Transcript Cost

Chapter 23
Pharmacoeconomic Calculations
Ellen S. Campbell, Ph.D.
Associate Professor
Division of Economic, Social &
Administrative Pharmacy
Outline
Case Study
Pharmacoeconomics defined
PE Analyses
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Steps
Perspectives
Alternatives
Examples of 4 types
Sensitivity analysis
Discounting
Pricing Issues
Case Study background
• Bob is director of pharmacy for a large
MCO where he manages all aspects of the
health plan’s pharmacy budget.
• The health plan has more than 300,000
members
• Last year more than $78 million was
spent for pharmaceuticals.
• This was 20% higher than the previous
year
Case Study problem
• a new sulfonylurea has been approved by the
FDA.
• The product is similar to products on the
market and is approved for the treatment of
type II diabetes.
• Drug representatives have pointed out that it
has a more favorable side effect profile than
products currently on the market
• It is priced 20% higher than the current
medications used by the MCO.
Question
Does Bob request that the P&T
committee add the new drug to the
formulary? If so, at what tier?
What is …
MCO
P&T committee
Formulary
tier
What information would you use
to answer the question?
Does Bob request that the P&T
committee add the new drug to the
formulary?
Answer
Adopt a new drug or treatment
if…
the additional benefit is higher
than the additional cost
(global economic principle)
Health Outcomes
What are the consequences of a
particular treatment?
Pharmacoeconomics is
a set of methods that evaluate the
Economic,
Clinical and
Humanistic Outcomes
(ECHO Model)
of pharmaceutical products and
services…
Pharmacoeconomics is
to compare the economic resources
consumed (inputs) to produce the health
and economic consequences of products or
services (outcomes).
INPUTS
Economic
Resources
OUTCOMES
Health and Economic
Consequences
Four types of
Pharmacoeconomic Analyses
1.
2.
3.
4.
Cost-minimization (CMA)
Cost-benefit (CBA)
Cost-effectiveness (CEA)
Cost-utility (CUA)
Comparison of PE Methods
Method
Cost
Consequences
Cost Minimization
Dollars
Natural units
(show equivalency)
Cost Effectiveness
Dollars
Natural units
Cost Benefit
Dollars
Dollars
Cost Utility
Dollars
QALYs
Steps for conducting a
PE Analysis
1. define the problem
2. identify the perspective and alternative
interventions to be compared
3. identify and measure outcomes of each
alternative
4. identify, measure and value costs of all
alternatives
5. use discounting and sensitivity analysis
when appropriate
Define the problem and state
the objective
What is the most cost effective
treatment of type II diabetes?
Identify the perspective…
that is, who will be utilizing the
information to make what decisions.
This will guide you in choosing the
relevant costs and benefits.
Different Perspectives
Perspective
Relevant: Costs
Consequences
Patient
OOP costs,
lost income,
transportation
Therapeutic
effectiveness,
Adverse events, QOL
MCO
Hospitalization,
Pharmacy, Personnel,
& supplies
Therapeutic
effectiveness,
Adverse events
Third-Party Payers
Hospitalization,
Pharmacy, Nursing
home care
None
Society
All possible costs
including lost
productivity
All possible
consequences
including QOL, & life
years.
Identify Alternative Interventions
What are the relevant choices?
Often a head-to-head comparison of the
most used (traditional) treatment with the
new one.
It’s important to compare with the most
likely substitute for a realistic result.
The comparator doesn’t have to be a drug
therapy.
At least two comparators
1. New sulfonylurea
Versus
2. Most commonly used drug
Cost and Effectiveness Comparison
Grid for Drug 1 vs Drug 2
Effectiveness
Cost
1>2
1=2
1<2
1>2
Analyze
Choose 2
1=2
Choose 1
Indifferent Choose 2
1<2
Choose 1
Choose 1
Choose 2
Analyze
Identify and measure outcomes of
each intervention (natural units or $)
Typical outcomes include:
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cured of illness
improved quality of life
decreased incidence of morbidity
extended life
relief or reduction in symptoms
Adverse events (drug interactions and sideeffects)
mortality
Identify, Measure and Value costs
Costs include:
direct medical costs like treatment costs,
direct non-medical costs like transportation,
indirect costs like missed work,
intangible costs like pain.
Be sure to include those costs that are relevant
to your perspective.
Measuring Costs over time
Costs are measured over a relevant time
period such as a month or year. The
length used depends on the typical span
of the illness of interest.
Analysis of acute disease such as the flu
would have a short span; while chronic
or long-term illness such as depression
or heart disease would span years.
1. Cost-Minimization Analysis (CMA)
This type of evaluation compares two or
more alternative treatments that are
clinically equivalent in terms of outcomes
or consequences. Once equivalency is
demonstrated, the focus is on choosing
the one with the smallest total costs.
