Pharmacoeconomics refers to the scientific discipline that compares the value of one pharmaceutical drug or drug therapy to another. It is a sub-discipline of health economics. A pharmacoeconomic study evaluates the cost (expressed in monetary terms) and effects (expressed in terms of monetary value, efficacy or enhanced quality of life) of a pharma product. We can distinguish several types of pharmacoeconomic evaluation: cost-minimisation analysis, cost-benefit analysis, cost-effectiveness analysis and cost-utility analysis. Pharmacoeconomic studies serve to guide optimal healthcare resource allocation, in a standardised and scientifically grounded manner.
One important consideration in a pharmacoeconomic evaluation is to decide the perspective from which the analysis should be conducted (such as institutional or societal). Just a few years ago the idea that economic theory might be relevant to the day-to-day use of pharmacists or clinicians, would have raised a few eyebrows. To start with, very few would be familiar with the terminology or acknowledge the relevance of such a topic to every day clinical practice.
However, there has been a silent revolution in the thinking if not yet practicing of medicine with the invasion of health economists into territories previously occupied exclusively by clinicians. Economic evaluation studies are growing exponentially.
That the intrusion has not been welcomed by the clinicians is quite understandable given the philosophical and methodological differences between the two disciplines, not to mention the loss of monopoly power of clinicians facing a discipline like economics, with its notorious imperialistic reputation. However, the inroad of economics into medical territory has proven not been without benefit. The two disciplines have gained from the experience, have mutually enriched their research methodologies and are gradually coming to some form of understanding.
Perspective in pharmacoeconomics refers to the economic vantage point that is being taken in a pharmacoeconomic analysis, such as a cost-effectiveness analysis or cost-utility analysis. This will affect the types of costs (resource expenditures) and benefits that will be considered relevant to the analysis.
Five general perspectives that are often cited in pharmacoeconomics include: institutional, third party, patient, governmental and societal. The author must state the perspective and then insure that costs and valuations remain consistent with it throughout the study.
Cost minimisation analysis
The major outcome of interest is the same and is achieved equally by the alternative regimens, thus allowing the evaluators of the programmed to concentrate on the cost side of the equation and choose the alternative that has the lowest costs. An example is minor surgery for adults who can be done either as in or out patient without any significant difference in the clinical outcome. All other things being equal, economic efficiency requires choosing the option which allows the maximum number of operations for a given budget. The key to successful cost minimisation is that the comparators must have been shown to have equal clinical efficacy before the analysis is carried out. Furthermore, although the two options must achieve the major outcome of interest equally, they may still have other outcomes which differ. For example, day case surgery may be performed with a higher proportion of local or regional anesthesia than in-patient surgery, and this may lead to differences in transient side effects. A cost minimization analysis would quantify the costs arising from these differences in anesthesia, while assuming that the outcome of surgery is identical.
In summary, cost minimisation is more than a simple cost analysis. It contains an explicit assumption that the two alternatives achieve the major outcome equally and it may include additional information to test the assumption of "all other things being equal?” Cost minimisation is the simplest of the pharmacoeconomics tools and is applied when comparing two drugs of equal efficacy and equal tolerability.
Therapeutic equivalence must be referenced by the author conducting the study and should have been done prior to the cost minimisation work. Since equal efficacy and equal tolerability is already demonstrated, there is no requirement to find a common efficacy denominator as would be the case when conducting a cost-effectiveness study. The author is not precluded from doing so through the use of "cost/cure" or "cost/year of life gained". If efficacy and tolerability is demonstrated, however, then a simple comparison of "cost/course of treatment" can suffice for the purpose of comparing two or more therapeutically equivalent treatment alternatives.
When conducting a cost minimisation study, the author needs to measure all costs (resource expenditures) inherent to the delivery of the therapeutic intervention and that are relevant to the pharmacoeconomic perspective.
Cost-effectiveness analysis
The major outcome of interest is single and common to all alternatives but different programmes have different success rates in achieving this common outcome. For example, if the outcome of interest is prolongation of life we may have programmes A and B which have different costs and prolong life to a different degree:
|
Programme A |
Programme B |
| Cost |
X |
Y |
| Consequences (life years saved) |
M |
N |
It would be possible to construct the cost-outcome ratios of
and compare the two regimens A and B in terms of costs per life years gained. Alternatively one could use
as life years gained per unit of currency (pound, dollar etc.) spent on each programme. The process described above will provide average ratios to assist the decision making in allocation of resources.
If possible, it is preferable to use marginal or incremental cost-effectiveness ratios for making a comparison. In all likelihood the marginal ratios would be different from the averages. Constructing marginal ratios would involve asking what the cost and outcome would be if we produce an additional unit of output. Suppose that we already know that programme B is both more expensive and more effective than programme A. The question for the decision maker is whether or not to shift resources from A to B. In this case we would calculate the cost per additional life saved by B: Y-X/N-M.
Cost-benefit analysis (CBA)
The aim here is the same as before i.e. to construct cost/outcomes ratios (average and incremental) to compare alternative regimens. However, cost-effectiveness analysis cannot be applied because the alternatives achieve fundamentally different outcomes. For example, one prolongs life and improves quality of life (e.g. coronary artery bypass grafting) whereas the other only improves quality of life (e.g. hip joint replacement). To compare different outcomes (some positive some negative like adverse effect, toxicity, or adverse drug reaction) we need a common denominator which is stable, plausible, consistent and incorporates most (if not all) possible outcomes. In CBA the common denominator for conversion is money. We express in monetary terms the positive and negative consequences of the medical intervention and aggregate them to construct comparable cost-benefit ratios. Healthcare professionals often feel instinctively uncomfortable about putting a financial value on human suffering. However, the function of money is quite simply to allow society to compare the value of totally different commodities.
