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# Pharmacoeconomics & Health Outcomes

Cost-Effectiveness Analysis

## Leon E. Cosler, R.Ph., Ph.D.

Associate Professor of Pharmacoeconomics
Albany College of Pharmacy

## 1. Define CEA & how it differs from others

• Pharmacoeconomics & Star Trek
2. Identify opportunities for using CEA
3. Calculate & interpret C/E ratios

## Where’s he getting this?

• Text chapter 5
“Cost-Effectiveness Analysis”
Cost-Effectiveness Analysis
• compare resources with consequences
• costs: measured in \$\$\$
• outcomes measured in natural units
• compare 2 or more (similar) alternatives
Cost-Effectiveness Analysis
• Identifies and compares costs and
outcomes of competing interventions
- outcomes must be “similar”
- Measured with the same denominator

## • Consequences: measured in natural units

e.g. symptom free days, cures, lives saved,
years of life saved
CEA versus CBA
Cost - Benefit Cost-Effectiveness
Analysis Analysis

## Costs: \$\$\$\$ \$\$\$\$

Benefits: \$\$\$\$ “Units”
Ex: NB \$250,000 \$10,000
life saved
Compare:
“apples” to “oranges” Only similar
MRI vs Hiring staff treatments can
be compared
Cost-Effectiveness Analysis
• Results are expressed as a ratio:
- Costs / Outcome Unit
• Ex: \$\$\$ / cure or \$ \$\$ / life saved
• Outcomes must always have some
measurable denominator
• Ex: mm Hg
• Often the term “cost-effectiveness” is misused
- Cost Utility is a “subset” of CEA

• “Efficacy” vs “Effectiveness”
“Can it work?” vs “Will it work?”
Cost-Effectiveness Analysis

## - When is your choice of therapy obvious?

"Effectiveness"
Drug A Drug A
<less effective than< >more effective than>
Drug B Drug B

Drug A
>more expensive than> 1 2
Drug B
"Cost"
Drug A
<less expensive than< 3 4
Drug B
Cost-Effectiveness Analysis
These steps should not surprise you:

## 1. Define the problem or objective being tested

- select objectives (more specific the better)
- define perspective!

## 2. Identify Alternative Interventions

- consider relevant treatment options
- choose appropriate comparators
Cost-Effectiveness Analysis
3. Describe Inputs and Outputs
• how resources affect the outcomes
• decision analysis models

## 4. Identify costs and outcomes

- can be final (cure / survival / death)
- or intermediate (mm Hg., FEV1, days)
• Have proof they’re related to one another

## 5. Interpret and present results

- C/E ratios; graphical representation of data
MATH ...
Cost-Effectiveness Ratios:
Consider: Effectiveness
(Cure Rate)

Drug A 75%

Drug B 60%

## • Which would you prefer?

- A: ????
- B: ????
Cost-Effectiveness Ratios:
Consider: Cost Effectiveness
(per Tx) (Cure Rate)

## • If you only have \$70,000 to spend…

how many Pts “cured” using each option?
- A: ????
- B: ????
Cost-Effectiveness Ratios:

Drug A:
\$70,000 x 1Pt. Treated x 75 cured
\$35 100 patients

## Ans: 1500 cures

Cost-Effectiveness Ratios:

Drug B:
\$70,000 x 1 Pt Tx x 60 cures
\$20 100 Pt. txs

## Ans: 2100 cures

Cost-Effectiveness Ratios:
Problem: Cost Effectiveness
(per Tx) (Cure Rate)

## • Now, which do you prefer?

- A: ????
- B: ????
Cost-Effectiveness Analysis

## • This technique maximizes “bang for the

\$\$”
- recognizes limited resources
- counter-intuitive to traditional medicine!
- When MDs bear no financial risk

## - operating on a fixed budget often changes

the preferred outcome
- This is the single most controversial issue
in pharmacoeconomics
Spock: “The needs of the many outweigh…”
Kirk: “…the needs of the few.”
Spock: “Or the one.”
Cost-Effectiveness Ratios:
1. “AVERAGE” or “Simple” C/E Ratios

