Basics of
Pharmacoeconomics and
Outcomes Research:
Application to Patient Care
Sara Shull PharmD, MBA
Preview
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Economic concepts
Data types & sources
Types of pharmacoeconomic analyses
Perspective
Cost-effectiveness and incremental
analysis
Sensitivity analysis
Steps to pharmacoeconomic literature
evaluation
Case studies for clinical practice and policy
building
Opportunity Cost
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Time and money as resources can
only be spent once – choice is
unavoidable.
O.C. is defined as the amount that a
resource could earn in its highest
valued alternative use.
How do you invest your time?
Why take valuable time to learn
about pharmacoeconomics and
outcomes research?
How Can PE and Outcomes
Enhance My Practice?

PE is an aid to decision making with strong
potential to:
• Mitigate the influence of marketing
 Puts practitioner in the driver’s seat
• Help set practice priorities
• Enhances position of practitioner from payer’s
perspective
 Medicare plans to decrease pay-out to stem
tide of budget deficit
 Private payers actively are developing
quality “report cards”
How Can PE and Outcomes
Enhance My Practice?
• Statistically more likely to be
responsible for better success in clinical
care by eliminating poor/ unnecessary
care
• Ethical framework
 Fidelity to individual patients &
stewardship to the public good
Economics is:

The study of how individuals &
society end up choosing, with or
without the use of money, to employ
scarce resources that could have
alternative uses, to produce various
commodities & distribute them for
consumption now, now or in the
future, among various people and
groups in society. Paul Samuelson
Pharmacoeconomics and
Outcomes Research
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Using data to distinguish your
practice
Data about efficacy
clinical and humanistic
Data about cost
resources consumed to achieve
efficacy endpoints (investment)
Efficacy Data
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Management of efficacy endpoints
based on evidence enables clinicians
to maximize prescribing skills
Evidence-based healthcare is a
determination of the mix of those
services, drug products, and
procedures that maximise benefits
and reduce risks.
Cost Data

Management of resource
consumption enables patients to
maximize purchasing power• Individual level- managing insurance copayments
• Group level- managing insurance
premiums across groups and
maximizing the number of insured
patients
• Govt level- sustaining public programs
Value Is the Goal of Practice
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Minimizing the ratio of cost to
efficacy creates value- best return on
investment
Enhances your ability to deliver a
superior product
Basic Value of Medical Care

Evidenced by general trends:
• Increased use of medical care and prescription
drugs
• Mortality rates of certain diseases have
significantly declined
• Mean length of hospital stay has also declined

Despite this general evidence, few specific
data regarding the actual costs and
benefits attributed to drugs and medical
therapies exist
Objectives

Objectives of pharmacoeconomics
and outcomes research must
originate within three dimensions
when considering results and value
of healthcare
• Acceptable clinical outcomes
• Acceptable humanistic outcomes
• Acceptable economic outcomes
Types of Pharmacoeconomic
Analysis
Methodology
Cost measurement
unit
Outcome unit
Cost minimization
Dollars
Various- but
equivalent in
comparative groups
Cost benefit
Dollars
Dollars
Cost effectiveness
Dollars
Natural units (life
years, mg/dl blood
sugar, LDL
cholesterol)
Cost utility
Dollars
Quality adjusted life
years
Common Misconceptions When
Applying Pharmacoeconomic
Principles
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Cost-effective care is initially the cheapest alternative
in a manner similar to other investments, least cost
option may lead to greater costs downstream
Cost-effective care is outcome that generates
“biggest” effect in a manner to similar investments,
smaller increments of outcome may be achieved at a
lower overall cost
Perspective
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The “point of view” considered in
economic analyses influences the
outcomes and costs considered to be
most relevant:
• Provider
• Patient
• Payer
• Society
Comprehensive Definition of
Cost-effectiveness
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A therapy is deemed to be a costeffective strategy when the outcome
is worth the cost relative to
competing alternatives. In other
words, scarce resources are utilized
to acquire the best value on the
market.
Average Cost-effectiveness
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Specifies the cost of an agent
required to achieve each unit of
effect. No comparison is made to
alternative agents.
Average cost-effectiveness
Cost of drug
Resulting effect = Cost per unit of effect
achieved
Average Cost-effectiveness
Average cost-effectiveness of Agent A
$50.00
50 units of effect = $1.00 per unit
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Average cost-effectiveness of Agent B
$150.00
90 units of effect = $1.60 per unit
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Incremental Cost-effectiveness
Analysis
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Makes comparisons to other
therapeutic options, standard of
care, or “doing nothing” (placebo)
Fundamental ratio
Cost optionB – Cost optionA
Effect optionB – Effect optionA
=
Cost to achieve one unit of effect
Incremental Cost Analysis
1.6
1.4
1.2
1
0.8
Cost
0.6
0.4
0.2
0
Placebo
Agent A
Agent B
Incremental Effect Analysis
90
80
70
60
50
Units of Effect
40
30
20
10
0
Placebo
Agent A
Agent B
Comprehensive Incremental Costeffectiveness

