Sara Shull PharmD, MBA

Basics of

Preview

Economic concepts
Data types & sources
Types of pharmacoeconomic analyses
Perspective
Cost-effectiveness and incremental
analysis
Sensitivity analysis
Steps to pharmacoeconomic literature
evaluation
Case studies for clinical practice and policy
building

Opportunity Cost

Time and money as resources can only

be spent once choice is unavoidable.
O.C. is defined as the amount that a
resource could earn in its highest
valued alternative use.
How do you invest your time?
Why take valuable time to learn about
pharmacoeconomics and outcomes
research?

How Can PE and Outcomes

Enhance My Practice?

PE is an aid to decision making with strong potential

to:
Mitigate the influence of marketing
Puts practitioner in the drivers seat
Help set practice priorities
Enhances position of practitioner from payers
perspective
Medicare plans to decrease pay-out to stem tide
of budget deficit
Private payers actively are developing quality
report cards

How Can PE and Outcomes

Enhance My Practice?
Statistically more likely to be
responsible for better success in clinical
care by eliminating poor/ unnecessary
care
Ethical framework
Fidelity to individual patients &
stewardship to the public good

Economics is:

The study of how individuals &

society end up choosing, with or
without the use of money, to employ
scarce resources that could have
alternative uses, to produce various
commodities & distribute them for
consumption now, now or in the
future, among various people and
groups in society. Paul Samuelson

Pharmacoeconomics and
Outcomes Research

Using data to distinguish your

practice
Data about efficacy
clinical and humanistic
Data about cost
resources consumed to achieve
efficacy endpoints (investment)

Efficacy Data

Management of efficacy endpoints

based on evidence enables clinicians
to maximize prescribing skills
Evidence-based healthcare is a
determination of the mix of those
services, drug products, and
procedures that maximise benefits
and reduce risks.

Cost Data

Management of resource
consumption enables patients to
maximize purchasing power Individual level- managing insurance copayments
Group level- managing insurance
premiums across groups and maximizing
the number of insured patients
Govt level- sustaining public programs

Value Is the Goal of Practice

Minimizing the ratio of cost to

efficacy creates value- best return on
investment
Enhances your ability to deliver a
superior product

Basic Value of Medical Care

Evidenced by general trends:

Increased use of medical care and prescription
drugs
Mortality rates of certain diseases have
significantly declined
Mean length of hospital stay has also declined

Despite this general evidence, few specific

data regarding the actual costs and
benefits attributed to drugs and medical
therapies exist

Objectives

Objectives of pharmacoeconomics
and outcomes research must
originate within three dimensions
when considering results and value
of healthcare
Acceptable
Acceptable
Acceptable

clinical outcomes
humanistic outcomes
economic outcomes

Types of Pharmacoeconomic
Analysis
Methodology

Cost measurement
unit

Outcome unit

Cost minimization

Dollars

Various- but
equivalent in
comparative groups

Cost benefit

Dollars

Dollars

Cost effectiveness

Dollars

Cost utility

Dollars

Natural units (life

years, mg/dl blood
sugar, LDL
cholesterol)
Quality adjusted life
years

Common Misconceptions When

Applying Pharmacoeconomic
Principles

Cost-effective care is initially the cheapest alternative

in a manner similar to other investments, least cost
option may lead to greater costs downstream
Cost-effective care is outcome that generates biggest
effect in a manner to similar investments, smaller
increments of outcome may be achieved at a lower
overall cost

Perspective

The point of view considered in

economic analyses influences the
outcomes and costs considered to be
most relevant:
Provider
Patient
Payer
Society

Comprehensive Definition of
Cost-effectiveness

A therapy is deemed to be a costeffective strategy when the outcome

is worth the cost relative to
competing alternatives. In other
words, scarce resources are utilized
to acquire the best value on the
market.

