Drug and Therapeutics Committee

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Drug and Therapeutics Committee

• Session 6. Evaluating the Cost of Pharmaceuticals

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Introduction

• Adding medicines to the formulary involves
  careful consideration of
• Efficacy
• Safety
• Quality
• Cost
• Cost factors are becoming more important
• Science of pharmacoeconomics is emerging

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Objectives

• Define and understand the different types of cost
  analysis methods relevant to choosing medicines
  for the formulary
• Understand how to read and assess journal
  articles concerning an economic study
• Apply session materials to conduct a basic cost
  analysis for a medicine being requested for the
  formulary

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Outline

• Introduction
• Key Definitions
• Cost-Evaluation Methods
• Cost-Minimization Analysis
• Cost-Effectiveness Analysis
• Evaluating Pharmacoeconomic Studies
• Activities
• Summary

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Key Definitions (1)

• Pharmacoeconomicsthe description and analysis of
  the cost of pharmaceutical therapy to health care
  systems
• Costthe total resources consumed in producing a
  good or service
• Pricethe amount of money required to purchase an
  item

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Key Definitions (2)

• Medicine effectivenessthe effects of a medicine
  when used in real-life situations
• Medicine efficacythe effects of a medicine under
  clinical trial conditions

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Direct Costs of a Medicine

• Acquisition cost
• Transportation cost
• Supply management cost (i.e., storage facility
  cost)
• Cost of supplies and equipment to administer
  medicines, such as syringes and needles
• Personnel costs to prepare and administer such as
  physicians, pharmacists, and nurses
• Other direct costs (e.g., ADRs, hospital room
  charges, laboratory fees)
• Nonmedical cost (e.g., patient travel expenses)

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Indirect Costs of a Medicine

• Indirect costsexamples
• Cost of illness to the patient
• Lost time from work
• Time required to care for somebody
• Intangible costs
• Costs associated with pain and suffering usually
  incorporated into utilities assigned to health
  states which reflect quality of life

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Cost-Minimization Analysis

• Of two medicines with equal effectiveness, which
  is the least expensive?
• Most used cost-evaluation method
• Most accurate method when comparing cost between
  two therapeutically equivalent medicines

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Cost-Minimization Analysis Process

• Obtain acquisition price for each medicine and
  calculate the price for the course of treatment
  to be compareddose per day, number of days of
  treatment.
• Calculate pharmacy, nursing, and physician costs
  associated with the use of each medicine.
• Calculate equipment cost associated with each
  medicine.
• Calculate laboratory cost associated with each
  medicine.
• Calculate cost of any other significant factor.
• Calculate and compare total medicine costs for
  each medicine.

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Cost-Minimization Analysis Example 1

• Category Medicine A Medicine B
• Acquisition price USD 8.00
  USD15.00
• Pharmacist salary 2.50
  1.50
• Nursing salary 2.50
  2.00
• Supplies 9.00
  2.25
• Laboratory services 4.00
  1.00
• Total USD 26.00 USD
  21.75

USD refers to U.S. dollar
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Cost-Minimization Analysis Example 2

• Cost Categories Ampicillin
  Ceftriaxone Gentamicin
  (500 mg) (1
  g) (80 mg)
• Acquisition price
• for one vial USD1.00
  USD 8.00 USD 2.00
• Doses per day 4 1
  3
• Price per day USD 4.00
  USD 8.00 USD 6.00
• Nursing salary at
• USD 0.75 per injection USD 3.00
  USD 0.75 USD 2.25
• Equipment
• IV set at USD 1.00/set
  USD 1.00 _
• Syringe/needle 0.50/set USD 2.00
  USD1.50
• Laboratory tests USD 2.00
  USD 2.00 USD 4.00
• Total medicine costs/day USD 11.0
  USD 11.75 USD 13.75
• 3,000 treatment-days/year 3,000 days
  3,000 days 3,000 days
• Total medicine costs USD 33,000
  USD 35,250 USD 41,250

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Cost-Effectiveness Analysis (CEA)

• Of two medicines, A and B, with different
  effectiveness, what is the cost per patient cured
  for medicine A versus medicine B?
• Used to compare two or more medicines which are
  not therapeutically equivalent
• Effectiveness of therapy according to
  predetermined therapeutic measure, for example
• Patients cured
• Deaths averted years of life saved
• Decreased blood pressure or glycosylated
  hemoglobin

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CEA Steps

• Define objectiveswhich medicine regimen is
  preferred to achieve the desired clinical outcome
  (e.g., cure)?
• List the different options (medicines and other
  treatments) to achieve the desired clinical
  outcome.
• Identify and measure for each option (1) cost
  and (2) clinical outcome.
• Calculate the incremental cost-effectiveness
  ratio.
• Perform sensitivity analyses. Adjust cost of
  variables and re-analyze to confirm or refute
  results.

