Pharmacoeconomics - Part I

HPH 4103
PHARMACOECONOMICS – Part 1
8/3/22
Addressed Learning Outcome:
• Apply basic principles of pharmacoeconomics to pharmacy

practice
• Describe the outset and main notions of pharmacoeconomics, as a
field of study and research, and recognize the roles of such field in
the healthcare service industry.
• Explain and interpret the basic principles of pharmacoeconomics
• Cost Minimization Analysis, CMA ; Cost Effectiveness Analysis, CEA ;
Cost Utility Analysis, CUA, Cost Benefit Analysis, CBA).
OVERVIEW OF PRESENTATION
• Brief History
• Introduction
• Pharmacoeconomics Evaluation
• Methods for Evaluation
• Assessment of Results
• Limitations of Evaluation
• Conclusions
HISTORY
• Economic evaluations in the field of pharmacology started about 30 years ago.
• In 1978 McGhan , Rowland & Bootman , from the university of Minnesota, introduced the concepts of
cost-benefit & cost- effectiveness analyses.
• The term pharmacoeconomics was used on a public forum for the first time in 1986 by Townsend.
• “the description and analysis of the costs of drug therapy to health systems and society”
• Fundamentally comparative, weighing the costs and benefits of 2 options- Most efficient
• Health economics is the science of assessing cost and benefits of health care.
• Pharmacoeconomics is a branch of health economics which compares the value of one drug or a drug therapy to another.
WHAT IS PHARMACOECONOMICS
What is Pharmacoeconomics
• HEALTH CARE
Output costs
Input costs
Definition of Pharmacoeconomics
• The description & analysis of the costs of drug therapy to health
care system & society
• Pharmacoeconomics identifies, measures, and compares the costs
and consequences of drug therapy to healthcare systems and
society. Due to the high pricing of drug, it is very essential in
pharmaceutical industry, government, and in the private sector for
comparing various cost consequences.
Why Pharmacoeconomics is important?
• Health care costs have been increasing each year more than the average rate of inflation. This
continued increase in costs has resulted in a need to understand how limited resources can be
used most efficiently and effectively.
• For example, two medications that were approved by the U.S. Food and Drug Administration
(FDA) in 2012 (Kalydeco for cystic fibrosis and Gattex for short bowel syndrome) are planned to
be priced at about $300,000 per year. It has been argued that these medications save enough—
by decreasing the number of hospital admissions or the need for parental nutrition—to offset
their high cost.
• Clinicians want their patients to receive the best care and outcomes available, and payers want
to manage rising costs.
• Pharmacoeconomics combines these objectives by estimating the value of patient outcomes
received for the expenditures spent on medications and other health care products and services.
Why should a health care professional (or a student in a
health care profession) learn about pharmacoeconomics?
• Some professionals will incorporate this information on a patient-by-patient basis, while
others may specialize and make formulary and resource allocation decisions based on
pharmacoeconomic analyses.
• If a new branded medication is approved by the FDA that has an advantage over another
marketed medication that is less expensive, the professional can take this into account. For
example, if the new treatment is $100 per month compared with a similar treatment that is
available for $20 per month, is the extra $35 per month out-of-pocket costs worth it to the
patient?
• If the advantage is slight (e.g., more convenient once a-day dosing compared with twice-a-
day dosing of its competitor), the patient might not value the added convenience at $35 per
month. But if the advantage is a reduction in side effects (e.g., no diarrhea or no daytime
drowsiness), the added advantage may be worth the added cost (willingness to pay).
Who pays for medical bills?
• Patient
• Government
• Insurance companies
• Pharmacoeconomics research identifies, measures & compares the
costs( i.e. resources consumed ) & consequences (i.e. clinical,
economic , humanistic) of pharmaceutical products & services
• PE analysis
• Efficient allocation of limited resources among competing alternative
medications and services
• PHARMACOECONOMICS BENEFITS ??
• Helps to decide which drug to develop
• To estimate and understand the full impact of new therapy
• To make an informed decision regarding appropriate use of drug which have

been developed
• To make the best use of limited resources

Goals
• To determine which healthcare alternatives provide the best
healthcare outcome in terms of money spent
PRINCIPLES
• Outcome Research
• Means to identify, measure and evaluate the result of healthcare researches in
general ( perspective).
• Cost-
• It is value of resources consumed by a program or drug therapy of interest.
• Consequences-
• Effects, outputs or outcomes of program or drug therapy of interest.
Pharmacoeconomics Perspectives
Types of Costs
• Cost involves all the resources that are used to produce and
deliver a particular drug therapy
• Direct costs
• Medical vs Nonmedical
• Indirect costs
• Intangible costs
• Opportunity costs
Direct Medical Costs: Costs of medical services
• These include:
• Fixed costs or costs that do not vary immediately with the number of patients
treated. E.g. capital costs of hospital building or equipment etc.
•
• Variable costs or costs that vary immediately with number of patients treated. E.g.
costs of drugs, syringes, needles etc.
Direct non-medical costs:
• Costs incurred by the patient in receiving medical care. E.g. transportation to and
from hospital.
• Indirect cost: e.g. income lost because of absenteeism, loss of
productivity
• Intangible costs
• Costs of pain, worry and other suffering which a patient or his
family might suffer
• Opportunity costs
• The amount lost by not using economic resources in its best
alternative use (labour, capital, building, management etc)
• Direct Costs = Direct Medical Costs + Direct non-medical costs
• Indirect Costs = Morbidity costs + Mortality costs
• Total costs = Direct costs + Indirect costs + Intangible costs
PERSPECTIVES OF
PHARMACOECONOMICS
• Patient perspective
• Provider perspective
• Payer perspective
• Societal perspective
PATIENT PERSPECTIVE
• All the relevant cost and consequences experienced by the patient
• Included costs:
• Direct
• Indirect
• Intangible
PROVIDER PERSPECTIVE
• Concerned with the expenses of providing products or services
• Included costs:
• -Direct costs only
PAYER PERSPECTIVE
• Social Security/Government, third party payers eg. private
insurance companies and employers
• Included costs:
• Direct costs
• Indirect costs
• relevant to employers lost workdays
• lost productivity at work
SOCIETAL PERSPECTIVE
• The broadest of all perspectives that comprehensively evaluates all
costs and consequences
• Considers the benefits to society as a whole Included costs:
• Direct; overall cost of providing care
• Indirect; loss of productivity
References
• Rascati, K. L. (2014). Essentials of pharmacoeconomics.
Philadelphia: Wolters Kluwer Health/Lippincott Williams & Wilkins.

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HPH 4103

• Apply basic principles of pharmacoeconomics to pharmacy

• Economic evaluations in the field of pharmacology started about 30 years ago.

• To estimate and understand the full impact of new therapy

• To make an informed decision regarding appropriate use of drug which have

• To make the best use of limited resources

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