Average Cost-effectiveness

Specifies the cost of an agent

required to achieve each unit of
effect. No comparison is made to
alternative agents.
Average cost-effectiveness
Cost of drug
Resulting effect = Cost per unit of effect
achieved

Average Cost-effectiveness
Average cost-effectiveness of Agent A
$50.00
50 units of effect = $1.00 per unit

Average cost-effectiveness of Agent B

$150.00
90 units of effect = $1.60 per unit

Incremental Cost-effectiveness
Analysis

Makes comparisons to other

therapeutic options, standard of
care, or doing nothing (placebo)
Fundamental ratio
Cost optionB Cost optionA
Effect optionB Effect optionA
=

Cost to achieve one unit of effect

Incremental Cost Analysis

Incremental Effect Analysis

Comprehensive Incremental Costeffectiveness

$150 - $50
90 50 units
=

$100
40 units

$2.50 per unit of effect achieved

Therefore, because Agent A is an available

alternative with a lower average cost per
unit of effect achieved, the costeffectiveness of using Agent B is diminished.
The cost of Agent B is not in line with the
product it delivers- a poor value.

Grid Representing All Possible

Relationships of Cost to Effect Between
Two Competing Alternatives

Cost of alternative A
relative to alternative
B
Lower Equal Higher

Effectiveness
alternative A
relative to
alternative B

Lower

+/Trade
off

Dominated

Equal

Arbitrary

+/Trade-off

Higher

+
Domina
nt

Measuring Efficacy Data Variables

What product (effect) can be consistently

expected from use of drug or health service?
Usually determined from clinical trials

Seek direct relationship to morbidity and mortality

Survival/ death
Myocardial infarction avoided

May rely on surrogate probably related to final

outcome to enhance feasibility of analysis

Hemoglobin changes
LDL cholesterol changes
Intimal vessel wall thickness changes

Randomized controlled clinical trial is gold

standard for deriving efficacy data

Measuring Cost Data Variables

What resources are consumed to produce one

unit of the effect?
Direct costs
drug product acquisition costs
drug preparation & administration costs
drug monitoring costs
treatment costs of adverse effects
Indirect costs
example of institution indirect cost

Discounting Costs

In order to draw most valid conclusion about

costs generated over time to achieve an
effect in the future, it is necessary to
consider that there is a time preference
associated with money
Time-value of money adjustment

Money in hand is worth more than the same

amount sometime in the future (we like to be paid
as soon as possible, but prefer to pay at the last
possible moment)
Therefore future costs must be adjusted to reflect
present value.

A $1000 cost one year from now requires only $930.00

in hand today assuming a 7% return on investment.

Sensitivity Analysis

Conclusions drawn from an economic analysis may

change, depending on the uncertainty of cost and
effects considered.
S.A., by altering important variables & then
recalculating results, tests the validity of
conclusions:
Would Agent A still be most cost-effective if the
effect of Agent B was greater than measured in
clinical trial?
Would Agent A still be most cost-effective if the
monitoring costs of Agent B were actually lower?
S.A. becomes increasingly important as
assumptions are made to a greater degree.

Steps to Pharmacoeconomic
Literature Evaluation

Evaluate:

The quality of the journal

Qualifications of authors
Title and abstract- unbiased?
Study methodology

Perspective, study design, outcomes and appropriate

alternatives, costs and appropriate discounting,
sensitivity analysis, & data sources

Sponsorship- could bias be introduced?

Incremental results

What is the conclusion and does it differ between

subgroups? How much does allowance for
uncertainty change conclusion?

Vogengerg, FR editor. Introduction to Applied Pharmacoeconomics, 2001

Cases for Development

Formulary decision making (policy)

Appropriate place for eplerenone (Inspra) and spironolactone

(generic) on Inpatient formulary of tertiary care academic medical
center

Clinical decision making for acute therapy (bedside)

Choosing between low molecular weight heparin or unfractionated

heparin for the treatment of acute proximal deep vein thrombosis

Clinical decision making for chronic therapy

(bedside)

Choosing between selective cyclooxygenase inhibitor and

traditional non-steroidal anti-inflammatory agent for management
of osteoarthritis pain

Other suggestions?

