strategic management of hospitals-pharmacoeconomics
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Strategic Management of Hospitals: Pharmacoeconomics as a Decision Tool
Thomas R. Einarson, PhDLeslie Dan Faculty of Pharmacy University of Toronto
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Outline
Healthcare costs and choices Pharmacoeconomics Definitions Methods Applications Advantages and disadvantages
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Canadian healthcare spending 1975-2005 (millions)
y = 1E-63e0.0782x
R2 = 0.9662
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
1970 1975 1980 1985 1990 1995 2000 2005 2010
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Healthcare costs by type
0%
20%
40%
60%
80%
100%
1975 1980 1985 1990 1995 2000 2005
Other
Admin
Public Health
Capital
Drugs
Nursing, etc
Physicians
Institutions
Hospital
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Trends – hospital $ (Source: CIHI)
Hospital share is decreasing From 44.7% in 1975 → 29.9% in 200528.7% decrease in share
Hospital expenditures$5.5 billion in 1975 [Total: $12 billion]$42.4 billion in 2005 [Total: $142 billion]677% increase [Total: 1064%]
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Trends – drug $ Drug share increasing
8.5% in 198517.5% in 2005 106% in share
Drug costs $1.1 billion in 1975 $24.8 billion in 2005 2200% increase
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Reasons for increases Increase in utilization
More people taking drugs More population More >65, free drugs (access)
More disease → more drugs Longevity → more disease → more drugs
Increase in cost Research costs money New drugs research intensive
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Canada: population increase 1966-2006
y = 0.3007x - 571.25
R2 = 0.992
15
20
25
30
35
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
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Average cost per citizen covered by BC Pharmacare
Year Cost
1987 $192
1991 $354
1995 $406
1999 $478
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Drug costs on the rise
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Costs of therapy (cancer drugs)
600
1,620 4,980
7,600
12,000
18,000
26,000
0
5000
10000
15000
20000
25000
30000
$ p
er t
reat
men
t
Drug acquisition costs
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Selecting drugs in hospital Open formulary
No restriction Pay for all drugs prescribed
Formulary Most standard drugs available Medical staff + pharmacy decide on content
Problem: demand exceeds budget Need a method for judging relative merits
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Background
Economics = the study of the allocation of resources
Health economics: application of economic principles to healthcare
Basis = value for money Money = common denominator for
comparisons
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Pharmacoeconomics
Pharmaco = drugs Application of health economics to drugs
and drug services Techniques not different Interpretations parallel
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Levels of analysis Macro (population)
Most PEA is this type Applies to the average in the population Requires translation to apply to patients
Meso (group) Usually applied at this level
Micro (Individual)Never done at this level in PEA
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Definition
Pharmacoeconomics:Evaluation of a drug against one or more comparators with respect to both costs and outcomes. Comparator = depends on purpose
Placebo, do nothing Standard treatment
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Why?
Resources scarce Demands increasing Forced to make choice Pharmacoeconomics assesses
value for money (common metric) A tool for decision making
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Perspective Whose viewpoint?
Need to identify the audience for the report Need to specify the analytic viewpoint
Determines:Data collected Valuation of resources Interpretation of results
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Analytic perspectives
Society (Comprehensive, overall)All costs considered, regardless of payer Usually includes “indirect” costs
Payer Insurer, government, individual
Standard: Societal + Ministry of Health (Canada)
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Types of cost
Direct costs Indirect costs
Economic NOT accounting definitions used in PEA Overhead costs included in hospital
perspective
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Direct costs
Costs of resources consumed in treating patients Cost centres:
Drugs (preparation, administration, monitoring) Medical care (MD, specialist) Hospital (inpatient, units) Laboratory (blood, urine, x-ray, NMR, CAT scans) Allied healthcare (nursing, physio, massage, social work) Transportation to therapy (sometimes) Cost of managing ADRs
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Using costs
Use standard lists for cost values The standard price that any person would pay Do NOT use special costs, bargains Exception: hospitals analyzing their own data
Select year of analysis Usually current year or immediate past year Standardize all costs to year of analysis
Use health component of Consumer Price Index or equivalent
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Indirect costs Lost productivity
Early death Time totally lost forever
Decreased ability to work Absenteeism due to disease
“Presenteeism” On the job, being paid, not inefficient
Caretaker time Problems
Leisure time, retired people Consider lost time equal
Under-employment/unemployment Use Friction method Counts only time to train replacement personnel
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Time horizon Analysis must be over enough time to
allow for all important outcomes Cancer drugs use lifetime Antibiotics (acute) – 1 month/3 monthsOften use 1 year
Problem Data availability over time Must discount costs if >1 year
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Discounting
Preference for benefits now and costs later NOT because of inflation Based on stable rates for safe investments
(government bonds, GICs, cash market) Standard = 5%, vary in sensitivity analyses
over range 0-10%
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Summary: costs
A: Identify resources consumed B: Quantify resource use C: Qualify (cost) that use
Use standard costs Discount if over >1 year
Total cost = Resourcei*Costi
Average across all patients Extrapolate to population using
demographic statistics
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Outcomes: ECHO model Economic
Dollars Clinical
Positive: Cure, life saved, life-year gainedNegative: Case avoided (disease, death)
HumanisticQuality of life, patient preferences
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QALYs Quality adjusted life-years
e.g., cancer patient Estimate duration of life remaining
Identify health states involved e.g., Phases II-IV
Measure length of each health state Adjust each by utility value:
Timei*Utilityi
Average over all patients Universal outcome
Can compare across treatments Can compare across diseases
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Utilities Standard gamble Time tradeoff Visual analog scale Whose?
