pharmacoeconomics and management in pharmacy vstsimonpharmacy.com/docs/pharmacoeconomics and...
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2011 [UNIT PH 3340] 1
Pharmacoeconomics and
Management in Pharmacy V
[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]
2011 [UNIT PH 3340] 2
Pharmacoeconomic news
review
[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]
J. Vella [PH 3340]
MMR controversy (i)
Godlee F et al. BMJ 2011;342:bmj.c7452
©2011 by British Medical Journal Publishing Group
J. Vella [PH 3340]
MMR controversy (ii)
• Last week it was confirmed that not only did
the researcher involved, Dr. Wakefield,not
obtain ethical permission for the study, but
also that
• ‗Drawing on interviews, documents, and data made public at the GMC
hearings, Deer shows how Wakefield altered numerous facts about the
patients’ medical histories in order to support his claim to have identified
a new syndrome; how his institution, the Royal Free Hospital and
Medical School in London, supported him as he sought to exploit the
ensuing MMR scare for financial gain; and how key players failed to
investigate thoroughly in the public interest when Deer first raised his
concerns.’ 4
J. Vella [PH 3340]
Price cuts, again! (i)
5
J. Vella [PH 3340]
Price cuts, again! (ii)
6
J. Vella [PH 3340]
Price cuts, again (iii)
• The CCD continues with price reductions on
selected products
• The real effect on the average cost of
medication has yet to be evaluated
• The majority of products are branded
• A better strategy might be a comprehensive
country-wide generic education and
promotion campaign
7
J. Vella [PH 3340]
Price cuts, again (iv)
• The introduction of sliding scale dynamics
for generic MA approvals
• Incentives for prescribers related to
prescribing budgets
• Public education on the equivalence and
cost-savings associated with available
alternatives to drug therapy
8
J. Vella [PH 3340]
Examples of different types of dispensing margins to
create different incentives for rational dispensing
• Cost + fixed percentage
– e.g.: cost to pharmacist + 20 %
• Cost + declining percentage
– e.g.: cost + 20% for cheaper drugs,
declining to 5% for expensive drugs
• Cost + fixed professional fee
– e.g.: cost + € 3 professional dispensing fee
• Cost + differential professional fee
– e.g.: cost + € 4 for generics, € 2 for brand
name drugs
J. Vella [PH 3340]
Manufacturers refuse to supply Malta?! (i)
10
J. Vella [PH 3340]
Manufacturers refuse to supply Malta?! (ii)
• This article states that some foreign
distributors could drop supplies to Malta on
economic grounds
• Its has happened in Greece following
enforced price reductions of 25%, leading to
the withdrawal of Leo and Novo Nordisk
• The consequences would be untold pressure
and the state system, and a rise in private
black market prices 11
J. Vella [PH 3340]
Greek tragedy?!
12
J. Vella [PH 3340]
Pharmacies risk closing down!!
13
J. Vella [PH 3340]
Initial comment (i)
• The article was ill-advised
• It gave the impression that all pharmacy
operators were interested in was profit
• It in no way mentioned the primary
professional raison d’etre, that of patient
care
• It was given weight because of the standing
of the person quoted
14
J. Vella [PH 3340]
Initial comment (ii)
• Public reaction was overwhelmingly against
the statement, and also, judging by the blog
posts in the TOM, against pharmacists in
general
• The lack of information regarding medicine
prices and profits leads to much
misunderstanding and misconception
15
J. Vella [PH 3340]
Reaction to the article
16
J. Vella [PH 3340]
Pending applications
• This was carried the next day
• It insinuates that pharmacies are definitely
profit-making as none of the applications
were withdrawn
• All the actors involved do not have a clear
picture of the profitability of a pharmacy in
the Maltese Islands
17
J. Vella [PH 3340]
Profit and loss template
SALES €350,000
COST OF SALES €291,667
GROSS PROFIT €58,333
OPERATING EXPENSES
WAGES €25,000
€9,000
INSURANCE €1,500
W&E €2,500
EXPIRED GOODS €1,500
TELEPHONE €1,000
RENT €7,000
MISC €1,500
TOTAL EXPENSES €49,000
NET PROFIT €9,333
18
2011 [UNIT PH 3340] 19
Pharmacoeconomic
evaluation of medicine price
components
[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]
J. Vella [PH 3340]
Basic facts
• Medicine prices are not just a vague concept
• The consumer end-price is arrived at after a
complex marketing strategy
• The components of a medicine price and its
context must be evaluated before passing
judgement on its cost-effectiveness
20
J. Vella [PH 3340]
Health center charges Retail Markup
MSP
Local
Transport
MSP
Frieght
Insurance
•Overhead Costs
•Rent
•Salaries
•Electricity
•Security
Warehouse markup, Government Store Charges Local Transport
• Dispensing Fee
• Sales Tax
• VAT
IMPORTED LOCALLY PRODUCED
STA
GE
5
S
TA
GE
4
S
TA
GE
3
S
TA
GE
2
STA
GE
1
DIS
PE
NS
ED
CO
ST
R
ET
AIL
WH
OL
ES
AL
E
L
AN
DE
D C
OS
T
CF
T/
MS
P
OR
Drug Price
Component
Stage model
(WHO-HAI)
A medicine
price is
composed of a
variety of
different
individual units
all contributing
to the final cost
of treatment
.
