1. Presentation Developed for the Academy of Managed Care Pharmacy
Pharmacoeconomics
Presentation Developed for the Academy of Managed Care Pharmacy
Updated: February 2016

2. Objectives Define the term pharmacoeconomics
Differentiate between the types of pharmacoeconomic evaluation methods
Discuss various considerations essential to evaluating a pharmacoeconomic design
Provide examples of how pharmacoeconomics is applied in practice and various roles for the pharmacist

3. Definition of Pharmacoeconomics
The process of identifying, measuring, and comparing the costs, risks, and benefits of programs, services, or therapies
To determine which alternative produces the best health outcome for the resource invested
Most impactful when making decisions about a population rather than individual
“Costs vs. Consequences of Alternatives”

4. Types of Economic Evaluation
Cost of illness evaluation (COI)
Cost minimization analysis (CMA)
Cost benefit analysis (CBA)
Cost effectiveness analysis (CEA)
Cost utility analysis (CUA)

5. Cost of Illness Evaluation
Also termed cost consequence model
Description: Estimates the cost of a disease within a defined population
Application: Provides a baseline for evaluating the impact of prevention/treatment options
Measurement Units: Monetary ($)
Example: Cost of peptic ulcer disease

6. Cost Minimization Analysis
Description: Identifies intervention cost differences between similar alternatives
Application: Identify least costly alternative when outcomes/consequences are identical
Measurement Units: Monetary for intervention costs (no outcomes measured)
Example: Comparing costs of Drug A and Drug B, which have evidence of equal efficacy for a given condition and safety (incidence of ADRs)
Advantages: Ease-of-use
Disadvantages: Few alternatives are known to have the “same” outcomes

7. Cost Benefit Analysis
Description: Identifies net cost impact of an intervention
Measurement Units: Monetary for both intervention costs and outcomes
Calculated: Benefit($)/Cost ($)
Application: Compare programs or agents with different objectives or 1 program against a return on investment benchmark
Example: Clinical pharmacy service vs. other institutional service
Advantages: Comprehensive, Allows comparison of different areas
Disadvantages: Complex

8. Cost Effectiveness Analysis
Description: Compares costs of two or more alternatives versus outcomes measured in natural units
Measurement Unit: Monetary for cost, outcome in physical measures i.e., event avoided
Incremental cost to achieve a one unit increase in outcome
ICER = ∆Cost/∆Effect
= (CTx1 – CTx2)/(ETx1 – ETx2)
Application: Compare treatment alternatives for a given condition that differ in outcomes and costs
Example: Osteoporosis Drug A vs Drug B on fracture risk reduction ($/fracture avoided)
Advantages: Most commonly used form of analysis
Disadvantages: Unable to compare different programs or therapeutic classes, Unable to judge “true” worth

9. Cost Utility Analysis
Description: Subset of cost effectiveness analysis -outcomes are measured in utility units
Utilities represent patient preferences and quality of life/functional status associated with disease and/or treatment
QALY: Quality adjusted life year – factor of life expectancy and utility
e.g., 4 years at 25% QOL = 1 year at 100% QOL
ICER = (CTx1 – CTx2)/(QALYTx1 – QALYTx2)
Application: Same as CEA, useful when treatment extends life and/or effects quality of life
Example: Compare cancer chemotherapy regimens
Advantages: Able to evaluate years of life as well as quality of life
Disadvantages: Concerns with validity

10. Cost Effectiveness Plane

11. Cost Effectiveness Plane
Reject
Accept

12. Recap of Pharmacoeconomic Analyses
Model Type
Units
Outcomes
Comparison
Cost Minimization
Costs in $
Assumed to be equal
2+ similar alternatives
Cost Benefit
Costs and benefits in $
Can differ by type of outcome
2+ interventions/programs or 1 vs. benchmark
Cost Effectiveness/Utility
Costs in $, benefits in non $ units
Presumed to differ, but must be same type of outcome
2+ alternatives

13. Considerations for Designing or Evaluating Pharmacoeconomic Studies
Costs
Direct medical – e.g., medication and administration
Direct non-medical – e.g., transportation for treatment
Indirect – e.g., lost wages due to illness
Intangible – e.g., pain, suffering
Perspective
Patient, Provider, Payer, Society
Perspective dictates what costs are considered
Direct Health Care Costs: Drug, services, health care professionals time, health care facilities
Direct Non-Health Care Costs: Private transportation, patient and family time, special diet
Indirect Costs: Productivity losses related to illness, Productivity losses related to death, Different than the “accounting” concept
Intangible Costs: Costs associated with pain and suffering
Perspective – drives costs and consequences considered
Discounting Costs & Outcomes: Allowance for the development of the differential effects of the options
Sensitivity Analysis: Changing the value of variables to account for uncertainty; identifies what factors, which if changed, impact conclusions

14. Considerations for Designing or Evaluating Pharmacoeconomic Studies
Discounting - value of money changes over time
A dollar is worth more today than in the future
Sensitivity Analysis
Challenges results and tests assumptions by altering variables
Accuracy and transparency
Clearly documented study design, assumptions, inputs
Face Validity
Do the assumptions/input and alternatives reflect reality
Direct Health Care Costs: Drug, services, health care professionals time, health care facilities
Direct Non-Health Care Costs: Private transportation, patient and family time, special diet
Indirect Costs: Productivity losses related to illness, Productivity losses related to death, Different than the “accounting” concept
Intangible Costs: Costs associated with pain and suffering
Perspective – drives costs and consequences considered
Discounting Costs & Outcomes: Allowance for the development of the differential effects of the options
Sensitivity Analysis: Changing the value of variables to account for uncertainty; identifies what factors, which if changed, impact conclusions

15. Economic Modeling
Analytic models used to predict economic consequences of coverage, treatment, and access decisions
budget impact, cost effectiveness, cost minimization
E.g., evaluate the impact of adding drug A to the formulary
Constructed by health plans, pharmaceutical manufacturers, academic groups, and consultants

16. Economic Modeling
Good practice guidelines for model development should utilized in constructing models
Promote transparency, minimize bias
Guidelines also exist to facilitate the evaluation of pharmacoeconomic studies

17. Applications in Practice & Roles of the Pharmacist
Assist in the design and implementation of research studies
Evaluate pharmacoeconomic literature
Apply results to clinical decision making
Individual patient care
Formulary/utilization management
Disease management
Resource allocation

18. Helpful Resources
Navarro RP, ed. Managed Care Pharmacy Practice. 2nd edition. Jones and Bartlett Publishers: Sudbury, MA; 2009.
Rice TH, Unruh L. The Economics of Health Reconsidered 3rd ed. Chicago, IL. Health Administration Press, 2009.
Assessed Sept. 16, 2013.
Husereau D, Drummond M, Petrou S, et al. Consolidated Health Economic Evaluation Reporting Standards (CHEERS)—Explanation and Elaboration: A Report of the ISPOR Health Economic Evaluation Publication Guidelines Good Reporting Practices Task Force. Value in Health. 2013; 16:

19. Conclusion
Pharmacoeconomic evaluations consider cost compared to consequences of treatment alternatives
Results are used to support population-level decisions regarding medication coverage and use
Best-Practice principles should be used in designing pharmacoeconomic studies to optimize transparency and reduce bias

20. Thank you to AMCP member Carrie McAdam-Marx for updating this presentation for 2016.