Session 6. Evaluating the Cost of
Pharmaceuticals

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

 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

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

 Pharmacoeconomics — the description and analysis of the cost of pharmaceutical therapy to health care systems
 Cost — the total resources consumed in producing a good or service
 Price — the amount of money required to purchase an item

 Medicine effectiveness — the effects of a medicine when used in real-life situations
 Medicine efficacy —the effects of a medicine under clinical trial conditions

 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)

 Indirect costs —examples
 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

 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

 Obtain acquisition price for each medicine and calculate the price for the course of treatment to be compared — dose 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.

Category Medicine A Medicine B
 Acquisition price USD* 8.00
 Pharmacist salary 2.50
 Nursing salary
 Supplies
 Laboratory services
2.50
9.00 2.25
4.00
USD15.00
1.50
2.00
1.00
 Total
*USD refers to U.S. dollar
USD 26.00 USD 21.75

Cost Categories Ampicillin Ceftriaxone Gentamicin
(500 mg) (1 g) (80 mg)
Acquisition price for one vial
Doses per day
Price per day
Nursing salary at
USD1.00
4
USD 4.00
USD 8.00
1
USD 8.00
USD 2.00
3
USD 6.00
USD 0.75 per injection USD 3.00
Equipment:
IV set at USD 1.00/set —
Syringe/needle 0.50/set USD 2.00
Laboratory tests USD 2.00
USD 0.75
USD 1.00
—
USD 2.00
Total medicine costs/day USD 11.0 USD 11.75
USD 2.25
— _
USD1.50
USD 4.00
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

 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

 Define objectives —which 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.

(Net costs treatment A – Net costs treatment B)
÷
(Net effects treatment A – Net effects treatment B)
= Additional cost per additional benefit

Example of CEA: Medicine Costs
Medicine cost
Lab cost
Adverse event
Physician
Total
Cost/unit
(USD)*
40
20
No. of units
Medicine A
12
1
50
25
2
2
No. of patients
100
100
100
100
Medicine cost
Lab cost
Adverse event
Physician
Total
25
20
50
25
Medicine B
12
2
3
3
Total cost
(USD)
48,000
2,000
10,000
5,000
65,000
100
100
100
100
30,000
4,000
15,000
7,500
56,500
*USD equals U.S. dollar

Effectiveness
Medicine A
25/100 patients
Medicine B
19/100 patients
Clinical outcome: number of patients with ≥ 1% decrease in glycosylated hemoglobin over one year
Drug B
Cost of drug = $44.50
Effectiveness of drug =
Average decrease in
A1C = 1.5
Cost-effective ratio
$29.33/1 unit of A1C
Cost of drug $56.00
Effectiveness of drug =
Average decrease in
A1C = 0.8
Cost-effective ratio
$70.00/1 unit of A1C

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.

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): 52 –54.

CEA of Two Thrombolytics in Acute MI in
Australia (2)
Comparison of the Treatments
1. Difference between UC + SK and UC of MI:
Cost of treatment = AUD 3.7 – 3.5 million/1,000 cases
= AUD 0.2 million/1,000 cases
= AUD 200/case
Number of deaths prevented
= 120 – 90
= 30 deaths/1,000 cases treated
Incremental cost effectiveness of SK compared with UC
= AUD 0.2 million/30 lives
= AUD 6,700/life saved

2. Difference between UC + tPA and UC of MI:
Cost of treatment = AUD 5.5 – 3.5 million/1,000 cases
= AUD 2.0 million/1,000 cases
= AUD 2,000/case
Number of deaths prevented
= 120 – 80
= 40 deaths/1,000 cases treated
= AUD 2.0 million/40 lives
= AUD 50,000/life saved

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

If one has a budget of only AUD 500,000 —
For SK = 500,000 ÷ 200
= 2,500 cases
Number of lives that can be saved
= (30 ÷ 1,000) × 2,500
= 75 lives
For tPA = 500,000 ÷ 2,000
= 250 cases
Number of lives that can be saved
= (40 ÷ 1,000) × 250
= 10 lives
Which regimen should the DTC choose?

The study concluded that although tPA had slightly better efficacy and saved marginally more lives, when cost was taken into account, more patients could be treated and more lives saved using SK.

Cost-Utility Analysis — a type of costeffectiveness 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 Analysis — a 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

Used to measure how different assumptions made in a particular cost analysis will affect the conclusions
Method —Change the assumptions concerning the cost of different variables, and repeat the cost-analysis study to see if the results supporting the original conclusion change.
Examples of variables used in a cost analysis studies that can be varied in a sensitivity analysis: cost of physician visits, price of medicines, cost estimate of ADRs, number of ADRs experienced, laboratory tests required

 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 provided —5% 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

Important new area but difficult to evaluate
 Study may not be relevant to the reader’s 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

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?

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 medicine’s costeffectiveness ratio

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

 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 costing —cost minimization and cost effectiveness whenever possible