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Incremental Cost-Effectiveness Ratio

• (Net costs treatment A Net costs treatment B)
• (Net effects treatment A Net effects treatment
  B)
• Additional cost per additional benefit

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Example of CEA Medicine Costs
USD equals U.S. dollar
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Example of CEA Benefits
Effectiveness Medicine A Medicine B 25/100
patients 19/100 patients Clinical
outcome number of patients with 1 decrease in
glycosylated hemoglobin over one year
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Example of CEA Incremental Cost-Effectiveness
Comparison between medicines A and B for 100
patients for 1 year Medicine A
Medicine B Net costs USD
65,000 56,500 Effectiveness No.
patients with 1 decrease in glycosylated
hemoglobin 25
19 Incremental Cost Effectiveness Ratio
(65,000-56,500)/(25-19) USD1,416.67 per
extra patient with 1 decrease in glycosylated
hemoglobin.

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CEA of Two Thrombolytics in Acute Myocardial
Infarction (MI) in Australia (1)

• Cost of treatment and mortality rates
• Usual care (UC) of MI 3.5 million Australia
  dollars (AUD)/1,000 cases, 120 die
• UC Streptokinase (SK) AUD 3.7 million /1,000
  cases, 90 die
• UC tissue plasminogen activator (tPA) AUD 5.5
  million /1,000 cases, 80 die

Source Australian Prescriber, 1996, 19(2) 5254.
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CEA of Two Thrombolytics in Acute MI in Australia
(2)

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CEA of Two Thrombolytics in Acute MI in Australia
(3)

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CEA of Two Thrombolytics in Acute MI in Australia
(4)

3. Difference between tPA and SK treatments for
MI Cost of treatment AUD 2.0 - 0.2
million/1000 cases AUD 1.8 million/1000
cases AUD 1,800/case No. of deaths
prevented 90 - 80 10 deaths/1,000 cases
treated Extra cost effectiveness of tPA over SK
AUD 1.8 million/10 lives AUD
180,000/life saved

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CEA of Two Thrombolytics in Acute MI in Australia
(5)

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CEA of Two Thrombolytics in Acute MI in Australia
(6)

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Other Controversial Cost Analyses

• Cost-Utility Analysisa type of
  cost-effectiveness analysis in which the desired
  clinical outcome or benefit is measured in
  utilities, for example, in quality-adjusted life
  years (QALYs) and disability-adjusted life years
  (DALYs)
• Cost-Benefit Analysisa comparison of the costs
  and benefits of an intervention by translating
  the health benefits into a monetary value, so
  that both the costs and benefits are measured in
  the same monetary unit

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Sensitivity Testing
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Discounting

• Used in cost evaluations to account for a future
  cost of a benefit from the medicine (or
  intervention)
• Method to account for effects of the medicine (or
  intervention) over prolonged periods of time
  (because of the effects of inflation)
• The discount rate must be tied to the economics
  of the country where the medicine or intervention
  would be provided5 in the United States
  treasury rate in the United Kingdom
• The discount rate is not known for sure in any
  pharmacoeconomic study and any arbitrary rate
  used will have a dramatic effect on the results
  of the economic study

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Evaluating Pharmacoeconomic Studies (1)

• Important new area but difficult to evaluate
• Study may not be relevant to the readers country
• No gold standard for pharmacoeconomic studies
• Quality of studies varies widely
• Bias of many studies to support sponsor
• Negative outcome research seldom gets into the
  literature

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Evaluating Pharmacoeconomic Studies (2)

• Key questions to ask in reading an article
• Is patient selection in the study similar to
  those in your community?
• Is the study applicable to your setting?
• Are costs of medicines fully described?
• Are costs of benefits or assumptions of
  effectiveness fully disclosed?
• Has a sensitivity analysis be done?
• Who is the sponsor?

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Evaluating Pharmacoeconomic Studies (3)

• Key questions to ask (continued)
• Are all the costs associated with medicine
  treatment, including good and bad outcomes
  described (not just prices)?
• Costs associated with nonpharmaceutical
  treatments (equipment) and negative outcomes
  (side-effects) may be missing
• Has discounting been used to reflect the costs of
  any future benefits or consequences in present
  day values?
• Different discounting rates for medicine costs
  and future benefits may be used to emphasize a
  medicines cost-effectiveness ratio

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Activities

• Activity 1Cost Minimization Analysis of NSAIDs
• Activity 2Cost-Effectiveness Analysis of Two
  Antimalarial Treatments

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Summary

• Cost analysis of medicines is becoming much more
  important.
• Comprehensive analysis of medicines is necessary
  to fully assess the real cost of medicines and
  the benefits from medicine use.
• Pharmacoeconomic studies are very difficult to
  assess. Appropriate analyses should
• Rely on data from clinical trials or reasonable
  extrapolations of these trials
• Use basic verifiable costingcost minimization
  and cost effectiveness whenever possible