Treatment of Pain Resulting from

Osteoarthritis

Pain results in significant disability and resource utilization

affects 15% of US population
results in > 100,000 hospitalizations annually
NSAIDs
effective pain relief
24 30% the cost of Cox-II inhibitors
associated with a significant risk of adverse effects
Dyspeptic symptoms
More serious non-dyspeptic effects- symptomatic ulcers, ulcer hemorrhage,
ulcer perforation
Cox- II inhibitors
effective pain relief
substantially more expensive than NSAIDs
associated with lower risk of GI side effects

How should I treat my patient?

NSAIDs are inexpensive compared to

Cox-II inhibitor:
But wont the more expensive agent pay
for itself many times over by preventing
an expensive GI bleed in my patient?
Dyspeptic symptoms are decreased by 15%
Clinically significant ulcer complications are
reduced by 50%

Risk of GI bleed: How Much Can It

Be Altered?

Not all osteoarthritis patients have an equal

risk of developing a GI bleed
Is paying extra for GI protection justified in all
patients?

How much can the risk of GI bleed be altered

by using a Cox-II inhibitor instead of an
NSAID?
What value is really purchased for the extra cost?
The relative risk reduction of GI complications
with Cox-II inhibitor catches our eye- but actual
risk reduction is small

1-2% for overall ulcer complications

1% for serious hemorrhage and perforation

Spiegel MR et al. Annals Internal Medicine 2003; 138:10(795-806)

Cost-effectiveness analysis
Population

No Hx
of GI
ulcer

Drug

Total
Annual
Cost

Naproxen $4859

Qualys
Gained

Incremental
cost per
Qualy gained

15.2613 -

Cox-II
$16,443 15.3033 $275,809
inhibitor
Hx of GI Naproxen $14,294 14.7235 -

ulcer

Cox-II
inhibitor

$19,015 14.8081 $55,803

Spiegel MR et al. Annals Internal Medicine 2003;138:10(795806)

Cardiovascular Effect of Cox-II

Inhibitors

How do cardiovascular problems affect my choice

of using Cox-II inhibitors or NSAIDs?

Population

All
patients

Drug

Annual
Cost

Naproxen $5,037
Cox-II

Qualys
Gained

Incremental
cost per
Qualy gained

15.2539 -

$16,620 15.2832 $395,324

Spiegel MR et al. Annals Internal Medicine 2003;138:10(795-806)

Clinical Decision Making

Risk reduction for GI complications

seen with Cox-II inhibitors is unlikely
to offset their increased cost in the
management of average risk patients
with osteoarthritis pain
With no history of GI bleed, choose
naproxen
With history of GI bleed, choose Cox-II
inhibitor

Clinical Decision Making

In all patients with osteoarthritis, the

decision to use Cox-II inhibitor should
be made with awareness of the effect of
the added risk for cardiovascular events
on cost-effectiveness
Currently, there is not enough information
available, but it may be prudent to avoid
these drugs in patients with cardiovascular
history, even in patients with history of GI
bleed

Treatment of Acute Deep Vein

Thrombosis

VTE
> 200,00 new cases reported annually in US
Mortality attributed to PE 100 200,000 deaths annually
Unfractionated heparin
Effective for treating VTE
Daily cost for IV therapy is low
Requires close monitoring of clotting time/ dose titration and,
therefore, hospitalization
Low molecular weight heparin
Effective for treating VTE
Daily cost for SQ therapy is high
Routine clotting time monitoring not required unless obese or
manifestations of renal compromise present
Early discharge or outpatient treatment for VTE is possible

How Should I Treat My Patient?

Unfractionated heparin is a less

expensive option compared to low
molecular weight heparin.
But wont the more expensive agent pay
for itself by bypassing routine
coagulation monitoring?
Also, cant I lower the risk of nosocomial
infection and error by sending my
patient home after establishing low
molecular weight therapy?

