Pharmacoeconomics

PRESENTE MODERATO
R
Dr. R. Janarthanan
RAkram A Naikawdi
Dr.
1st Year MBBS PROFESSOR & HOD
Dept. of Pharmacology Dept. of Pharmacology
BLDE BLDE
INTRODUCTIO
N

• Term coined by Ray Townsend in 1986

• Pharmacoeconomics Definition: "The description and analysis of the costs of drug therapy to
healthcare systems and society."

• Description: Pharmacoeconomics is a branch of economics focusing on the impact of pharmaceutical

products and services on health systems and society.

• Measures and Compares Costs: Identifies, measures, and compares the costs (resources consumed)
and outcomes (clinical, economic, humanistic) of pharmaceutical products and services.
 PRIMARY
GOAL
Primary Goal

• Best Healthcare Outcomes: Determine which healthcare alternatives provide the best outcomes in
terms of money spent.

• Resource Allocation: Improve the allocation of resources for pharmaceutical products and services to
maximize health benefits.
 BASIC CONCEPTS AND
TERMINOLOGY
Health Economics:

Health Economics is an applied field of study that allows for the systematic and rigorous examination of
the problems faced in promoting health for all.

• Choices with Scarce Resources: Making informed decisions between different healthcare options
when resources are limited.

• Comparative Analysis:
⚬ Traditionally, medical evaluations focused only on the benefits of treatments.
⚬ But health economics adds another dimension by also considering the costs.
COSTS CLASSIFICATION

TYPES OF COSTS:

• Direct costs :
⚬ Medical costs
⚬ Non-Medical costs

• Indirect costs

• Intangible costs

• Opportunity costs

• Marginal costs
 DIRECT
COSTS
Direct costs are those that are directly associated with the medical treatment and patient care. They can be
further categorized into medical and non-medical direct costs.

• Medical Direct Costs:

⚬ These are the costs directly related to the healthcare services provided to the patient.
⚬ Examples:
￭ Hospitalization Costs
￭ Medical Procedures
￭ Medication Costs
￭ Doctor’s Fees

• Non-Medical Direct Costs:

⚬ These costs are also directly related to the treatment but do not involve direct medical care.
⚬ Examples:
￭ Transportation
￭ Home Health Care
￭ Medical Equipment
INDIRECT
COSTS

Indirect costs refer to the loss of productivity and income due to illness. These costs can be more
challenging to measure because they involve broader economic impacts.

• Examples:

⚬ Loss of Earnings: When patients or their caregivers have to take time off work due to illness or
treatment, leading to a loss of income.

⚬ Reduced Productivity: Decreased work efficiency and productivity due to health issues, even if
the person is still working.

⚬ Premature Death: Loss of potential future earnings due to early death caused by the illness.
IINTANGIBLE
COSTS

Intangible costs are the non-monetary aspects of the impact of illness. These costs are difficult to quantify
but are significant in terms of patient and family well-being.

• Examples:

⚬ Pain and Suffering: Physical pain and emotional suffering experienced by patients.

⚬ Anxiety and Stress: Mental health impacts on patients and their families, including anxiety,
stress, and depression.

⚬ Impact on Quality of Life: Overall reduction in the quality of life due to the illness, which can
include limitations in daily activities and loss of enjoyment.
OPPORTUNITY COST

• OPPORTUNITY COST IS THE VALUE OF THE NEXT BEST ALTERNATIVE THAT YOU GIVE
UP WHEN YOU MAKE A CHOICE. IT'S ESSENTIALLY WHAT YOU MISS OUT ON BY
CHOOSING ONE OPTION OVER ANOTHER.
• IN HEALTHCARE, IT REPRESENTS THE BENEFITS THAT COULD HAVE BEEN GAINED IF
RESOURCES WERE USED IN A DIFFERENT WAY.
• IT’S NOT JUST ABOUT MONETARY COSTS BUT ALSO INCLUDES THE BENEFITS OF THE
NEXT BEST ALTERNATIVE THAT IS NOT CHOSEN.

EXAMPLES:
• SPENDING ON TREATMENTS: IF A HEALTHCARE SYSTEM SPENDS RS 10LAKHS ON A
NEW CANCER TREATMENT, THE OPPORTUNITY COST IS WHAT ELSE THAT RS 10LAKHS
COULD HAVE BEEN SPENT ON, SUCH AS VACCINATIONS, OTHER TREATMENTS, OR
HEALTHCARE INFRASTRUCTURE.
• TIME ALLOCATION: FOR A HEALTHCARE PROVIDER, THE OPPORTUNITY COST OF
SPENDING AN HOUR WITH ONE PATIENT IS THE VALUE OF WHAT COULD HAVE BEEN
 MARGINAL
COST
• Marginal cost refers to the additional cost incurred to produce one more unit of a product or service.
In healthcare, this often means the cost associated with providing one additional treatment or service
to a patient.
• It's different from average cost, which is the total cost divided by the number of units produced or
services provided.

Examples:
• Hospital Stay: If a patient stays one extra night in the hospital, the marginal cost might include only
the variable costs such as meals and nursing care, rather than fixed costs like the building and
equipment.
• Medication: For a medication, the marginal cost might be the cost of producing and distributing one
additional pill, excluding the initial research and development costs already incurred.
 BENEFITS
MEASUREMENT

• Natural Units: Benefits measured in terms such as years of life saved, strokes prevented, or diseases
healed.

