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

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

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

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

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

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

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

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

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

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

11. Cost-Minimization Analysis: Example 1
Category Medicine A Medicine B
Acquisition price USD* USD15.00
Pharmacist salary
Nursing salary
Supplies
Laboratory services
Total USD USD 21.75
*USD refers to U.S. dollar

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

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

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

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

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

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

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

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

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

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

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

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

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

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

26. Sensitivity Testing

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

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

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

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

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

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