Patients Accurate estimate of implications Problem: adaptation to the condition
Normals (society) Need to help them understand the disease
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Preferred outcomes
Ultimate outcomes:Cure, life-year gained, QALYAvoided cases of:
Disease (vaccine) Death
Avoid intermediate outcomes Decrease in BP, serum cholesterol, units on a
scale (pain, health status, etc.)
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Types of analyses
Cost-minimization
Cost-effectiveness
Cost-utility
Cost-benefit
Comparison of efficacy /
effectiveness
Cost comparisonTwo or more alternatives
Cost-outcome description (Non-comparative CBA)
Outcome assessment (e.g., Quality of Life measurement)
Cost description
(Cost of Treatment, Burden of Illness)
One (No comparison of alternatives)
Costs + Outcomes
Outcomes only
Costs onlyAlternatives
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Cost analyses (non-PEA)
Burden of sickness Cost of illness Financial feasibility
Implementing a new pharmacy service E.g., cost-revenue model
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Burden of sickness/illness Macro level (population based) “Top down” analysis Dollars spent on a disease Direct costs
Drugs, MD, hospital Indirect costs
Morbidity, mortality, time lost from work, decreased productivity (presenteeism), etc.
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Cost of illness/Cost of treatment Micro level “Bottom up” analysis Individual based Itemize resources consumed
Drug, visits to MD, tests, etc. Chart review, database analysis, modelled
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Approaches to COI analysis Incidence based
Start at onset of disease Follow until resolution/death E.g., Gonzalez JC, Einarson TR. Cost of Type-2 diabetes in Colombia.
PharmacoEconomics 2008 (in press).
Prevalence based Cross sectional All cases in one year Example: Pain due to multiple sclerosis: analysis of
the prevalence and economic burden in Canada. Pain Res Manag 2007;12(4):259-65
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Contribution
Identifies costs Burden to society Cost to treat individual
Basis for pharmacoeconomic evaluation (Baseline)
BUT, does not address appropriateness or outcomes
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COI Example: bisphosphonatesResource CostBisphosphonate $5,421Other Drugs $6,290Hospital $18,229Clinic $7,715Laboratory $2,020Imaging $3,355Radiation $2,657Physicians $2,170Total $47,857
Kruk. Supportive Care in Cancer 2004; 12: 844-51.
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Burden of ADRs (USA)
Resource Events Cost (millions)Physician visits 115,654,949 $7,460Additional prescriptions 76,347,604 $1,933Emergency visits 17,053,602 $5,321Hospital admissions 8,761,861 $47,445LTC admissions 3,149,675 $14,399Deaths 198,815 Total $76,558
Johnson. Arch Intern Med 1995;155(18):1949-56.
