1. Introduction to Pharmacoeconomics September 15 -16, 2009
Karen L. Rascati, PhD, Professor
The University of Texas College of Pharmacy
Austin, Texas, USA
The Universidade Federal do Rio Grande do Sul (UFRGS) and the Programa of Pós-graduação em Economia (PPGE/UFRGS)

2. Outline Day 1 Part I - What is pharmacoeconomics
Part II – Types of pharmacoeconomic studies
Part III – Costs/Outcomes
Part IV – Evaluating Studies
Part V – Evaluation Example 1

3. Outline Day 2 Part VI – Decision Analysis Part VII – Markov Modeling
Part VIII – Evaluation Example 2
Part IX – Future Issues

4. Part I
What is Pharmacoeconomics?

5. Definition
Pharmacoeconomics “identifies, measures, and compares costs and consequences of pharmacy products and services”
Some consider it a sub-set of health technology assessment (HTA)

6. Pharmacoeconomic Equation
COSTS  RX  OUTCOMES

7. How much is spent on health care per year as a percent of GDP?
In OECD countries?

9. Brazil?

10. Brazil About 8% GDP on healthcare SUS = tax funded system
About half is public spending and half is private spending (for about 20-30% of population) = much more spent per person if using private insurance

11. What is the average lifespan for various OECD countries?

13. Brazil?

14. Brazil
Life expectancy is about 72 years

15. Why is Pharmacoeconomics important?
Pharmacoeconomics helps assess if scarce health care resources are being spent wisely on pharmacy products and services.

16. Part II -Types of Pharmacoeconomic Studies
Cost-minimization analysis (CMA)
Cost-benefit analysis (CBA)
Cost-effectiveness analysis (CEA)
Cost-utility analysis (CUA)
COSTS  RX  OUTCOMES
More than one type may be included in a study (e.g. CEA and CUA)

17. Types of Pharmacoeconomic Studies
Cost-Minimization
Analysis (CMA)
Costs = Monetary units
Outcomes = The same
Cost-Effectiveness Analysis (CEA)
Outcomes = Natural/clinical units
Cost-Utility
Analysis (CUA)
Outcomes = Adjusted by quality/utility (e.g., QALY, DALY)
Cost-Benefit Analysis (CBA)
Outcomes = Monetary units

18. Other ‘Cost’ Studies Cost-consequence analysis (CCA)
Lists costs and various outcomes presented but no calculations or comparisons made
Cost-of-illness (COI)
Estimate of total economic burden (prevention, treatment, losses in productivity) of a particular condition or disease on society

19. Part III – COSTS/OUTCOMES
Cost analysis :To identify resources used or consumed in the production of a good or service and assign monetary values to these resources.
COSTS  RX  OUTCOMES

20. Part III – COSTS/OUTCOMES
PERSPECTIVE = Whose Costs?
Payer (third-party private/public and/or patient)
Provider/ Institution
Employer
Society

21. Types of Costs Direct Medical Costs Direct Non-Medical Costs
Indirect Costs
Intangible Costs

22. Direct Medical Costs
What is paid for specific health care services, such as physician services, hospitalization, and pharmaceuticals
EX: Physical therapy, drugs to tx side effects, costs of clinic visits

23. Direct Non-Medical Costs
Costs necessary to enable patients to receive medical care
EX: Transportation to and from visits, lodging, baby-sitters (special diet)

24. Indirect Costs
Measure of the patient’s lost productivity plus the lost productivity of all unpaid caregivers
EX: Time off from work, less productive days, spouses time off from work.