.
J. Vella [PH 3340]
The price of a medicine in Malta
22
16.67%
10.87%
6.59% 65.88%
Deconstruction of Pharmacy medicine price
Pharmacy Margin Distributor Margin Freight & Insurance Ex-factory
J. Vella [PH 3340]
Common misconceptions (i)
• Many members of the public are under the
impression that there exists a system of free
pricing
• This may be because pharmaceuticals are a
negative product, i.e. consumers do not
obtain inherent satisfaction from their
purchase
• Profits are assumed to be extravagant
23
J. Vella [PH 3340]
Common misconceptions (ii)
• the concept of volume and price elasticity
must be appreciated
• The Maltese market is too small to sustain
high volume throughputs and thus lower
purchase prices in certain cases
• One approach would be a concerted effort to
promote greater generic penetration and
lower average medicine prices
24
J. Vella [PH 3340]
Price regulation
• Profit on medicines is fixed according to
percentage mark-ups
• A distributor gets 15% on landed cost and
the community pharmacy 20%
• The wholesale dealer‘s margin is taken out
of the distributor percentage
• The CCD(Consumer Competition
Directorate) carries out regular inspections
to ensure compliance 25
2011 [UNIT PH 3340] 26
Innovation and the cost of
pharmaceutical products
[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]
J. Vella [PH 3340]
27
The Product Development Continuum
Pharmaceutical
Medical Device
Product
Development
Product
Commercialisation
Customer
Need
Commercial
Opportunity
Activities - Costs - Timelines
Risk Value
Time
J. Vella [PH 3340]
The development of new
medicines
• Pharmaceutical companies develop new
drugs not out of a altruistic motivation, but
rather because they fulfill a human need for
treatment and convert it into a commercial
opportunity
• Without this commercial angle
pharmaceuticals would still be in the stone
age
28
J. Vella [PH 3340]
Pharmaceutical product lifecycles (i)
• product design is driven by customer need
and by commercial opportunity
• design becomes reality through the
development process
• the cost of development, the market
opportunity and, importantly, risk, are
integrated to estimate a product value
29
J. Vella [PH 3340]
Pharmaceutical product lifecycles (ii)
• Product lifecycles are decreasing in length
• companies are taking longer to come to
market
• 1996 11yrs 1999 13yrs
• genomics may shorten this time
• increasing competition is also a factor
30
J. Vella [PH 3340] 31
Trends in average longevity, 1994-2002
Source: John Ansell Consultancy (2003)
Average Longevity (years)
16.9
15.416.3
13.714.3
13.713.0 12.8
16.9
10
12
14
16
18
1994 1995 1996 1997 1998 1999 2000 2001 2002
J. Vella [PH 3340] 32
2001
ranking
Brand
name
Marketer Year of first
launch
Year of
peak sales
Longevity (years)
1 Zocor Merck & Co 1988 not reached 13+
2 Lipitor Pfizer 1997 not reached 4+
3 Losec AstraZeneca 1988 2000 12
4 Norvasc Pfizer 1990 not reached 11+
5 Procrit Johnson & Johnson 1988 not reached 13+
6 Claritin Schering-Plough 1988 not reached 13+
7 Celebrex Pharmacia 1999 not reached 2+
8 Zyprexa Lilly 1996 not reached 5+
9 Prevacid TAP 1992 not reached 9+