$150 - $50
90 – 50 units
=
=
$100
40 units
$2.50 per unit of effect achieved
Therefore, because Agent A is an available
alternative with a lower average cost per
unit of effect achieved, the costeffectiveness of using Agent B is
diminished. The cost of Agent B is not in
line with the product it delivers- a poor
value.
Grid Representing All Possible Relationships
of Cost to Effect Between
Two Competing Alternatives
Cost of alternative A
relative to alternative
B
Lower Equal Higher
Effectiveness
alternative A Lower
relative to
alternative B Equal
Higher
+/Trade
off
-
Dominated
+
Arbitrary
-
+
Domina
nt
+
+/Trade-off
Measuring Efficacy Data Variables
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What product (effect) can be consistently
expected from use of drug or health
service?
Usually determined from clinical trials
• Seek direct relationship to morbidity and
mortality
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Survival/ death
Myocardial infarction avoided
• May rely on surrogate probably related to final
outcome to enhance feasibility of analysis
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Hemoglobin changes
LDL cholesterol changes
Intimal vessel wall thickness changes
• Randomized controlled clinical trial is gold
standard for deriving efficacy data
Measuring Cost Data Variables
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What resources are consumed to produce one
unit of the effect?
Direct costs
drug product acquisition costs
drug preparation & administration costs
drug monitoring costs
treatment costs of adverse effects
Indirect costs
example of institution indirect cost
Discounting Costs
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In order to draw most valid conclusion
about costs generated over time to
achieve an effect in the future, it is
necessary to consider that there is a time
preference associated with money
Time-value of money adjustment
• Money in hand is worth more than the same
amount sometime in the future (we like to be
paid as soon as possible, but prefer to pay at
the last possible moment)
• Therefore future costs must be adjusted to
reflect present value.

