Chapter 23 Pharmacoeconomic Calculations

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Chapter 23 Pharmacoeconomic Calculations. Ellen S. Campbell, Ph.D. Associate Professor Division of Economic, Social & Administrative Pharmacy. Outline. Case Study Pharmacoeconomics defined PE Analyses Steps Perspectives Alternatives Examples of 4 types Sensitivity analysis Discounting - PowerPoint PPT Presentation

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Chapter 23Pharmacoeconomic CalculationsEllen S. Campbell, Ph.D.Associate ProfessorDivision of Economic, Social & Administrative Pharmacy

OutlineCase StudyPharmacoeconomics definedPE AnalysesStepsPerspectivesAlternativesExamples of 4 typesSensitivity analysisDiscountingPricing Issues

Case Study backgroundBob is director of pharmacy for a large MCO where he manages all aspects of the health plans pharmacy budget. The health plan has more than 300,000 members Last year more than $78 million was spent for pharmaceuticals. This was 20% higher than the previous yearCase Study problema new sulfonylurea has been approved by the FDA. The product is similar to products on the market and is approved for the treatment of type II diabetes. Drug representatives have pointed out that it has a more favorable side effect profile than products currently on the market It is priced 20% higher than the current medications used by the MCO.

Question Does Bob request that the P&T committee add the new drug to the formulary? If so, at what tier?

What is MCO P&T committee FormularytierWhat information would you use to answer the question? Does Bob request that the P&T committee add the new drug to the formulary?AnswerAdopt a new drug or treatment if the additional benefit is higher than the additional cost(global economic principle)Health OutcomesWhat are the consequences of a particular treatment?Pharmacoeconomics is a set of methods that evaluate theEconomic, Clinical and Humanistic Outcomes(ECHO Model) of pharmaceutical products and servicesPharmacoeconomics is to compare the economic resources consumed (inputs) to produce the health and economic consequences of products or services (outcomes).

INPUTS OUTCOMES

Economic Health and Economic Resources ConsequencesFour types of Pharmacoeconomic AnalysesCost-minimization (CMA)Cost-benefit (CBA)Cost-effectiveness (CEA)Cost-utility (CUA)Comparison of PE MethodsMethodCostConsequencesCost MinimizationDollarsNatural units(show equivalency)Cost EffectivenessDollarsNatural unitsCost BenefitDollarsDollarsCost UtilityDollarsQALYsSteps for conducting a PE Analysisdefine the problemidentify the perspective and alternative interventions to be comparedidentify and measure outcomes of each alternativeidentify, measure and value costs of all alternativesuse discounting and sensitivity analysis when appropriateDefine the problem and state the objectiveWhat is the most cost effective treatment of type II diabetes?Identify the perspectivethat is, who will be utilizing the information to make what decisions.This will guide you in choosing the relevant costs and benefits.

Different PerspectivesPerspectiveRelevant: CostsConsequencesPatientOOP costs, lost income, transportationTherapeutic effectiveness,Adverse events, QOLMCOHospitalization,Pharmacy, Personnel,& suppliesTherapeutic effectiveness,Adverse eventsThird-Party PayersHospitalization, Pharmacy, Nursing home careNoneSocietyAll possible costs including lost productivityAll possible consequences including QOL, & life years.Identify Alternative InterventionsWhat are the relevant choices?Often a head-to-head comparison of the most used (traditional) treatment with the new one.Its important to compare with the most likely substitute for a realistic result.The comparator doesnt have to be a drug therapy.At least two comparatorsNew sulfonylurea VersusMost commonly used drugCost and Effectiveness Comparison Grid for Drug 1 vs Drug 2EffectivenessCost1 > 21 = 21 < 21 > 2AnalyzeChoose 2Choose 21 = 2Choose 1IndifferentChoose 21 < 2Choose 1Choose 1AnalyzeIdentify and measure outcomes of each intervention (natural units or $)Typical outcomes include:cured of illnessimproved quality of lifedecreased incidence of morbidityextended liferelief or reduction in symptomsAdverse events (drug interactions and side-effects)mortalityIdentify, Measure and Value costsCosts include:direct medical costs like treatment costs, direct non-medical costs like transportation,indirect costs like missed work,intangible costs like pain.

Be sure to include those costs that are relevant to your perspective.