25. Intangible Costs
Reflect the patient’s level of pain and suffering. These are the hardest to measure.
Anxiety, chronic pain, loss of functioning

26. Examples
A daughter takes a week off from work to attend to her ill father
Inpatient charge of R$268 per day for acute care
Fatigue from chemotherapy
Taxi fare to emergency department
Ambulance service to emergency department

27. Examples INDIRECT COSTS (productivity) DIRECT MEDICAL COSTS
A daughter takes a week off from work to attend to her ill father
INDIRECT COSTS (productivity)
Inpatient charge of R$268 per day for acute care
DIRECT MEDICAL COSTS
Fatigue from chemotherapy
INTANGIBLE COSTS
Taxi fare to emergency department
DIRECT NON-MEDICAL COSTS
Ambulance service to emergency department

28. Example – Types of Costs for Schizophrenia
Direct Medical
Medications
Outpatient/professional services
Inpatient services
Long-term care
Direct Non-Medical
Law enforcement
Shelters
Indirect
Unemployment
Reduced productivity at work
Premature mortality (suicide)
Caregiver

29. Incremental Costs Average costs = total cost / total units
Incremental = Change in total cost / change in units
Example: Drug A is R$500 per patient and is 95% effective while Drug B is R$750 per patient and 97% effective

30. Incremental Calculation
(R$750 – R$500) / (0.97 – 0.95) =
R$12,500 per extra cure

31. Adjusting for Time Differences
Two different concepts
Inflation
If data collected over more than one year
Prices may be adjusted to uniform price
Time Preference
If program or therapy extends more than one year, “discounting” is appropriate
Used even if inflation rate is zero

32. Adjustment for Inflation
Can count number of services/ resources used and multiply by standard costs at one point in time OR
Use inflation rate for past years times cost from past years

33. Adjustment for Inflation
Example of Standardization: Using Consumer Price Index (CPI) - Brazil

34. Discounting A time preference is associated with money
Current and future costs are not valued the same
If the treatment costs (and outcomes*) extend for more than one year, discounting should be conducted to account for this difference.

35. Present Value (PV) Formula
PV = Sum of [FC / (1+r)n] for each year in future
FC = Future Costs (or benefits)
n = number of years
r = discount rate per year

36. Discounting Example

37. Sensitivity Analysis
For any costs “estimates” that are uncertain, a sensitivity or “what if” analysis should be conducted.
How do we know the discount rate is 5%?. Vary the rate from 0% to 10% and see if decision of “least costly” alternative still holds.
Or vary cost of hospitalizations by area

38. Costs - Summary When determining costs: What is the perspective?
Are relevant/realistic costs included?
Is discounting or cost adjustment appropriate?
Is a sensitivity analysis conducted for uncertain values?

39. Types of Pharmacoeconomic Studies
Cost-Minimization
Analysis (CMA)
Costs = Monetary units
Outcomes = The same
Cost-Effectiveness Analysis (CEA)
Outcomes = Natural/clinical units
Cost-Utility
Analysis (CUA)
Outcomes = Adjusted by quality/utility (e.g., QALY, DALY)
Cost-Benefit Analysis (CBA)
Outcomes = Monetary units

40. Cost-Minimization Analysis (CMA)
Costs are measured in monetary units
Outcomes are assumed to be equivalent
Examples: compare generics or home vs. outpatient services.

41. CMA Research Example
Cost-minimization analysis of erlotinib in the second-line treatment of non-cell lung cancer: A Brazilian perspective
Doral Stephani S; Giorgio Saggia M; Vicino dos Santos EA.
Journal of Medical Economics 2008; Vol. (3), p

42. Example CMA
Budget impact of erlotinib versus docetaxol or pemetrexed as second-line treatment for NSCLC
Perspective = Private healthcare payer
Costs = Panel assessed local costs
Outcomes = from clinical trial that assessed progression-free survival

43. Example CMA
Erlotinib was cost saving ($R26,825) compared to established chemotherapy (R$40,217 and R$78,911)
Sensitivity analysis showed robustness

44. Cost-Effectiveness Analysis (CEA)
Advantage: Do not have to place a dollar value on clinical outcomes
Disadvantage: Can only compare options with the same type of outcome, and only one outcome at a time can be measured.

45. Cost-Effectiveness Grid

46. Cost-Effectiveness Grid

52. Cost-Utility Analysis (Some consider this a type of CEA)
Costs measured in dollars
Consequences measured in preference-based measures, such as QALYs/DALYs
Incorporates mortality and morbidity (quality and quantity of life)

53. Steps in Utility Analysis
Describe the health state
Choose the instrument
Administer the instrument
Calculate utility
Calculate QALYs

54. Describe the Health State
Example: You often feel tired and sluggish. A piece of tubing has been inserted into a vein in your arm or leg. This may restrict your movement. There is no severe pain, but rather chronic discomfort. You must go to the hospital 2-3 times per wk (8 hours per visit). You must follow a strict diet (low salt, little meat, small amount of fluid, no alcohol). Many people become depressed because of the nuisances and restrictions, some feel they are being kept alive by a machine.

