Pharmacoeconomics: Read chapter 61 in the text book and do the sample questions at the end.

When you have finished, continue to the web lesson.

Pharmacoeconomics: Definition: The description and analysis of the costs of drug therapy to health care systems and society. Pharmacoeconomics research identifies measures and compares the costs and consequences of pharmaceutical products and services. Pharmacoeconomics methodologies include cost minimization, cost effectiveness, cost benefit, cost of illness, cost utility, and decision analysis. Pharmacoeconomics evaluations are concerned with comparing the dollars spent on treatment alternatives for the outcomes achieved. It is important to remember that in choosing among many alternatives in a therapeutic area; both sides of the equation must be considered. Drug acquisition costs, while an important component, only provide one side of the cost-outcome story and only a part of that side. Consider the following hypothetical eample: There are three drug choices in a given therapeutic area. Drug x, y, and z. Drugs x and y are older and are less expensive; drug z is newer and provides improved clinical outcomes, but is also more expensive. Drug X Y Z Cost $$ $$ $$$ Outcomes + + +++

Although drug Z costs $$$, it provides +++ level of outcomes, whereas drug X costs $$ but provides only + level of outcomes. This would imply that, in general, drug Z is more cost effective than drug X / Y. Cost determination and analysis: Total cost Direct cost Indirect cost Fixed cost Variable cost Average cost Marginal cost Opportunity cost. Total cost: All expenses that is directly and indirectly necessary to provide a product or service. Average cost; The average cost per unit of output (total cost divided by quantity)

Fixed cost: Costs that do not vary with the quantity of output for a short run production (i.e. rent, fixtures, fixed salary, depreciation) Variable cost: Costs that vary with the level of output (like wages, supplies) Marginal costs: The extra cost of production one extra unit of output. Opportunity cost: The cost of the benefit of pursuing an alternative course of action Direct Cost: When considering the cost of drug therapy, it is important to recognize the impact of drug therapy choices on downstream costs. Such costs are often outside the drug budget, and may include additional laboratory tests required to monitor for adverse side effects, but may also include reduced costs for physician visits or hospitalizations for conditions that were not adequately controlled on previous therapeutic choices. Cost of resources used in the treatment of disease or condition is referred to as direct medical costs. When one drug is chosen over another, it is important to consider what impact that treatment may have on any or all of: 1. hospitalizations 2. laboratory/radiologic tests 3. emergency room/medical center visits 4. drug therapy 5. home care services 6. long term care

Indirect Costs: Important cost consideration may also include downstream costs to society as a result of disease or medical interventions that are outside of the health care system and health care budgets. Such costs include lost or reduced productivity in the workplace due to death or illness. For example: if a drug therapy for migraine headaches is able to reduce the frequency of headaches and consequently reduce the number of days of work missed, this has a positive impact on the overall productivity of the employer and therefore society in general. These costs are referred to as indirect costs. The impact of health care on indirect costs is often difficult to quantify and may not always be included in economic evaluations, but is also an important consideration in making therapeutic choices. Perspective on Costs: The perspective used in determining the important and relevant costs is also important. Who would be burdened with what costs? Pharmacoeconomic evaluations may assume the viewpoint of a single provider, an insurer, the provincial health care system, or society as a whole. Depending on the perspective, the total costs of therapeutic choice may differ. Consider a patient who moves through various levels of care from a hospital, to an extensive care facility, to home. In the hospital's view, its relevant costs are those incurred during the hospital stay. For instance, the hospital would welcome any therapeutic choice that reduces the length of stay and or other services during the stay. An earlier discharge, however, may mean that more intensive and more costly nursing home care is required. This is relevant from the perspective of the nursing home and the provincial or regional health care system; it is irrelevant to the hospital. Finally, when the patient is transferred home, a family member may assume the role of caregiver. From society's perspective, the caregiver's time is cost; however, this cost is outside the realm of the health care system and outside the coverage of provincial health plans.

Outcomes: The bottom line in pharmacoeconomic considerations is the ratio of net dollars spent per outcome achieved. Outcomes or consequences of drug therapy can be valued in a number of different ways. The choice of which outcome is best depends on the information available and the condition being evaluated. Some commonly used approaches in pharmacoeconomic evaluations are discussed below. Dollars spent per clinical outcome Outcomes are some recognized unit of clinical effect (i.e. cost per year of life saved; cost per case of nephrotoxicity avoided) Referred to as cost effectiveness analysis This approach is probably the most commonly used in pharmacoeconomic evaluations. Dollars spent for dollars saved 1. Outcomes given a dollar value 2. Referred to as cost benefit analysis 3. This approach often requires the economic valuation of a human life, which presents many difficulties, methodological and philosophical Dollars spent for quality of life outcomes 1. Outcomes are measured as quality adjusted life years (QALYs) gained 2. Referred to as a cost utility analysis 3. This approach is used when the impact on health related quality of life is an important outcome of the condition or its treatment. 4. Theoretically, the use of a common outcome measure such as QALYs gained would allow for comparison of cost outcome relationships across different therapeutic areas.