A $1000 cost one year from now requires only
$930.00 in hand today assuming a 7% return on
investment.
Sensitivity Analysis
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Conclusions drawn from an economic analysis
may change, depending on the uncertainty of
cost and effects considered.
S.A., by altering important variables & then
recalculating results, tests the validity of
conclusions:
• Would Agent A still be most cost-effective if
the effect of Agent B was greater than
measured in clinical trial?
• Would Agent A still be most cost-effective if
the monitoring costs of Agent B were actually
lower?
S.A. becomes increasingly important as
assumptions are made to a greater degree.
Steps to Pharmacoeconomic
Literature Evaluation
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Evaluate:
•
•
•
•
The quality of the journal
Qualifications of authors
Title and abstract- unbiased?
Study methodology
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Perspective, study design, outcomes and appropriate
alternatives, costs and appropriate discounting,
sensitivity analysis, & data sources
• Sponsorship- could bias be introduced?
• Incremental results
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What is the conclusion and does it differ between
subgroups? How much does allowance for
uncertainty change conclusion?
Vogengerg, FR editor. Introduction to Applied Pharmacoeconomics, 2001
Cases for Development
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Formulary decision making (policy)
• Appropriate place for eplerenone (Inspra®) and spironolactone
(generic) on Inpatient formulary of tertiary care academic
medical center
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Clinical decision making for acute therapy
(bedside)
• Choosing between low molecular weight heparin or
unfractionated heparin for the treatment of acute proximal
deep vein thrombosis
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Clinical decision making for chronic therapy
(bedside)
• Choosing between selective cyclooxygenase inhibitor and
traditional non-steroidal anti-inflammatory agent for
management of osteoarthritis pain
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Other suggestions?
Treatment of Pain Resulting from
Osteoarthritis
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Pain results in significant disability and resource utilization
• affects 15% of US population
• results in > 100,000 hospitalizations annually
NSAIDs
• effective pain relief
• 24 – 30% the cost of Cox-II inhibitors
• associated with a significant risk of adverse effects
 Dyspeptic symptoms
 More serious non-dyspeptic effects- symptomatic ulcers,
ulcer hemorrhage, ulcer perforation
Cox- II inhibitors
• effective pain relief
• substantially more expensive than NSAIDs
• associated with lower risk of GI side effects
How should I treat my patient?
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NSAIDs are inexpensive compared to
Cox-II inhibitor:
• But won’t the more expensive agent pay
for itself many times over by preventing
an expensive GI bleed in my patient?
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Dyspeptic symptoms are decreased by 15%
Clinically significant ulcer complications are
reduced by 50%
Risk of GI bleed: How Much Can It
Be Altered?
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Not all osteoarthritis patients have an
equal risk of developing a GI bleed
• Is paying extra for GI protection justified in all
patients?
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How much can the risk of GI bleed be
altered by using a Cox-II inhibitor instead
of an NSAID?
• What value is really purchased for the extra
cost?
• The relative risk reduction of GI complications
with Cox-II inhibitor catches our eye- but
actual risk reduction is small
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1-2% for overall ulcer complications
1% for serious hemorrhage and perforation
Spiegel MR et al. Annals Internal Medicine 2003; 138:10(795-806)
Cost-effectiveness analysis
Population
No Hx
of GI
ulcer
Drug
Total
Annual
Cost
Naproxen $4859
Cox-II
inhibitor
Qualys
Gained
Incremental
cost per
Qualy gained
15.2613 -
$16,443 15.3033 $275,809
Hx of GI Naproxen $14,294 14.7235 ulcer
Cox-II
inhibitor
$19,015 14.8081 $55,803
Spiegel MR et al. Annals Internal Medicine 2003;138:10(795-806)
Cardiovascular Effect of Cox-II
Inhibitors
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How do cardiovascular problems affect my choice
of using Cox-II inhibitors or NSAIDs?
Population
All
patients
Drug
Annual
Cost
Naproxen $5,037
Cox-II
Qualys
Gained
Incremental
cost per
Qualy gained
15.2539 -
$16,620 15.2832 $395,324
Spiegel MR et al. Annals Internal Medicine 2003;138:10(795-806)
Clinical Decision Making
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Risk reduction for GI complications
seen with Cox-II inhibitors is unlikely
to offset their increased cost in the
management of average risk patients
with osteoarthritis pain
• With no history of GI bleed, choose
naproxen
• With history of GI bleed, choose Cox-II
inhibitor
Clinical Decision Making
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In all patients with osteoarthritis, the
decision to use Cox-II inhibitor
should be made with awareness of
the effect of the added risk for
cardiovascular events on costeffectiveness
• Currently, there is not enough
information available, but it may be
prudent to avoid these drugs in patients
with cardiovascular history, even in
patients with history of GI bleed
Treatment of Acute Deep Vein
Thrombosis
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VTE
• > 200,00 new cases reported annually in US
• Mortality attributed to PE 100 – 200,000 deaths annually
Unfractionated heparin
• Effective for treating VTE
• Daily cost for IV therapy is low
• Requires close monitoring of clotting time/ dose titration
and, therefore, hospitalization
Low molecular weight heparin
• Effective for treating VTE
• Daily cost for SQ therapy is high
• Routine clotting time monitoring not required unless
obese or manifestations of renal compromise present
• Early discharge or outpatient treatment for VTE is
possible
How Should I Treat My Patient?