The most controversial aspect of CBA is to put value on items which are perceived to be inherently invaluable by health care professionals, for example the loss of eye sight, impairment of hearing, renal failure or even loss of human life. However, this practice is well established in the insurance industry. Indeed, this is neither new nor exclusive to the insurance industry. "If a physician has treated a nobleman for a severe wound and has cured him or opened an eye-abscess or a nobleman and has cured it, he shall take ten shekels of silver. If he has treated a nobleman for a severe wound and has caused him to die, or opened an eye-abscess of a nobleman and has caused the loss of the eye, the physician’s hands shall be cut off. If a physician has treated the severe wound of a slave or a poor man and has caused him death, he shall render slave for slave. If a physician has cured a shattered limb, or has cured a diseased bowel, the patient shall give the doctor five shekels of silver." CBA are not that common in pharmacoeconomics, and where performed the investigators usually have calculated the costs and benefits which easily (and non-controversially) can be expressed in money terms. Alternatively, there are techniques for quantifying the strengths of individual preferences for alternatives. These include willingness to pay and the standard gamble technique, in which hypothetical examples are used to ask individuals how much they would be willing to pay to secure improvements in treatment.
Cost-utility analysis (CUA)
In CUA a different measure of value derived directly from economics is used to measure an outcome called utility. The basic idea behind CUA is that one purpose of medical intervention is to improve the quality of life of patients and that changes in quality of life should be measured alongside measures of increase in life expectancy. Therefore, the comparative efficacy of the alternative treatments is captured and measured through their contribution to the quality of life of the patients undergoing such treatments. This is an important idea which deserves a more detailed explanation and will be covered later on. However, despite the obvious theoretical advantages of CUA there are major practical difficulties in establishing the exact utility attached to different health states.
Quality-adjusted life years
Quality-adjusted life years, or qalys, are a way of measuring disease burden, including both the quality and the quantity of life lived, as a means of quantifying in benefit of a medical intervention. The qalys model requires utility independent, risk neutral and constant proportional tradeoff behaviour. They are based on the number of years of life that would be added by the intervention. Each year in perfect health is assigned the value of 1.0 down to a value of 0 for death. If the extra years would not be lived in full health, for example if the patient would lose a limb, or be blind or be confined to a wheelchair, then the extra life-years are given a value between 0 and 1 to account for this. The meaning and usefulness of qaly is debated. Perfect health is hard, if not impossible, to define. Some argue that there are health states worse than death, and that therefore, there should be negative values possible on the health spectrum (indeed, some health economists have incorporated negative values into calculations). Determining the level of health depends on measures that some argue place disproportionate importance on physical pain or disability over mental health. The effects of a patient's health on the quality of life of others - caregivers, family etc. also does not figure into these calculations.
The 'weight' values between 0 and 1 are usually determined by methods such as:
Time-trade-off (TTO) - In this method, respondents are asked to choose between remaining in a state of ill health for a period of time, or being restored to perfect health but having a shorter life expectancy.
Standard gamble (SG) - In this method, respondents are asked to choose between remaining in a state of ill health for a period of time, and choosing a medical intervention which has a chance of either restoring them to perfect health, or killing them.
Visual analogue scale (VAS) - In this method, respondents are asked to rate a state of ill health on a scale from 0 to 100, with 0 representing death and 100 representing perfect health. This method has the advantage of being the easiest to ask, but is the most subjective.
Application of pharmacoeconomics
Applied phamacoeconomics is defined as putting pharmacoeconomic principles, methods and theories into practice to quantify the value of pharmacy products and pharmaceutical care services used in real world environment. Through appropriate applications, practitioner and administrators can make better, more Informed decisions regarding product and services they provide.
In the preceding sections, we showed that the true value of pharmaceuticals and medical devices can be assessed in terms of longevity and utility, and that qalys enables assessment by integrating these two factors. We also indicated that long-term estimates can be made by using models and that, in relative evaluations including cost comparisons, ICER enables evaluation of cost-effectiveness. Finally, we described how probabilistic sensitivity analysis enabled assessment of the uncertainty of results in quantified terms.
Assessment of the true value of pharmaceuticals and medical devices through such scientific methods holds enormous benefit in various ways. Obviously, it can be applied in discussion of pharmaceutical prices. Moreover, the techniques are applicable not only to medical drugs and devices, but also to all medical practices.
Additionally, pharmacoeconomics provides precious input in studies of product portfolios by pharma firms and manufacturers of medical devices. Because qalys may be equated to pharmaceutical value per se, the aggregate qalys of a firm's products may be equated to its corporate value.
While a key element of pharmacoeconomics, models can also serve as valuable tools themselves in strategies for development and marketing. For example, various simulations can already be performed for uncertainty related to utility and safety in advance of clinical trials. It is also possible to identify parameters with a significant influence on prognosis and cost-effectiveness, and this can occasion the planning of new studies if evidence for these parameters is not yet available. Furthermore, models structure the flow of treatment and long-term prognosis for diseases, and the thinking they represent can also be applied in discussions of treatment guidelines.
(The authors are with Dept of Pharmacy Management, Manipal College of Pharmaceutical Sciences, Manipal, 576104)