55. Choose the Instrument THREE COMMON METHODS Rating Scales
Time trade-off (TTO)
Standard Gamble (SG)

56. Rating Scale Endpoints = Dead / Healthy
Other health states are explained and subjects are asked to “rate “ them between the two endpoints
May look like a thermometer
Can compare many health state options and ask raters to place them on one scale

57. Rating Scale
Perfect Health
100
Disease state 58
Death

58. Time Trade-off Subjects are offered two alternatives:
State i for time t, followed by death, or
Healthy time x (less than t) followed by death
Time x is varied until the subject is indifferent between the two alternatives

59. Time Trade-off
Alternative 2
1.0
Alternative 1 i x t

60. Standard Gamble Subject is offered two alternatives:
Alternative 1 is a treatment with 2 possible alternatives; pt. lives healthy life for x years or dies immediately
Alternative 2 is the certain outcome of chronic state i for the rest of their natural life

61. Standard Gamble
healthy p
Alternative 1
1-p
dead
Alternative 2 i

62. Comparing the 3 Methods
Rating Scale easiest but time not incorporated as easily, must transform to QALYs
TTO conceptually easier than SG
SG and TTO give higher values than most using rating scales
TTO sometimes lower than SG
Some consider SG to be “gold standard”
Much research left to answer “which is best”

63. Administer the Instrument - to whom?
The general public
societal perspective
hard to describe to general public
People with the disease
if comparing people with the same disease
may be biased
Health Professionals / Disease Experts
do not have to explain or describe

64. Calculate Utilities Selected utilities from rating scale
1.0 Completely healthy
.84 Kidney transplant
.58 Hosp. dialysis (pts)
.56 Hosp dialysis (public)
.33 Hosp confinement
0.0 Dead
<0 ?

65. Calculate QALYs
For example if dialysis extends a life 10 years at .58 on rating scale = 5.8 QALYs
If Option A cost R$5000 and extends life for 6 years at a quality of .8 and Option B costs R$4000 and extends life for 10 years at a quality of .3, according to CUA which would be preferred?

66. Based on CEA (no adjustment for quality) which option would you pick?
Option A
Option B
Need ICER
Option
Cost
YLS
QALYS A
R$5000
6 years
0.8*6 =
4.8 QALYS B
R$4000
10 years
0.3* 10LYS
3.0 QALYS

67. Based on CEA (no adjustment for quality) which option would you pick?
Option A
Option B
Need ICER
Option
Cost
YLS
QALYS A
R$5000
6 years
0.8*6 =
4.8 QALYS B
R$4000
10 years
0.3* 10LYS
3.0 QALYS

68. Based on CUA (QALYS) Which option would you pick?
Option A
Option B
Need ICER
Option
Cost
YLS
QALYS A
R$5000
6 years
0.8*6 =
4.8 QALYS B
R$4000
10 years
0.3* 10LYS
3.0 QALYS

69. Based on CUA (QALYS) Which option would you pick?
Option A
Option B
Need ICER
Option
Cost
YLS
QALYS A
R$5000
6 years
0.8*6 =
4.8 QALYS B
R$4000
10 years
0.3* 10LYS
3.0 QALYS

70. DALYS DALYs = Disability Adjusted Life Years Similar to QALYs
DALYs = The sum of years of potential life lost due to premature mortality and the years of productive life lost due to disability.
QALYs = Years of healthy life (sum of quality * years)

71. Advantages of CUA Includes patients’ preferences
Provides a single measure to incorporate morbidity and mortality
Allows comparisons across different options

72. Disadvantages of CUA How much is a QALY/DALY worth? Time consuming
Results vary depending on who assesses the conditions and by what instrument is used
Should you discount utilities?
Unanswered questions - Is a 20 QALY gain for one person = a 1 QALY gain for 20 people?
How much is a QALY/DALY worth?