10 Paxil GlaxoSmithKline 1991 not reached 10+
Further
selected
products
15 Premarin Wyeth 1942 not reached 59+
17 Augmentin GlaxoSmithKline 1981 not reached 20+
18 Prozac Lilly 1986 1998 12
44 Humulin Lilly 1982 2000 18
Longevity for selected products from global Top 50
John Ansell Consultancy / Decision Resources (2001)
J. Vella [PH 3340]
The enormity of the pharmaceutical
business sphere (Figures for pharmaceutical production in Europe 1980-2005 in € Millions)
33
20336
39821
60220
87799
121471
160769
170000
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
1980 1985 1990 1995 2000 2004 2005
Source: EFPIA member associations (official figures) – Data 2005: EFPIA estimate
J. Vella [PH 3340]
The route a drug takes from
discovery to the patient
1 medicinal product
0 5 years 10 years 15 years 20 years
Patent expiry
SPC
(supplementary
protection certificate)
max. + 5 years
10 years of research
2 to 3 years of administrative
procedures Source : « Recherche & Vie », LIM (AGIM)
1
J. Vella [PH 3340]
R&D as a % of sales for
pharmaceutical companies
35
15,618,5 19,3 20,3
18,6 18,3 (e)
0
5
10
15
20
25
1985 1990 1995 2000 2003 2004
%
J. Vella [PH 3340]
R&D
• R&D costs are high within the
pharmaceutical industry
36
J. Vella [PH 3340]
R&D - Scientific Risk
Discovery and Development of a Successful NCE
0
1
2
34
5
6
7
8
9
10
1112
13
14
15
Quantity of Substances
Yea
rs
Source: Based on PhRMA analysis, updated for data per Tufts Center for the Study of Drug Development (CSDD) database.
Introduction/Registration
Development
Basic Research
Post-Marketing
Surveillance
Clinical Tests (Humans)
Preclinical Tests (Animals)
1
2
2-5
5-10
10-20
3,000-10,000
Phases
IV
III
II
I
J. Vella [PH 3340]
Estimated full cost of getting a new drug to
market
Note: Data have been expressed in € million, 2000 euros
Source: J.A. Di Masi, R.W. Hansen, and H.G. Grabowski, ‗The Price of Innovation: New Estimates of Drug Development Costs‘,
Journal of Health Economics 22(2003): 151-185
149344
868
0
200
400
600
800
1000
1975 1987 2000
J. Vella [PH 3340]
High Costs of innovation
• Rising costs have had an impact on various
sectors of the pharmaceutical field
• Innovation has been curtailed as it becomes
more expensive to bring a drug to market
• Drugs are targeted towards the more affluent
regions of the world, as these can pay for
them
• Drug companies are merging in an effort to
reduce duplicated costs 39
J. Vella [PH 3340]
New molecular entities 1986-2005
Source: SCRIP Publications - EFPIA calculations (according to nationality of mother company)
104
78
94
515154
83
61
7073
31
23
13
6 3
14
0
20
40
60
80
100
120
1986-1990 1991-1995 1996-2000 2001-2005
Europe
USA
Japan
Others
J. Vella [PH 3340]
Medicines only for the rich?!
• The majority of pharmaceutical sales are
concentrated in North America, Europe and
Japan
• Less developed regions are ignored as they
do not offer the potential for huge profits
• Hence legislation for orphan drugs and
neglected diseases
41
J. Vella [PH 3340]
Source: IMS MIDAS, MAT February 2006 (totals do not add due to rounding)
47,0%
30,0%
10,7%
8,2%4,2%
North America (USA,
Canada)
Europe
Japan
Africa, Asia
(excl.Japan) & Austr.