• Utility Units: Measures of satisfaction or well-being, often evaluated through quality of life
assessments. Utility units can be derived from direct measurements or expert opinions.
METHODOLOGIE
S
The methodology for analyzing costs and benefits gives rise to the following commonly encountered
types of economic evaluation.

Cost-Minimization Analysis (CMA)

⚬ Equivalent Outcomes: Used when interventions are demonstrated or assumed to be equivalent in

outcomes.

⚬ Example: Comparing costs of two generically equivalent drugs with proven equal outcomes but
different costs.
 METHODOLOGIES
(CONTD....)
Cost-Effectiveness Analysis (CEA/ICER)
⚬ Health Benefit in Natural Units: Evaluates therapies by measuring health benefits in natural units

(e.g., years of life saved) and costs in monetary terms.

.
⚬ Comparison: Helps identify the most cost-effective therapy among alternatives with similar

outcomes but different success rates.

Cost-Utility Analysis (CUA)

⚬ Quality and Quantity of Life: Measures the impact of interventions on both the quantity and

quality of life.
⚬ Expression: Results often expressed as cost per quality-adjusted life-year (QALY) gained,

incorporating patient perspectives.

 METHODOLOGIES
(CONTD....)
Cost-Benefit Analysis (CBA)
⚬ Monetary Terms: Compares the costs and outcomes of therapies, with outcomes expressed in

monetary terms.
⚬ Comparison Across Areas: Allows for comparisons across different medical interventions by

translating benefits into monetary values.

Cost-of-Illness Evaluation (CIE)
⚬ Humanistic Impact: Evaluates the humanistic impact and resource use of a disease before new

interventions.
⚬ Baseline: Establishes a baseline for comparison with new therapies.
COST ILLNESS
EVALUATION
 METHODOLOGIES
(CONTD....)
Cost-Consequence Analysis
⚬ Comprehensive Listing: Lists all relevant costs and outcomes without aggregating them into

single measures like QALYs or cost-effectiveness ratios.

⚬ Readily Understandable: Provides a detailed presentation of intervention value, allowing

decision-makers to weigh costs and benefits independently.

 Type of Analysis Description Example Key Comparison

• Drug A vs. Drug B

Compares costs of
Cost-Minimization • Drug A: $50/month
interventions with Drug A is cheaper.
Analysis (CMA) • Drug B: $60/month
equivalent outcomes.
• Both drugs are equally effective.

Compares costs and

• Treatment X vs Treatment Y for heart disease Cost per year of life saved:
Cost-Effectiveness natural unit benefits
• Treatment X: $10,000, extends life by 5 years. Treatment X: $2,000/year
Analysis (CEA) (e.g., years of life
• Treatment Y: $15,000, extends life by 6 years. Treatment Y: $2,500/year
saved).

Measures impact on • New cancer drug (Drug C) vs. standard treatment Cost per QALY:
Cost-Utility
quality and quantity • Drug C: $50,000, provides 2 QALYs. Drug C: $25,000/QALY
Analysis (CUA)
of life (QALYs). • Standard treatment: $20,000, provides 1 QALY. Standard: $20,000/QALY
Type of Analysis Description Example Key Comparison

Compares costs and • Vaccination program Cost: $1 million

Cost-Benefit
benefits in monetary • Expected savings: $5 million in healthcare and Net benefit: $4 million
Analysis (CBA)
terms. productivity losses.

Assesses overall Impact of diabetes

Cost-of-Illness economic impact of • Direct costs: medical treatments, hospitalizations Total annual cost of
Evaluation a disease before new • Indirect costs: loss of productivity, long-term diabetes: $300 billion
interventions. disability

Asthma treatments (Treatment A vs. Treatment B)

• Treatment A: $1,000/year, reduces hospital visits
Lists all relevant Comprehensive
by 50%, improves QoL by 20%, minimal side
Cost-Consequence costs and outcomes presentation of costs
effects.
Analysis (CCA) without aggregating and benefits for each
• Treatment B: $1,200/year, reduces hospital visits
into single measures. treatment.
by 60%, improves QoL by 25%, moderate side
effects.
 TYPES OF PHARMACOECONOMIC
STUDIES

• Prospective Studies: Experimental studies, often part of clinical trials, but costly and time-consuming.

• Retrospective Studies: Data analyses of previously conducted trials or cohort studies, ideal for
pharmacoeconomic evaluations.

• Model Studies: Use decision trees, Markov analysis, and other frameworks to display data from
various sources when direct studies are unavailable.
 APPLICATION OF ECONOMIC
ANALYSES

• Therapeutic Decision-Making: Assists healthcare professionals in choosing effective and efficient

drug therapies.

• Formulary Decision-Making: Helps in selecting the most cost-effective drugs for inclusion in
formularies.

• Program Justification: Justifies investment and reimbursement for clinical services or programs.

• Drug Policy and Pricing: Influences drug policy decisions, treatment guidelines, purchasing
negotiations, and pricing.
CONCLUSIO
N

• Pharmacoeconomics as a Tool: Aids in ensuring cost-effectiveness in healthcare by comparing costs

and benefits.

• Importance: Understanding pharmacoeconomic methods is crucial for demonstrating the value of new
medicines and making informed healthcare decisions.
References

• Maiti R. Postgraduate Topics in Pharmacology. 3rd ed. Paras Medical Publisher; 2019.

• Tonin, Fernanda S et al. “Principles of pharmacoeconomic analysis: the case of pharmacist-led

interventions.” Pharmacy practice vol. 19,1 (2021): 2302. doi:10.18549/PharmPract.2021.1.2302
Thank You