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Drug and Therapeutics Committee
Session 6. Evaluating the Cost of Pharmaceuticals
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
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
Outline Introduction Key Definitions Cost-Evaluation Methods
Cost-Minimization Analysis Cost-Effectiveness Analysis
Evaluating Pharmacoeconomic Studies Activities Summary
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
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
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)
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
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
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.
Cost-Minimization Analysis: Example 1
Category Medicine A Medicine B Acquisition price USD* 8.00 USD15.00 Pharmacist salary 2.50 1.50 Nursing salary 2.50 2.00 Supplies 9.00 2.25 Laboratory services 4.00 1.00
Total USD 26.00 USD 21.75
*USD refers to U.S. dollar
Cost-Minimization Analysis: Example 2Cost Categories Ampicillin Ceftriaxone Gentamicin
(500 mg) (1 g) (80 mg)Acquisition price for one vial USD1.00 USD 8.00 USD 2.00Doses per day 4 1 3 Price per day USD 4.00 USD 8.00 USD 6.00Nursing salary atUSD 0.75 per injection USD 3.00 USD 0.75 USD 2.25Equipment: IV set at USD 1.00/set — USD 1.00 — _ Syringe/needle 0.50/set USD 2.00 — USD1.50Laboratory tests USD 2.00 USD 2.00 USD 4.00Total medicine costs/day USD 11.0 USD 11.75 USD 13.753,000 treatment-days/year 3,000 days 3,000 days 3,000 daysTotal medicine costs USD 33,000 USD 35,250 USD 41,250
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
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.
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
Example of CEA: Medicine CostsCost/unit(USD)*
No. ofunits
No. ofpatients
Total cost(USD)
Medicine AMedicine cost
40 12 100 48,000
Lab cost 20 1 100 2,000Adverse event
50 2 100 10,000
Physician 25 2 100 5,000Total 65,000
Medicine BMedicine cost
25 12 100 30,000
Lab cost 20 2 100 4,000Adverse event
50 3 100 15,000
Physician 25 3 100 7,500Total 56,500
*USD equals U.S. dollar
Example of CEA: Benefits
Drug B
Cos t o f drug = $44.50 Cost o f drug $56.00
Effectiveness of drug = Average decrease in A1C = 1.5
Effectiveness of dr ug = Average dec rease in A1C = 0.8
Cos t-effective ratio$29.33/1 unit of A1C
Cost-effectiv e ra tio$70.00/1 unit of A1C
Effectiveness
Medicine A Medicine B25/100 patients 19/100 patients
Clinical outcome: number of patients with ≥ 1% decrease in glycosylated hemoglobin over one year
Example of CEA: Incremental Cost-EffectivenessComparison between medicines A and B for 100 patients for 1 year
Medicine A Medicine B
Net costs USD* 65,000 56,500
Effectiveness No. patients with ≥ 1% decrease in glycosylated hemoglobin 25 19
Incremental Cost Effectiveness Ratio =(65,000-56,500)/(25-19) = USD1,416.67 per extra patient with ≥ 1% decrease in glycosylated hemoglobin.
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.
CEA of Two Thrombolytics in Acute MI in Australia (2)
Comparison of the Treatments
1. Difference between UC + SK and UC of MI:
Cost of treatment = AUD 3.7 – 3.5 million/1,000 cases = AUD 0.2 million/1,000 cases = AUD 200/case
Number of deaths prevented= 120 – 90 = 30 deaths/1,000 cases treated
Incremental cost effectiveness of SK compared with UC= AUD 0.2 million/30 lives = AUD 6,700/life saved
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 tPAvs. UC= AUD 2.0 million/40 lives= AUD 50,000/life saved
CEA of Two Thrombolytics in Acute MI in Australia (4)
3. Difference between tPA and SK treatments for
MI:
Cost of treatment = AUD 2.0 - 0.2 million/1000 cases = AUD 1.8 million/1000 cases= AUD 1,800/case
No. of deaths prevented = 90 - 80 = 10 deaths/1,000 cases treated
Extra cost effectiveness of tPA over SK = AUD 1.8 million/10 lives = AUD 180,000/life saved
CEA of Two Thrombolytics in Acute MI in Australia (5)
If one has a budget of only AUD 500,000—
For SK = 500,000 ÷ 200 = 2,500 cases
Number of lives that can be saved = (30 ÷ 1,000) × 2,500 = 75 lives
For tPA = 500,000 ÷ 2,000 = 250 cases
Number of lives that can be saved = (40 ÷ 1,000) × 250 = 10 lives
Which regimen should the DTC choose?
CEA of Two Thrombolytics in Acute MI in Australia (6)
The study concluded that although tPA had slightly better efficacy and saved marginally more lives, when cost was taken into account, more patients could be treated and more lives saved using SK.
Other Controversial Cost AnalysesCost-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
Sensitivity TestingUsed to measure how different assumptions made in a particular cost analysis will affect the conclusions
Method—Change the assumptions concerning the cost of different variables, and repeat the cost-analysis study to see if the results supporting the original conclusion change.
Examples of variables used in a cost analysis studies that can be varied in a sensitivity analysis: cost of physician visits, price of medicines, cost estimate of ADRs, number of ADRs experienced, laboratory tests required
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
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
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?
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
Activities Activity 1—Cost Minimization Analysis of
NSAIDs
Activity 2—Cost-Effectiveness Analysis of Two Antimalarial Treatments
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