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HOSPITAL CARE EXPENDITURE BY DIAGNOSTIC CATEGORY, CANADA, 1993
DIAGNOSTIC CATEGORY 1993 Cost($1000)
% ofTotal
Cardiovascular Diseases 4,862,322 18.6
Mental Disorders 3,631,788 13.9
Cancer 2,467,408 9.5
Injuries 2,253,487 8.6
Digestive Diseases 2,093,374 8.0
Respiratory Diseases 1,788,230 6.9
Pregnancy 1,649,707 6.3
Well-patient Care 1,349,205 5.2
Musculoskeletal Diseases 1,285,910 4.9
Genitourinary Diseases 1,075,828 4.1
Nervous System and Sense Organ Diseases 792,862 3.0
Endocrine and Related Diseases 526,785 2.0
Perinatal Conditions 518,012 2.0
Infectious and Parasitic Dieseases 345,071 1.3
Birth Defects 231,923 0.9
Skin and Related Diseases 223,015 0.9
Blood Diseases 156,808 0.6
Ill-defined Conditions 844,567 3.2
TOTAL 26,096,300 100.0
SUBCATEGORY
Coronary Heart Disease 1,571,999 6.0
Stroke 1,258,063 4.8
Chronic Bronchitis / Emphysema / Asthma 636,491 2.4
Motor Vehicle Traffic Accidents 283,106 1.1
Diabetes 274,621 1.1
Female Cancers 206,068 0.8
HOSPITAL CARE EXPENDITURE BY DIAGNOSTIC CATEGORY, CANADA, 1993
DIAGNOSTIC CATEGORY 1993 Cost($1000)
% ofTotal
Cardiovascular Diseases 4,862,322 18.6
Mental Disorders 3,631,788 13.9
Cancer 2,467,408 9.5
Injuries 2,253,487 8.6
Digestive Diseases 2,093,374 8.0
Respiratory Diseases 1,788,230 6.9
Pregnancy 1,649,707 6.3
Well-patient Care 1,349,205 5.2
Musculoskeletal Diseases 1,285,910 4.9
Genitourinary Diseases 1,075,828 4.1
Nervous System and Sense Organ Diseases 792,862 3.0
Endocrine and Related Diseases 526,785 2.0
Perinatal Conditions 518,012 2.0
Infectious and Parasitic Dieseases 345,071 1.3
Birth Defects 231,923 0.9
Skin and Related Diseases 223,015 0.9
Blood Diseases 156,808 0.6
Ill-defined Conditions 844,567 3.2
TOTAL 26,096,300 100.0
SUBCATEGORY
Coronary Heart Disease 1,571,999 6.0
Stroke 1,258,063 4.8
Chronic Bronchitis / Emphysema / Asthma 636,491 2.4
Motor Vehicle Traffic Accidents 283,106 1.1
Diabetes 274,621 1.1
Female Cancers 206,068 0.8
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Pharmacoeconomic analysis
Properties Models Outcomes Issues
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Pharmacoeconomic analysis
Compare 2 or more options Need to identify, describe each Usually a new drug trying to enter the market
Requires an estimate for each of: Costs Outcomes produced
Other requirements: Analytic time horizon, perspective, discount rate(s) Clinical consequences and their management
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Purpose of PEA
Permission to market drug NOC in Canada License in other countries
Acceptance by formulary Provided by system (e.g., ODB) Paid by insurer (in whole or in part)
Purpose model, approach
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Approaches: licensure Population based model Evidence = Efficacy data
Data source = RCTs Assume full compliance, ideal conditions Per protocol analysis
Defined population Limited to eligible patients who take full treatment
Comparator = placebo, standard Viewpoint = societal
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Approaches: formulary Meso (Group) model Evidence = Effectiveness data
Data source: Effectiveness trials
Real life experience Unselected patients Compliance matters
Model via RCT + other factors (adherence) Intent-to-treat analysis
Population = all possible candidates
Comparator = standard therapy Viewpoint = payer
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Product Need to describe drug in detail Identify therapeutic category
ATC system Comparators
What is being used now Utilization rates, costs, burden Justify WHY this drug is being examined
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Population Indication
Disease How diagnosed, classified, e.g., ICD-10
Severity Mild, moderate, severe
Population Types of patients
Males, females Ages
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Comparator Placebo
Form identical to drug of interest Do nothing alternative
Standard therapy Guidelines Actual practice Expert panel
Hospital setting: Usual treatment
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Pharmacoeconomic models Prospective RetrospectivePredictive
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Prospective models
Pharmacoeconomic RCTDesigned specifically for PEA
Add-on to clinical RCT “Piggy-back” trials
Collect data Identify resources usedCost concurrently or later
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RCT advantages Prospective data collection
Data are stochastic Can calculate Mean, SD
All factors controlled “Ideal” conditions Provides efficacy data
Valid for NOC, licensing
Disadvantages: Sample not representative
Patients, conditions, drugs taken, age, sex, etc. Cannot extrapolate results to real life
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Retrospective models
Model existing RCT Chart review Database analysis
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Modelling RCTs Easy to do
Efficacy from trial Determine costs
Problems: Retrospective bias Artificial conditions (extrapolation) Requires expert input
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Chart Reviews Easy to do, not expensive (usually) Problems:
Time consuming Missing data
Outcomes Resources used (not planned for) Patients d/c, re-entry, move
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Database Analyses
Available, easy to use Powerful - huge samples Versatile:
Cohort, case control, matchingTime series, cross sectional
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Disadvantages
Missing data Diagnosis, outcomes, status (smoking, alcohol, etc)
Confounding Causation = ?