73. Cost-Benefit Analysis (CBA)
Costs measured in monetary units
Outcomes measured in monetary units
Calculate Benefit-to-Cost (B:C) ratio

74. Cost-Benefit Analysis (CBA)
Advantage = can summarize benefits from many sources into one number (money) and compare vastly different options
Disadvantage = difficult to place monetary value on health outcomes

75. Medical
Non-medical
Costs ($)
Benefits ($)
Direct Benefits $
Indirect Benefits $
Intangible Benefits $
Medical
Non-medical
Patient Preferences
Pain
Suffering
Productivity
Human Capital (HC)
WTP
Willingness-to-pay (WTP)

76. Human Capital
Value of health benefits=the economic productivity they permit
Cost of disease=lost productivity
Cost of a sick day=how much you earn that day

77. Human Capital Use discounted values of expected earnings
Census estimates (age, gender, education)
Gather data from individuals
Labor income is estimated as before-tax income
Non-labor income is excluded (interest, etc.)
Use market values value for non-market activities (unpaid household work, child care, etc.)

78. Human Capital Problems Biased against specific groups
Age, gender, education
Earnings may not equal the value of outputs
Professional athlete versus teacher
Does not include values for pain and suffering if the disease state or condition does not impact productivity
E.g., Menopause, Impotence vs. Diabetes, Cancer

79. Willingness-to-Pay
Valuation of goods/services are easier for marketed vs. non-marketed goods/services
Health care vs. coffee or pair of jeans
Valuation of goods/services are based on:
Need
e.g., health care (pain/suffering, productivity, etc.)
Resources
Preference
Easier to place a dollar value on something that you can buy at a store.
Healthcare is different because we are shielded from the true costs of care through copays
Example---back pain
Need-How bad to you feel? Does the back pain keep you from engaging in activities or cause of lot of suffering?
Resources
How much money and time do you have to spend to treat your back pain—chiropractic care
Preference
Do you want to do something about your pain? What is your tolerance for pain?

80. Willingness-to-Pay
Determines how much people are willing to pay to reduce the chance of an adverse health outcome.
Example: If a person was willing to pay R$20 for a ½ hour visit with a pharmacist to improve their diabetes condition, then the imputed benefit/person/visit would be R$20.

81. Willingness-to-Pay Problems
What people say vs. what they will really pay
Inherent biases of surveys (e.g., starting point bias, income bias)
Can the average person answer questions
May not be willing to pay the amount—give a hypothetical response
May be difficult for the respondent to understand the market—particularly pharmacy services—if the patient has not experienced that level of service from their pharmacist.

82. HC vs. WTP Easier to measure
Only considers productivity (in terms of earnings)
Biases against specific groups
More difficult to measure
Captures productivity, patient preferences (intangibles)
Biases may not give accurate responses HC
Use income values
Biases against, age, gender, education
WTP
Time consuming to measure
Captures productivity, but cannot measure it directly with WTP

83. CBA Research Example
Costs and Benefits of Influenza Vaccination and Work Productivity in a Columbian Company from the Employer’s Perspective
Morales A, et al.
Value in Health, Vol 7, No 4, 2004, p

84. CBA Example
Columbian bank employees volunteered to be in a prospective study involving vaccination versus no vaccination for influenza – 8 monthly questionnaires
CBA to determine if employer would save money offering vaccination to employees (therefore perspective = employer (title)

85. CBA Example
Fever of at least 2 days with at least one symptomatioc symptom (fevers, chills, myalgia) and at least one respiratory problem (rhinorrhea, sore throat, cough, hoarseness) = Influenza-like illness (ILI)

86. CBA Example Input costs Outcome costs (diff vacc vs. no vacc)
Direct = vaccine and materials, nurse
Indirect = time lost by employee when getting vaccinated (20 min) and if any days lost due to effects from vaccine
Outcome costs (diff vacc vs. no vacc)
Indirect = sick leave and reduced efficiency at work due to ILI

87. CBA Example Vaccinated = 14.6% ILI Non-vaccinated = 39.4% ILI
Employer saved $6 to $26 US per employee vaccinated (depending on assumed efficiency at work with ILI – range 70% to 30%)

88. Part IV - Assessment of Pharmacoeconomic Studies
1. Is the title appropriate?
2. Is the question (objective) clear?
3. Are the alternatives appropriate?