Latin America
Worldwide distribution of pharmaceutical
sales 2005
J. Vella [PH 3340]
Pricing of an innovative pharmaceutical
product
• Typical pricing strategies for new
innovations:
• Market skimming strategy (high initial
prices)Signals market that innovation is
significant and can recoup development
expenses (assuming there‘s demand)
• Attracts competitors, may slow adoption
J. Vella [PH 3340]
Pricing of a generic pharmaceutical
product
• Generics adopt Penetration Pricing (very
low price or free to gain market share)
• Accelerates adoption, driving up volume
• Requires large production capacity be
established early
• Manufacturing must be efficient as it the
resale price is much closer to the marginal
cost of production
2011 [UNIT PH 3340] 45
Rising pharmaceutical care
costs
[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]
J. Vella [PH 3340]
Pharmaceutical expenditure in the
Maltese Islands
• € 36.5 million in 2003
• € 76.4 millionin 2010
• A sharp increase, more than double in 7
years
46
J. Vella [PH 3340]
The public health system and
pharmaceutical care
47
J. Vella [PH 3340]
J. Vella [PH 3340]
Increasing healthcare expenditure
49
J. Vella [PH 3340]
Annual Expenditure on health in
the Maltese Islands
50
36,554,174
48,822,085 50,524,361 49,921,120
64,000,000
64,000,000
76,377,999
0
50,000,000
100,000,000
150,000,000
200,000,000
250,000,000
300,000,000
350,000,000
400,000,000
2003 2004 2005 2006 2007 2008 2009
Exp
en
dit
ure
€ M
illio
ns
Year
Pharmaceuticals
Health Budget
J. Vella [PH 3340]
New Medicines Increase Longevity
0.120.23
0.30
0.570.45
0.76
0.56
1.07
0.62
1.37
0.70
1.65
0.79
1.96
0.0
0.5
1.0
1.5
2.0
2.5N
um
be
r o
f Y
ea
rs I
nc
rea
se
d L
on
ge
vit
y
1988 1990 1992 1994 1996 1998 2000
Increase in Longevity Due to
New Drug Launches
Total Increase in Longevity
They Account for 40% of Increase in Life Expectancy
Data source: Lichtenberg8
J. Vella [PH 3340]
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
$1,800,000
$2,000,000
'65 '70 '75 '80 '85 '90 '95 '00 '04
Do
lla
rs (
in M
illio
ns
)
Note: Total health care expenditures for 2004 were $1.9 trillion.
* Now revised to Structures and Equipment
** Now revised to Government Public Health Activities
Data source: U.S. Department of Health and Human Services, Centers for Medicare & Medicaid Services,
Office of the Actuary6
Research and Construction*
Personal Medical Equipment
and Nonprescription Drugs
Nursing Home and Home
Health Care
Net Cost of Private Health
Insurance, Administrative
Costs, and Public Health
Programs**
Hospital Care
Prescription Drugs
Doctors, Dentists, and Other
Professional Services
Health Care Costs: 1965–2004 US
J. Vella [PH 3340]
n Therapeutic shift from inpatient to outpatient care with drug therapy
n Direct-to-consumer (DTC) advertising and consumer demand
n Existing drugs — expanded applications and more aggressive treatment guidelines
n New drug ―improvements‖ and ―new markets‖
n Price inflation n Demographic shifts
Reasons Implications
Why more spending?
n More users
n More prescriptions per user
n More expensive mix
n Higher unit costs
Spending on healthcare is increasing annually in the Maltese Islands
J. Vella [PH 3340]
Solutions to increased costs
• Paradoxically increased investment in
pharmaceutical care can lead to overall
reduction in healthcare costs
• This is demonstrated in the following two
slides with data from the United States
• Locally, a strong case is made for
considerable investment in obesity
prevention and diabetes education in an
effort to defray future costs
54
J. Vella [PH 3340]
Disease Management Program Increases
Use of Diabetes Medicines and Reduces
Total Health Spending
$6,096
$488
$666
$3,596
$889
$724
$3,492
$1,440
$894
$3,283
$1,572
$1,027
$2,815
$1,409
$1,170
$1,584
$1,702
$1,393
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000M
ea
n C
os
t p
er
Pa
tie
nt
pe
r Y
ea
r
(in
20
01
U.S
. D
olla
rs)
Baseline Year 1 Year 2 Year 3 Year 4 Year 5
Follow-Up (12-Month Intervals Following Baseline)
Data source: Cranor, Bunting, and Christensen40
Other Prescriptions
Diabetes Prescriptions
Insurance Claims
J. Vella [PH 3340]
Increased Use of Medicines Reduces Overall