Cost-effectiveness Analysis
Treatment
setting
Both agents
admin in
inpatient
setting
Low
molecular
weight
heparin
primarily
admin in
outpatient
setting

Drug

Total
costs of
course of
therapy

Qualys
Gained

Incremen
tal cost
per Qualy
gained

Unfractiona
ted heparin

$26,361

7.978

Low
molecular
weight
heparin

$26,516

7.998

$7,750

Unfractiona
ted heparin

$26,361

7.978

7.998

Costsaving

Low
molecular
weight
heparin

$25,559

Gould MK et al. Annals Internal Medicine 1999;130(10):789-

Clinical Decision Making

Decreased monitoring costs with low

molecular weight heparins and the
attenuated risk of future complications
with these agents do result in costeffective care.
The higher acquisition cost is justified.

Treating the patient on outpatient basis

creates best value.
Better outcomes are achieved at a lower
overall cost- the best possible situation.

Gould MK et al. Annals Internal Medicine 1999;130(10):789-799

Clinical Decision Making

For patients that can receive in-home

treatment and support, establish low
molecular weight heparin therapy on first
day of hospitalization, then send the
patient home. (analysis includes cost of
home health visits)
For patients that must remain hospitalized,
low molecular heparin should be selected
before unfractionated heparin as therapy
for treatment of VTE.

Drug Selection for Inpatient

Formulary Addition

Congestive heart failure

Afflicts > 4.6 million people in US
Disease and cost burden rapidly
increasing
Primary reason for hospitalization in US
Length of stay & readmission significant
cost drivers
High mortality rate

Inpatient Reimbursement

Most heart failure patients are insured

by Medicare
Medicare reimburses on prospective
case basis; monetary amount
determined by diagnosis
Hospital is motivated to develop costeffective formulary with goal of
decreasing mortality rate, hospital
length of stay, and preventing
readmissions

Formulary Considerations

Two agents are effective & safe in reducing

the risk of death and hospitalization of
heart failure patients.
Spironolactone (available on Inpt formulary)

Daily cost is 50-90% lower than eplerenone

Gynecomastia/ breast pain occurs in 10% of males

Eplerenone (considered for formulary addition)

More specific mechanism of action

Lower incidence of gynecomastia, but greater
incidence of hyperkalemia requiring hospitalization

Indirect Comparison of Clinical Trial

Results
Variable

Spironolactone

Relative risk of
75.2%
death due to
heart failure
Per patient cost
$50.28
of drug (36
months)
Cost of drug per
$440.00
death prevented
Pitt B et al. The New England Journal Medicine 1999;341(10):709-717
Pitt B et al. The New England Journal Medicine 2003;348(14):1309-1321

Eplerenone
86.2%

$1,230.00
$53,000.00

Policy Decision Making

Eplerenone is not cost-effective across

entire heart failure population
However, length of stay and readmission
rates increase as severity of heart failure
increases
Stratification of eplerenone efficacy
indicates mortality and hospitalization
rates fall more dramatically when heart
function is more compromised (ejection
fraction < 40%)

Policy Decision Making

Extra cost of eplerenone may be justified in

sicker patients or in patients that cannot
tolerate cheaper spironolactone due to
gynecomastia/ breast pain
Add eplerenone to Inpatient formulary but
limit use within these two patient populations
only
Ejection fraction < 40%
Cannot tolerate or fails spironolactone

Eplerenone is not allowed for treatment of

hypertension (despite FDA indication) as
many effective, safe alternatives are available
at significantly lower cost.

Conclusion

Time and money can only be spent oncechoice is inevitable. Whether done
unconsciously or with a consistent process,
health care professionals are constantly
evaluating patient care choices & acting on
them.
Pharmacoeconomics and outcomes research
can enhance the quality of your practice by
strengthening your evaluation process and
increasing the probability that you deliver
better value in patient care.