Measuring Costs over timeCosts are measured over a relevant time period such as a month or year. The length used depends on the typical span of the illness of interest.Analysis of acute disease such as the flu would have a short span; while chronic or long-term illness such as depression or heart disease would span years.1. Cost-Minimization Analysis (CMA)This type of evaluation compares two or more alternative treatments that are clinically equivalent in terms of outcomes or consequences. Once equivalency is demonstrated, the focus is on choosing the one with the smallest total costs.Example generic versus name brandCalculating cost differentials between therapeutic agentsDrug A is administered via 100 mg tablet orally, twice a day, for 30 days. Each 100 mg tablet costs $7.50Drug B requires three weekly IV administrations with increasing dosages as follows: (dose 1) 250,000 IU (dose 2) 500,000 IU(dose 3) 750,000 IUCost of Drug B is $68 per 250,000 IU and administration is $25 per doseCost differential (or incremental cost) for entire regimenTotal cost of Drug A = 30 days x 2 x $7.50 = $450Total cost of Drug B = drug cost + admDose 1 = (1 x 68) + 25 = 93Dose 2 = (2 x 68) + 25 = 161Dose 3 = (3 x 68) + 25 = 229 = $483Cost differential is 483 450 = $33Incremental cost of changing from Drug A to Drug B is $33Cost differentials for chronic diseases are calculated onPer patient per dayPer patient per month (30 days)

Why?Different outcome?Using Cost Minimization Analysis (CMA) is only appropriate if the outcomes are shown to be equivalent.If not must use alternative technique to account for the differenced in outcomes2. Cost-effectiveness Analysis (CEA)If you can measure the therapeutic effect in natural units (I.e. weight gained, blood cholesterol level reduction) you compare the Cost per gain in therapeutic effect. Choose the smallest.Cost-Effectiveness Ratio = Cost ($) Therapeutic effect (Natural units) Two ratio calculations for CEACost-Effectiveness Ratio = Cost ($) Therapeutic effect (Natural units)

Incremental Cost-Effectiveness Ratio = cost differential ($) outcome differential (Natural units)Cost-effectiveness ExampleIn this example, effectiveness is mg of glucose lowered. Could also measure effectiveness as cure rate as in the textbook example.Cost EffectivenessAvg. C/E RatioIncrementalC/E RatioDrug A$5030 mg/dlDrug B$7040 mg/dlCost-effectiveness ExampleIn this example, effectiveness is mg of glucose lowered. Could also measure effectiveness as cure rate as in the textbook example.Cost EffectivenessAvg. C/E RatioIncrementalC/E RatioDrug A$5030 mg/dl50/30Drug B$7040 mg/dl70/40(70-50)/(40-30)Cost-effectiveness ExampleIn this example, effectiveness is mg of glucose lowered. Could also measure effectiveness as cure rate as in the textbook example.Cost EffectivenessAvg. C/E RatioIncrementalC/E RatioDrug A$5030 mg/dl$1.67per mg/dlDrug B$7040 mg/dl$1.75per mg/dl$2 per additional mg/dl3. Cost-Benefit Analysis (CBA)When all costs and benefits of alternative actions are expressed in dollars. There are two ways to express the results:Calculate the Benefit to Cost ratio for each action Benefit ($) Cost ($)Gives you the value gained per dollar spent (>1)Or calculate the Net Benefit = Benefit ($) Cost ($) Gives you the net gain (loss) from the actionExample of Cost-Benefit AnalysisFour therapies are used to control hyperglycemia. Per patient Per dayABCDCost5.884.964.083.78Benefit53.7553.7543.8533.42Net Benefit47.8748.7939.7729.64Benefit/Cost Ratio9.1410.8410.748.844. Cost-Utility Analysis (CUA)Similar to Cost-Effectiveness, this type of evaluation measures cost per gain in utility derived from the intervention. Utility is a measure how happy, healthy or satisfied someone is. The scale varies. Common examples are 0 1 or 0 10 or 0 - 100

Quality-Adjusted Life YearsUtility is often combined with a measure of life expectancy to obtain quality-adjusted life years (QALYs).One healthy QALY = 1.0 is one year in perfect healthDeath QALY = 0.0

Example: 3 years of life as disabled (rated at utility 0.5) = 1.5 QALYsTwo ratio calculations for CUACost-Utility Ratio = Cost ($) QALYs

Incremental Cost-Utility Ratio = cost differential ($) outcome differential (QALYs)Cost-Utility exampleSurgery vs Surgery plus chemotherapy

TreatmentCostlife yearsUtility(0-1)QALYCU RatioIncremental CU ratioSurgery

140003.82.4$5833 per QALYSurgery + chemo270005.63.0$9000 per QALY$21,667 per QALYCost-UtilityPro: This is the only measure that includes patient quality information.Con: There is a lack of standardization in utility measurement ( I.e. subjective).

Sensitivity AnalysisWhen estimating costs and outcomes, you typically have a range of possible values. Sensitivity analysis requires that the results be recalculated at the different values to see if the conclusions change. Sensitivity analysis of Cost-Utility exampleSurgery vs Surgery plus chemotherapy

TreatmentCostlife yearsUtility

QALYrangeCU RatioIncremental CU ratioSurgery

140002 - 4.81.63.2$8,750$4,375Surgery + chemo270004 - 6.62.43.6$11,250$7,500no gain - $6,500 per QALYDiscountingIf the analysis spans more than a year, then the dollar values must be adjusted to a common time.Discounting adjusts future costs or benefits using an expected interest or discount rate.Present Value = Future value(1+r)nwhere r = discount rate (.03 - .06 is typical)and n = the number of years in the future.Discounting exampleYou wish to implement a diabetes DSM program which will cost you $1500 per year. The benefi