Assumptions (Consumption, indication, compliance)
Cost = large, delays long
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Predictive decision models Most common model Relatively easy to perform
Software (TreeAge/Data®)
Often require expert panel Applies to “average” patient Population based
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Decision Types
Decision treeFixed time periodNon-recursive (one-way only) All outcomes included
Markov modelRecursive model (can move backwards)Cumulates values over timeVersatile
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Markov model
EDSS 6-6.5
EDSS 5-5.5
EDSS 4-4.5
EDSS 3-3.5
EDSS 2-2.5
EDSS 0-1.5
Monosymptomatic
Clinically Defined MS
Second Event
1st Year Transitions
Expanded Disability Status ScaleIskedjian et al. Multiple Sclerosis 2005; 11: 542-51
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Markov model
Monosymptomatic
EDSS 0-1.5
EDSS 2-2.5
EDSS 3-3.5
EDSS 4-4.5
EDSS 5-5.5
EDSS 6-6.5
Second Event
Multiple Year Transitions
Iskedjian et al. Multiple Sclerosis 2005; 11: 542-51
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Base case analysis Identify what happens to the typical
patient Number of treatments undergoneComponents of each treatment
Resources consumed
What happens if success, fail, etc.
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Requirements for PEA
Drug of interest Comparator(s) Measurements of both
Success (and/or other) rates Costs of inputs (in $) Patient outcomes
Outcomes expressed incrementally
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Clinical efficacy
Source of data RCT
Head-to-head or Indirect Observational studies
Type of data Intention to treat Per protocol (completers)
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PEA types
CCA = cost consequence analysis CBA = cost benefit analysis CMA = cost minimization CEA = cost effectiveness CUA = cost utility
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Cost consequence (CCA)
No summary statistic calculated Costs valued in $ Outcomes quantified and listed Reader judges importance Could be in every PEA
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Cost benefit (CBA)
Measurement: Costs – $ Outcomes – $
Benefit: Cost ratio calculatedB:C >1 socially beneficial
Incremental ratio used
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CBA example
If a program costs $2000 and produces $5000 in benefits, as compared with the existing program costing $1000 with benefits of $2000,
Ratio1 = $5000/$2000 = 2.5 Ratio2 = $2000/$1000 = 2.0 Since ratio1:2 = 2.5/2.0 =1.25 >1, the new
program produces more benefits and is preferred, if affordable
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CBA Advantages:
Theory basedCan use willingness to pay
Contingent valuation
DisadvantagesValuations
Intangibles (pain, suffering)
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Cost minimization (CMA)
All outcomes same Must be demonstrated
Consider only costs Decision rule: lowest cost is preferred
choice Example: gent vs tobra ??
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Cost-effectiveness (CEA)
Costs = $ Outcomes = natural units
Cures, deaths avoided Intermediate outcomes
Not desirable (need linkage)e.g., Blood level (cholesterol)
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Cost utility (CUA)
Cost = $ Outcome = patient utility QALY = quality adjusted life year Assess quality of life utility Quantify and adjust by utility Compare incrementally between drugs
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Interpreting outcomes
Incremental cost-outcome ratio:
Cost1 – Cost2__________________
Benefit1 – Benefit 2
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Incremental analysis
Compare costs and outcomes Ideal = lower cost + better outcomes Usual = more cost more outcome Problem = assessment
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Incremental CEA
If cost lower + benefit greater = dominant If incremental cost cost/outcome, then
CEA If lower cost + lower outcome, could be
OK
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Interpretation of PEA results
Outcome+
Outcome-
Cost+
IncrementalCE
Dominated
Cost-
Dominant ???
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Interpretation: Suggestion
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CEA example
New drug cost = $500, cure = 0.7 (70%) Old drug cost $400, cure = 0.5 (50%) ICER = ($500 - $400)/(0.7 – 0.5) = $500 per
additional cure Old drug cost $400/0.5 = $800/cure; therefore,
the new drug is cost-effective and should be adopted, if it can be afforded
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CEA example 2…
New drug cost = $500, cure = 0.7 Old drug cost $100, cure = 0.5 ICER = ($500 - $100)/(0.7 – 0.5) = $1,000 per additional cure Requires judgment (no real rules)
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CEA interpretation
Dominant = adopt (if affordable) If the incremental cost cost/outcome of
standard, then the new drug may be considered to be cost effective
Otherwise, judgment required
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Summary PEA requires at least 1 drug and 1
comparison treatment PEA involves simultaneous analysis of
costs AND outcomes Decision makers prefer dominant
treatments – they provide savings; incremental cost-effectiveness involves increased costs
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Trucha canadiense