## Diff. = \$13.34 per cure more for Drug A

Cost-Effectiveness Ratios:
• Incremental C/E ratio

## “What’s the [ marginal ] cost per Pt.

treated”?
or
Cost-Effectiveness Ratios:
Problem: Cost Effectiveness
(per Tx) (Cure Rate)

## • If you treat 100 Pts…

- \$\$\$\$\$\$ Outcomes
- A: ????? ????
- B: ????? ????
Cost-Effectiveness Ratios:
Problem: Cost Effectiveness
(per Tx) (Cure Rate)

## (Total \$\$\$ A - Total \$\$\$ B) (\$??? - \$???)

(Total Cures A - Total Cures B) (?? cures - ?? cures)
Cost-Effectiveness Ratios:
Short cut:
Problem: Cost Effectiveness
(per Tx) (Cure Rate)

## • Use can also use the RATES:

• \$100 per additional cure using Drug A

## (Total \$\$\$ A - Total \$\$\$ B) (\$35 - \$20)

(Total Cures A - Total Cures B) (.75 cures - .60 cures)
What if the scenario was REVERSED?

## Problem: Cost Effectiveness

(per Tx) (Cure Rate)

## (Total \$\$\$ A - Total \$\$\$ B) (\$??? - \$???)

(Total Cures A - Total Cures B) (?? cures - ?? cures)
Cost-Effectiveness Analysis
• Incremental C/E ratio:
- more useful for decision makers
• Using C/E ratios:
- decide in advance what’s “good enough”
- usefulness depends on data quality
- some assumptions are always needed;
• Demonstrate with sensitivity analyses
• Displaying CE results
- League tables
- Cost-effectiveness “plane”
League tables
• Uses:
2. Compare
alternatives
3. Allocate
projects in
order on a
fixed
budget
4. Cautions!
Briggs A and Gray A. Economics notes: Using cost effectiveness information. BMJ 2000;320; 246+ [online].
Available from: http://bmj.bmjjournals.com/cgi/reprint/320/7229/246 <accessed 2005 Mar 21>
Cost-Effectiveness “Plane”
"Effectiveness"
Drug A Drug A
<less effective than< >more effective than>
Drug B Drug B

Drug A
Dominated It depends…
>more expensive than>
Drug B (select B) (trade-off)
"Cost"
Drug A
<less expensive than<
It depends… Dominant
Drug B (trade-off) (select A)
Cost – Effectiveness Plane
Cost Difference Δ

Quadrant IV: (B) Dominated
Cost A > Cost B
Cost A > Cost B
Effect A > Effect B
Effect A < Effect B

Effect Difference Δ

Cost A < Cost B Cost A < Cost B
Effect A < Effect B Effect A > Effect B
Cost – Effectiveness Plane
Cost Difference Δ
Cost A > Cost B
Cost A > Cost B
Effect > Effect B
Effect A < Effect B

Effect Difference Δ

## Quadrant II: Dominant

Quadrant III: Trade off Cost A < Cost B
Cost A < Cost B Effect A > Effect B
Effect A < Effect B
CE Plane: Applied example

Claude J., Schindler C., Kuster G. et. al. Cost-effectiveness of invasive versus medical management of elderly patients with chronic symptomatic coronary
artery disease. Eur Heart Journal 2004;25,2195-2203 [online]. Available from: http://www.eurheartj.org/cgi/reprint/25/24/2195 <accessed 2005 Mar 21>
CE Plane: Applied example

Marshall DA,, Levy AR, Vidaillet H et. al. Cost-effectiveness of rhythm versus rate control in atrial fibrillation. Ann Intern Med. 2004 Nov 2;141(9):727-9 [online].
Available from: http://www.annals.org/cgi/reprint/141/9/653.pdf <accessed 2006 Mar 13>
That’s all for today… !