89. Assessment 4. Are alternatives described in detail?
5. Is the perspective addressed?
6. Is the type of study stated? What type was it?

90. Assessment
7. Are relevant and realistic costs included/ justification for those not included?
8. Are relevant consequences/outcomes included/ justification for those not included?
9. Was adjustment or discounting needed/conducted?

91. Assessment 10. Are assumptions stated/reasonable?
11. Was a sensitivity analysis conducted for important estimates/assumptions?
12. Were major limitations addressed?

92. Assessment
13. Were appropriate generalizations made? Were extrapolations beyond population appropriate?
14. Is an unbiased, impartial attitude portrayed? Was an unbiased summary of the results presented?

93. Part V - Evaluate Example 1
Economic Impact of a Rotavirus Vaccine in Brazil
Journal of Health Population Nutrition, 2008, Vol 26 (4), p

94. Outline Day 2 Part VI – Decision Analysis Part VII – Markov Modeling
Part VIII – Evaluation Example
Part IX – Future Issues

95. Part VI - Decision Analysis
A systematic, quantitative approach for assessing the relative value of one or more decision options.

96. Steps in Decision Analysis
Identify the specific decision
What is the perspective?
What are the competing options?
Over what period of time?

97. Steps in Decision Analysis
Draw the structure over time
Boxes represent choice nodes
(Drug A vs. Drug B)
Circles represent chance nodes
(S.E. or no S.E.)
Triangles represent termination nodes
(live vs. die)

98. Steps in Decision Analysis
Assess the probabilities
Use past literature, experts, judges, panels
Use reasonable ranges for uncertain probabilities

99. Steps in Decision Analysis
Determine the value of each outcome
Options must have the same type of outcome ( $ vs. $ or QALY vs. QALY)
Can look at costs and effectiveness in the same model

100. Steps in Decision Analysis
Conduct a sensitivity analysis
Choose those values or probabilities that are most uncertain or those where a small difference has a big impact on the results
Use reasonable ranges
Calculate threshold values

101. Example From an article by Alan Baskt, Pharm.D.
“Pharmacoeconomics and the formulary decision-making process” in Hospital Formulary, Vol 30, Jan 1995, p

102. Example - ID Decision Background DVT prophylaxis
Newer agent Enoxaparin (Lovenox)
No coagulation monitoring required
Lower DVT rate than heparin
26 times more expensive than heparin

103. Example - ID Decision Perspective Options Time frame Societal
enoxaparin
fixed-dose heparin
low dose warfarin
Time frame
about 1 month

104. Example - Draw Structure

105. Example - Assess Probabilities

106. Example - Determine Values

107. Example - Determine Values

113. Part VII - Markov Modeling
Real health consequences more complex
May need to look at long-term consequences over multiple years
Patients may “transition” from one health state to another over time
Basic decision trees get too complex after a few cycles
Researchers use Markov Modeling to assist with more complex and chronic disease states

116. Part VIII Evaluate Example 2
Cost-effectiveness Analysis of Cervical Cancer Vaccine in Five Latin American Countries
Colantonio L, et al.
Vaccine, Volume 27, 2009, p

117. Part IX - Issues Perspective - Whose costs? Appropriate comparators
Efficacy vs. Effectiveness
Criteria
Length of follow-up
Switching
Outcomes
Accuracy of measurement
Multiple measures

118. Issues Barriers Does not include budget impact
Lack of expertise in economic evaluations
Decision-makers mistrust results
Seen as “rationing” – may not want to acknowledge resources are limited or that trade-offs are necessary

119. For More Information (in addition to my book, of course)…
Methods for the Economic Evaluation of Health Care Programmes, 3rd ed. Drummond, Sculpher, Torrance, O’Brien and Stoddart, 2005
Health Care Cost, Quality, and Outcomes: ISPOR Book of Terms, Berger et al, 2003 – available soon in Portuguese.
International Society for Pharmacoeconomics and Outcomes Research