Health Care Costs Mental Health/Substance Abuse (MH/SA) Spending per
Patient Fell as Drug Spending Increased, 1992–1999
Data source: Mark and Coffey39
$42.70
$55.20
$17.10
$24.10
$25.30
$45.60
$0
$20
$40
$60
$80
$100
$120
$140
Sp
en
din
g p
er
Co
ve
red
Lif
e p
er
Ye
ar
1992 1999
Psychotropic Drug Spending
Inpatient MH/SA Spending
Other MH/SA Spending
J. Vella [PH 3340]
Reducing local pharmaceutical healthcare
costs (i) Supply chain issues
• Better inventory control, both in stock
management and in tendering procedure
• Distributive logistics applied locally would
make better use of the money allocated for
rolling stock
• At present, certain areas of the primary care
state system can be OOS, while others have
2-3 months stocks
57
J. Vella [PH 3340]
Reducing local pharmaceutical healthcare
costs (ii) Supply chain issues
• Minimum level systems to trigger automated
re-order procedures within the context of a
pre-determined contract would ensure less
frequent OOS
• Less frequent changes of brand will reduce
patient confusion and medication errors
• Transparent tender systems, possibly online
and e-compliant
58
J. Vella [PH 3340]
Reducing local pharmaceutical healthcare
costs (iii) Care issues
• Focus on patient-centred care, rather than
cost control
• Build a system around a central database
architecture that revolves round the patient
and the layers of pharmaceutical care
• Various degrees of care can be applied,
according to the necessity and cost-
effectiveness of the treatment
59
J. Vella [PH 3340]
Reducing local pharmaceutical healthcare
costs (iv) Care issues
• Develop a set of indicators for the cost-
effectiveness of pharmaceutical care
• Set a minimum level of care and a set of
milestones to be achieved
• Take the step to e-medicine and do away
with mountains of paperwork, at the same
time reducing administrative costs
considerably
60
J. Vella [PH 3340]
Reducing local pharmaceutical healthcare
costs (v) Care issues
• This can only be achieved by pharmacists
taking the lead in this change
• To do so we must have the right attitude and
initiative to blend pharmaceutical care skills
together with administrative and
pharmacoeconomic techniques
• These skills can be developed by putting our
knowledge and profession into the context in
which we learn and practice 61
J. Vella [PH 3340]
Bibliography and Acknowledgements
• Deshpande PR, PharmD, Dept. of Pharmacy Practice, Manipal University, Manipal, India. Pharmacoeconomics,
Microsoft Powerpoint Presentation
• Drummond M, Sculpher M, Torrance G, O'Brien B, Stoddart G. Methods for the Economic Evaluation of Health
Care Programmes. 3rd ed Oxford: Oxford University Press; 2007
• Heaton A BS (Pharm), Pharm. D., RPh.Director of Pharmacy BlueCrossBlueShield of Minnesota, Performance
Enhancing Pharmaceuticals, Microsoft Powerpoint Presentation
• International Society for Pharmacoeconmics and Outcomes Research (ISPOR), Introduction to
Pharmacoeconomics, ISPOR Distance Learning Program
• Rascati, K. Essentials of Pharmacoeconomics; Philadelphia:LippincottWilliams & Wilkins; 2008
• Ridker et al, Rosuvastatin to prevent vascular events in men and women with elevated C-reactive protein.
NEJM, 359 (21), 2008
• Sale, L. Critical Appraisal of Research Reports, Department of Reproductive Health and Research, WHO,
Geneva, 2006
• Satyanarayana K, St.Peter’s Institute of Pharmaceutical Sciences, Pharmacoeconomics, Microsoft Powerpoint
Presentation
• Shull S PharmD, MBA. Basics of Pharmacoeconomics and Outcomes Research:Application to Patient Care,
Microsoft Powerpoint Presentation
• Quick J, Director, Essential Drugs and Medicines Policy – EDM, Health Technology and Pharmaceuticals
Cluster – HTP, World Health Organization, June, 2002Presentation
62
J. Vella [PH 3340]
Bibliography and Acknowledgements
• Smith R, Wright D. Health Economics for Prescribers, Microsoft Powerpoint Presentation
• Vella J. Medicine prices in Malta and their relation to economic indicators. Dissertation, University of Malta
2010
• Vella J. Essays in Pharmacoeconomics: The QALY as a tool in evaluating treatment outcomes. Unpublished
work, 2010
• www.nso.gov.mt, National Statistics Office website
63