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 pharmaceutical product. There are several types of pharmacoeconomic evaluation: cost-minimization analysis, cost-benefit analysis, cost-effectiveness analysis and cost-utility analysis. Pharmacoeconomic studies serve to guide optimal healthcare resource allocation, in a standardized 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).
Importance of cost Effectiveness analysis
The cost-benefit analysis (CBA) is based on the economic standard of efficiency. CBA requires the measuring of all benefits and costs which are either directly or indirectly attributable to the outcome under investigation. CBA is important to healthcare economists and policy makers because it identifies inefficiency, and inefficiency equates to welfare loss (ideally, the aim is to minimize welfare loss). CBA has become the standard of modern welfare economics. When examining the standard of welfare economics, marginal analysis is applied to CBA so that the marginal social benefits and the marginal social costs can be calculated. The net benefit for society will be maximized where marginal social benefits equal marginal social costs in an assessment of the cost benefit analysis.
The cost-effectiveness analysis (CEA) ratio can be a more practical tool for decision making than CBA in that it involves the comparison of the costs of achieving a particular non-monetary objectives; such as lives saved, health improvement, or quality of life. CEA ratios can be applied when the costs are expressed in money and the benefits are in specific health outcomes. Benefits can be expressed in any unit of measure (asthma free days, hospitalizations, etc.) but can only be reliable and meaningful when the output units are consistent across projects or models. The goal of applying CEA is to allow for comparison of a variety of interventions in terms of non-monetary (health) gains at a given cost, keeping the comparators in the same terms or units of measure. In essence, different entities are compared once common measure of the outcome is established, and a common cost has been determined as a means of assigning relative effectiveness to different modes of treatment or intervention. Cost-effectiveness analyses are often visualized on a cost-effectiveness plane consisting of four-quadrants. Outcomes plotted in Quadrant I are more effective and more expensive, those in Quadrant II are more effective and less expensive, those in Quadrant III are less effective and less expensive, and those in Quadrant IV are less effective and more expensive.
The Cost Effectiveness Ratio (CER) is the mathematical representation of this analysis. The CER consists of the change in societal costs (e.g., resources, money) as the numerator, and the change in health (e.g., disability or functionality, shortened or prolonged life) as the denominator. Variations on methods of output measurements and discounting techniques lead to CEA being useful in cost-utility analysis (ex. QALY, Quality Adjusted Life Years) but the investigator or evaluator must ensure that the units being compared are standard or identical across a given analysis. When good progress is discovered in developing a cost-effective analysis (CEA) it can help determine if extending it to a cost-benefit analysis (CBA) study is possible (essentially, asking if the cost-utility analysis attains the welfare economic standard).
In his publication, Introduction to Pharmacoeconomics, Professor Michael Drummond emphasizes the importance in evaluating a treatment or drug in terms of its impact on health status (i.e., survival, quality of life, specific outcomes) and impact on health care costs (i.e., costs per QALY, hospitalisations, medications, procedures). Essentially there are two methods of performing this evaluation: trial-based studies or modeling studies. Trial-based studies refer to clinical trials which are linked with concurrent economic evaluations. Modelling studies use techniques of epidemiology or decision analysis to review, assess, and analyze prior studies. Drug development frequently utilizes trial-based studies. These have developed mostly in response to international influences.
In 1993, Australia became the first nation to use pharmacoeconomic analysis as part of the propcess for deciding whether new drugs should be subsidised by the Federal Government. The Pharmaceutical Benefits Advisory Committee (PBAC) advises Federal Government ministers on whether new drugs should be placed on a list for of drugs that consumers can then purchase from pharmacies at a subsidised price. Since 1993, this approach to evaluating costs and benefits is used in Canada, Finland, New Zealand, Norway, Sweden, and the UK.
Future CEA applications in formulating health policy are controversial. Recent legislation in the USA (i.e., the Patient Protection and Affordable Care Act) explicitly prohibits the use of cost-utility analysis, specifically QALY, in directing recommendations about healthcare technologies, treatment and services. Antipathy to the cost-effectiveness information, as noted in Neumann, may be because it "reveals uncomfortable choices" about cost of treatments and benefits. Societal perspectives may vary across generations, religions, ethnicities and geographies, and these varying societal perspectives may influence the value or measure of QALYs simply by a variance in perspective and not by differences in the actual treatment or outcome under investigation. For this reason, it is important to clearly identify all factors that should be considered in defining the costs and benefits. These should incorporate more than monetary costs and should attempt to assign measurable value on functional status of the person benefiting from the drug and the ability of that person to be a productive member of society. This will allow for a more comprehensive and accurate summation of societal perspectives as functional status is highly valued amongst all people.
The study of cost-effective analysis will continue to gain importance and credibility as there is greater confidence in measuring such intangible, albeit real, consequences or outcomes; such as functional status and feelings of health. There is a growing consensus in healthcare-related literature emphasizing the benefits of cost-effectiveness analysis and other related methods of determining incremental cost effectiveness ratios. Medical literature, both nationally and internationally, supports the role of CEA and CER in ability to identify and rank treatments in terms of their social welfare effects . Furthermore, the reliability of cost-effectiveness research can be greatly improved in time as data continues to grow and long-term data are generated correlating to efficacy (some of which is beginning to emerge in observational studies and trials found in the UK biological registry). The pharmaceutical manufacturing industry has also began to utilize cost-effective analysis when communicating relative value of products to physicians, hospitals, and other decision makers. As a result cost-effectiveness visualization tools have become more popular.
In June 2011, the Center for Medicare and Medicaid Services (CMS) made decisions on two very expensive cancer treatment drugs. The Food and Drug Administration withdrew approval for the use of Avastin (Bevacizumab) for breast cancer, but the CMS indicated that it would continue to cover the medication for breast cancer treatment. At the same time, the CMS approved another expensive biological drug, Provenge (Sipuleucel-T), but only for the FDA approved indications in prostate cancer, and not for off label uses.
A complete compilation of cost-utility analyses in the peer reviewed medical literature is available at the The CEA Registry Website.
Pharmacoeconomics for patients with multiple chronic conditions
Patients with multiple chronic conditions are a growing population in the community which can be managed with pharmaceutical therapy. The field of pharmacoeconomics has been increasingly used to enhance this population’s quality of life (QoL). However, to successfully impact a patient’s life many factors such as the cost to the patient of purchasing multiple pharmaceuticals and the impact of those costs to society need to be addressed. An important issue affecting a patient’s QoL is drug interactions, which can be minimized through medication therapy management.
Randomized controlled trials (RCTs) also play a role in increasing QoL for this patient population. Specialty pharmaceuticals have evolved beyond their status as niche drugs designed to treat rare conditions and are now poised to become the standard of care in a wide variety of common chronic illnesses. However, determining the value of these medications is hampered by a lack of robust pharmacoeconomic data." RCTs are often limited by the sample frame and selection process needed to address this patient population. "Many randomized controlled trials (RCTs) exclude patients who have multiple comorbidities." This problem could be improved by including more patients with multiple chronic conditions in RCTs for pharmaceuticals. Additionally, costs for these patients could be decreased by including them in RCTs for the drugs targeted for their conditions.
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- Cost-minimization analysis
- Cost-effectiveness analysis
- Cost-benefit analysis
- Cost-utility analysis
- Disability-adjusted life year (DALY)
- Global burden of disease
- Global comparative cost of pharmaceutical molecule
- Health utility index
- Health-adjusted life year (HALY)
- List of pharmaceutical companies
- Perspective (pharmacoeconomic)
- Quality-adjusted life year (QALY)
- Quality of life
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