spent for pharmaceuticals.This was 20% higher than the previous year
4 Case Study problem a new sulfonylurea has been approved by the FDA. The product is similar to products on the market and is approved for the treatment of type II diabetes.Drug representatives have pointed out that it has a more favorable side effect profile than products currently on the marketIt is priced 20% higher than the current medications used by the MCO.
5 QuestionDoes Bob request that the P&T committee add the new drug to the formulary? If so, at what tier?
7 What information would you use to answer the question? Does Bob request that the P&T committee add the new drug to the formulary?
8 (global economic principle) AnswerAdopt a new drug or treatment if…the additional benefit is higher than the additional cost(global economic principle)
9 Health OutcomesWhat are the consequences of a particular treatment?
10 Pharmacoeconomics is a set of methods that evaluate the Economic, Clinical andHumanistic Outcomes(ECHO Model)of pharmaceutical products and services…
11 Pharmacoeconomics isto compare the economic resources consumed (inputs) to produce the health and economic consequences of products or services (outcomes).INPUTS OUTCOMESEconomic Health and EconomicResources Consequences
12 Four types of Pharmacoeconomic Analyses Cost-minimization (CMA)Cost-benefit (CBA)Cost-effectiveness (CEA)Cost-utility (CUA)
13 Comparison of PE Methods CostConsequencesCost MinimizationDollarsNatural units(show equivalency)Cost EffectivenessCost BenefitCost UtilityQALYs
14 Steps for conducting a PE Analysis define the problemidentify the perspective and alternative interventions to be comparedidentify and measure outcomes of each alternativeidentify, measure and value costs of all alternativesuse discounting and sensitivity analysis when appropriate
15 Define the problem and state the objective What is the most cost effective treatment of type II diabetes?
16 Identify the perspective… that is, who will be utilizing the information to make what decisions.This will guide you in choosing the relevant costs and benefits.
17 Different Perspectives Relevant: CostsConsequencesPatientOOP costs,lost income, transportationTherapeutic effectiveness,Adverse events, QOLMCOHospitalization,Pharmacy, Personnel,& suppliesAdverse eventsThird-Party PayersHospitalization, Pharmacy, Nursing home careNoneSocietyAll possible costs including lost productivityAll possible consequences including QOL, & life years.
18 Identify Alternative Interventions What are the relevant choices?Often a head-to-head comparison of the most used (traditional) treatment with the new one.It’s important to compare with the most likely substitute for a realistic result.The comparator doesn’t have to be a drug therapy.
19 At least two comparators New sulfonylureaVersusMost commonly used drug
20 Cost and Effectiveness Comparison Grid for Drug 1 vs Drug 2 1 > 21 = 21 < 2AnalyzeChoose 2Choose 1Indifferent
21 Identify and measure outcomes of each intervention (natural units or $) Typical outcomes include:cured of illnessimproved quality of lifedecreased incidence of morbidityextended liferelief or reduction in symptomsAdverse events (drug interactions and side-effects)mortality
22 Identify, Measure and Value costs Costs include:direct medical costs like treatment costs,direct non-medical costs like transportation,indirect costs like missed work,intangible costs like pain.Be sure to include those costs that are relevant to your perspective.
23 Measuring Costs over time Costs are measured over a relevant time period such as a month or year. The length used depends on the typical span of the illness of interest.Analysis of acute disease such as the flu would have a short span; while chronic or long-term illness such as depression or heart disease would span years.
24 1. Cost-Minimization Analysis (CMA) This type of evaluation compares two or more alternative treatments that are clinically equivalent in terms of outcomes or consequences. Once equivalency is demonstrated, the focus is on choosing the one with the smallest total costs.Example – generic versus name brand
25 Calculating cost differentials between therapeutic agents Drug A is administered via 100 mg tablet orally, twice a day, for 30 days. Each 100 mg tablet costs $7.50Drug B requires three weekly IV administrations with increasing dosages as follows:(dose 1) 250,000 IU(dose 2) 500,000 IU(dose 3) 750,000 IUCost of Drug B is $68 per 250,000 IU and administration is $25 per dose
26 Cost differential (or incremental cost) for entire regimen Total cost of Drug A = 30 days x 2 x $7.50 = $450Total cost of Drug B = drug cost + admDose 1 = (1 x 68) + 25 = 93Dose 2 = (2 x 68) + 25 = 161Dose 3 = (3 x 68) + 25 = 229= $483Cost differential is 483 – 450 = $33Incremental cost of changing from Drug A to Drug B is $33
27 Cost differentials for chronic diseases are calculated on Per patient per dayPer patient per month (30 days)Why?
28 Different outcome?Using Cost Minimization Analysis (CMA) is only appropriate if the outcomes are shown to be equivalent.If not – must use alternative technique to account for the differenced in outcomes
29 2. Cost-effectiveness Analysis (CEA) If you can measure the therapeutic effect in “natural units” (I.e. weight gained, blood cholesterol level reduction) you compare the Cost per gain in therapeutic effect. Choose the smallest.Cost-Effectiveness Ratio =Cost ($)Therapeutic effect (Natural units)
30 Two ratio calculations for CEA Cost-Effectiveness Ratio =Cost ($)Therapeutic effect (Natural units)Incremental Cost-Effectiveness Ratio =cost differential ($)outcome differential (Natural units)
31 Cost-effectiveness Example Avg.C/E RatioIncrementalDrug A$5030 mg/dlDrug B$7040 mg/dlIn this example, effectiveness is mg of glucose lowered. Could also measure effectiveness as cure rate as in the textbook example.