Unfractionated heparin is a less
expensive option compared to low
molecular weight heparin.
• But won’t the more expensive agent pay
for itself by bypassing routine
coagulation monitoring?
• Also, can’t I lower the risk of nosocomial
infection and error by sending my
patient home after establishing low
molecular weight therapy?
Cost-effectiveness Analysis
Treatment
setting
Both agents
admin in
inpatient
setting
Low
molecular
weight
heparin
primarily
admin in
outpatient
setting
Drug
Total
costs of
course of
therapy
Qualys
Gained
Incremen
tal cost
per Qualy
gained
Unfractiona
ted heparin
$26,361
7.978
-
Low
molecular
weight
heparin
$26,516
7.998
$7,750
Unfractiona
ted heparin
$26,361
7.978
-
7.998
Costsaving
Low
molecular
weight
heparin
$25,559
Gould MK et al. Annals Internal Medicine 1999;130(10):789-799
Clinical Decision Making
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Decreased monitoring costs with low
molecular weight heparins and the
attenuated risk of future complications
with these agents do result in costeffective care.
• The higher acquisition cost is justified.

Treating the patient on outpatient basis
creates best value.
• Better outcomes are achieved at a lower
overall cost- the best possible situation.
Gould MK et al. Annals Internal Medicine 1999;130(10):789-799
Clinical Decision Making

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For patients that can receive in-home
treatment and support, establish low
molecular weight heparin therapy on first
day of hospitalization, then send the
patient home. (analysis includes cost of
home health visits)
For patients that must remain
hospitalized, low molecular heparin should
be selected before unfractionated heparin
as therapy for treatment of VTE.
Drug Selection for Inpatient
Formulary Addition

Congestive heart failure
• Afflicts > 4.6 million people in US
• Disease and cost burden rapidly
increasing
• Primary reason for hospitalization in US
• Length of stay & readmission significant
cost drivers
• High mortality rate
Inpatient Reimbursement
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Most heart failure patients are
insured by Medicare
Medicare reimburses on prospective
case basis; monetary amount
determined by diagnosis
Hospital is motivated to develop
cost-effective formulary with goal of
decreasing mortality rate, hospital
length of stay, and preventing
readmissions
Formulary Considerations

Two agents are effective & safe in
reducing the risk of death and
hospitalization of heart failure patients.
• Spironolactone (available on Inpt formulary)

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Daily cost is 50-90% lower than eplerenone
Gynecomastia/ breast pain occurs in 10% of males
• Eplerenone (considered for formulary addition)
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More specific mechanism of action
Lower incidence of gynecomastia, but greater
incidence of hyperkalemia requiring hospitalization
Indirect Comparison of Clinical Trial
Results
Variable
Relative risk of
death due to
heart failure
Per patient cost
of drug (36
months)
Cost of drug per
death prevented
Spironolactone
Eplerenone
75.2%
86.2%
$50.28
$1,230.00
$440.00
$53,000.00
Pitt B et al. The New England Journal Medicine 1999;341(10):709-717
Pitt B et al. The New England Journal Medicine 2003;348(14):1309-1321
Policy Decision Making

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Eplerenone is not cost-effective across
entire heart failure population
However, length of stay and readmission
rates increase as severity of heart failure
increases
Stratification of eplerenone efficacy
indicates mortality and hospitalization
rates fall more dramatically when heart
function is more compromised (ejection
fraction < 40%)
Policy Decision Making


Extra cost of eplerenone may be justified
in sicker patients or in patients that
cannot tolerate cheaper spironolactone
due to gynecomastia/ breast pain
Add eplerenone to Inpatient formulary but
limit use within these two patient
populations only
• Ejection fraction < 40%
• Cannot tolerate or fails spironolactone

Eplerenone is not allowed for treatment of
hypertension (despite FDA indication) as
many effective, safe alternatives are
available at significantly lower cost.
Conclusion
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Time and money can only be spent oncechoice is inevitable. Whether done
unconsciously or with a consistent
process, health care professionals are
constantly evaluating patient care choices
& acting on them.
Pharmacoeconomics and outcomes
research can enhance the quality of your
practice by strengthening your evaluation
process and increasing the probability that
you deliver better value in patient care.