32 Cost-effectiveness Example Avg.C/E RatioIncrementalDrug A$5030 mg/dl50/30Drug B$7040 mg/dl70/40(70-50)/(40-30)In this example, effectiveness is mg of glucose lowered. Could also measure effectiveness as cure rate as in the textbook example.
33 Cost-effectiveness Example Avg.C/E RatioIncrementalDrug A$5030 mg/dl$1.67per mg/dlDrug B$7040 mg/dl$1.75per mg/dl$2 per additional mg/dlIn this example, effectiveness is mg of glucose lowered. Could also measure effectiveness as cure rate as in the textbook example.
34 3. Cost-Benefit Analysis (CBA) When all costs and benefits of alternative actions are expressed in dollars.There are two ways to express the results:Calculate the Benefit to Cost ratio for each actionBenefit ($)Cost ($)Gives you the value gained per dollar spent (>1)Or calculate the Net Benefit= Benefit ($) – Cost ($)Gives you the net gain (loss) from the action
35 Example of Cost-Benefit Analysis Four therapies are used to control hyperglycemia.Per patient Per dayABCDCost5.884.964.083.78Benefit53.7543.8533.42Net Benefit47.8748.7939.7729.64Benefit/Cost Ratio9.1410.8410.748.84
36 4. Cost-Utility Analysis (CUA) Similar to Cost-Effectiveness, this type of evaluation measures cost per gain in utility derived from the intervention. Utility is a measure how happy, healthy or satisfied someone is. The scale varies. Common examples are 0 – 1 or 0 – 10 or
37 Quality-Adjusted Life Years Utility is often combined with a measure of life expectancy to obtain quality-adjusted life years (QALYs).One healthy QALY = 1.0 is one year in perfect healthDeath QALY = 0.0Example: 3 years of life as disabled (rated at utility 0.5)= 1.5 QALYs
38 Two ratio calculations for CUA Cost-Utility Ratio =Cost ($)QALYsIncremental Cost-Utility Ratio =cost differential ($)outcome differential (QALYs)
39 Cost-Utility example Surgery vs Surgery plus chemotherapy Treatment life yearsUtility(0-1)QALYCU RatioIncremental CU ratioSurgery140003.82.4$5833 per QALYSurgery + chemo270005.63.0$9000 per QALY$21,667 per QALY
40 Cost-UtilityPro: This is the only measure that includes patient quality information.Con: There is a lack of standardization in utility measurement ( I.e. subjective).
41 Sensitivity AnalysisWhen estimating costs and outcomes, you typically have a range of possible values. Sensitivity analysis requires that the results be recalculated at the different values to see if the conclusions change.
42 Sensitivity analysis of Cost-Utility example Surgery vs Surgery plus chemotherapyTreatmentCostlife yearsUtilityQALYrangeCU RatioIncremental CU ratioSurgery140002 - 188.8.131.52$8,750$4,375Surgery + chemo270004 - 184.108.40.206$11,250$7,500no gain - $6,500 per QALY
43 DiscountingIf the analysis spans more than a year, then the dollar values must be adjusted to a common time.Discounting adjusts future costs or benefits using an expected interest or discount rate.Present Value = Future value(1+r)nwhere r = discount rate ( is typical)and n = the number of years in the future.
44 Discounting example Year Costs PV this year 1,500 1 1,429 2 1,361 3 1,296total$6,000$5,586You wish to implement a diabetes DSM program which will cost you $1500 per year. The benefits from this program won’t be evident for 2 years, so you want to evaluate it after 4 years.Use r = .05 (i.e. 5%)
45 Pharmaceutical Pricing When trying to assess cost you need to accurately reflect depending on the perspective.Two issues impact drug price the pharmacy must payPatentAvailable substitutes
46 Pricing conceptsAcquisition cost (AAC) for pharmacy is the trade price less discountsQuantity discountsPromotional discountsAdvertising or display allowancesAverage Wholesale price (AWP) is often used by third-party payers (insurers)
47 Pricing conceptsSeries discounts occur when you have more than one discount applied to a product. You cannot simply add the discounts together to get the single discount equivalent. They are applied to an already discounted amount.To get a single discount equivalent, subtract each rate from 100% and multiply the percents. Subtract the result from 100% to get the single discount rate.
48 Series discount example Your business gets a standard trade discount of 25% from list price. Your order gets a 10% quantity discount. Finally, you get a 3% cash discount..75 x .90 x .97 = .655100% – 65.5% = 34.5% discount rate
49 MarkupPercent over cost that is charged for a product (source of profit).Example if your standard markup is 75%, then how much will you charge for a bottle of aspirin that costs you $1?What is your profit on the sale of that aspirin?
50 Pricing for prescriptions & pharmaceutical services Generally a markup is added to cost of ingredients to get price charged.A dispensing or professional fee can also be added to obtain a final price.This fee is typically an average value of pharmacist services (wage x time spent) provided during a transaction. It should be independent of the cost of ingredients.
51 Summary of Pharmacoeconomic issues PerspectiveType of analysisAppropriate Comparators?Relevant costs and consequencesValidated instrumentsTime period, discountingSensitivity analysisGeneralizability