Example – generic versus name brand
Calculating cost differentials
between therapeutic agents
Drug A is administered via 100 mg tablet orally,
twice a day, for 30 days. Each 100 mg tablet
costs $7.50
Drug B requires three weekly IV administrations
with increasing dosages as follows:
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(dose 1) 250,000 IU
(dose 2) 500,000 IU
(dose 3) 750,000 IU
Cost of Drug B is $68 per 250,000 IU and
administration is $25 per dose
Cost differential (or incremental
cost) for entire regimen
Total cost of Drug A = 30 days x 2 x $7.50
= $450
Total cost of Drug B = drug cost + adm
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Dose 1 = (1 x 68) + 25 = 93
Dose 2 = (2 x 68) + 25 = 161
Dose 3 = (3 x 68) + 25 = 229
= $483
Cost differential is 483 – 450 = $33
Incremental cost of changing from Drug A
to Drug B is $33
Cost differentials for chronic
diseases are calculated on
Per patient per day
Per patient per month (30 days)
Why?
Different outcome?
Using Cost Minimization Analysis (CMA)
is only appropriate if the outcomes are
shown to be equivalent.
If not – must use alternative technique
to account for the differenced in
outcomes
2. Cost-effectiveness Analysis (CEA)
If you can measure the therapeutic effect
in “natural units” (I.e. weight gained, blood
cholesterol level reduction) you compare
the Cost per gain in therapeutic effect.
Choose the smallest.
Cost-Effectiveness Ratio =
Cost ($)
Therapeutic effect (Natural units)
Two ratio calculations for CEA
Cost-Effectiveness Ratio =
Cost ($)
Therapeutic effect (Natural units)
Incremental Cost-Effectiveness Ratio =
cost differential ($)
outcome differential (Natural units)
Cost-effectiveness Example
Cost
Effectiveness
Drug A
$50
30 mg/dl
Drug B
$70
40 mg/dl
Avg.
C/E Ratio
Incremental
C/E Ratio
In this example, effectiveness is mg of glucose
lowered. Could also measure effectiveness as
cure rate as in the textbook example.
Cost-effectiveness Example
Cost
Effectiveness
Avg.
C/E Ratio
Drug A
$50
30 mg/dl
50/30
Drug B
$70
40 mg/dl
70/40
Incremental
C/E Ratio
(70-50)/(40-30)
In this example, effectiveness is mg of glucose
lowered. Could also measure effectiveness as
cure rate as in the textbook example.
Cost-effectiveness Example
Cost
Drug A
Drug B
$50
$70
Effectiveness
Avg.
C/E Ratio
30 mg/dl
$1.67per
mg/dl
40 mg/dl
$1.75per
mg/dl
Incremental
C/E Ratio
$2 per
additional
mg/dl
In this example, effectiveness is mg of glucose
lowered. Could also measure effectiveness as
cure rate as in the textbook example.
3. Cost-Benefit Analysis (CBA)
When all costs and benefits of alternative actions
are expressed in dollars.
There are two ways to express the results:
1. Calculate the Benefit to Cost ratio for each action
Benefit ($)
Cost ($)
Gives you the value gained per dollar spent (>1)
2. Or calculate the Net Benefit
= Benefit ($) – Cost ($)
Gives you the net gain (loss) from the action
Example of Cost-Benefit Analysis
Four therapies are used to control hyperglycemia.
Per patient
Per day
Cost
A
B
C
D
5.88
4.96
4.08
3.78
Benefit
53.75
53.75 43.85 33.42
Net Benefit
47.87
48.79 39.77 29.64
Benefit/Cost
Ratio
9.14
10.84 10.74
8.84
4. Cost-Utility Analysis (CUA)
Similar to Cost-Effectiveness, this type of
evaluation measures cost per gain in utility
derived from the intervention. Utility is a
measure how happy, healthy or satisfied
someone is. The scale varies. Common
examples are 0 – 1 or 0 – 10 or 0 - 100
Quality-Adjusted Life Years
Utility is often combined with a measure of life
expectancy to obtain quality-adjusted life years
(QALYs).
One healthy QALY = 1.0 is one year in perfect
health
Death QALY = 0.0
Example: 3 years of life as disabled (rated at
utility 0.5)
= 1.5 QALYs
Two ratio calculations for CUA
Cost-Utility Ratio =
Cost ($)
QALYs
Incremental Cost-Utility Ratio =
cost differential ($)
outcome differential (QALYs)
Cost-Utility example
Surgery vs Surgery plus chemotherapy
Treatment
Surgery
Cost
14000
Surgery +
27000
chemo
life Utility QALY
years (0-1)
3
5
.8
.6
CU
Ratio
2.4
$5833
per
QALY
3.0
$9000
per
QALY
Incremental
CU ratio
$21,667 per
QALY
Cost-Utility
Pro: This is the only measure that
includes patient quality information.
Con: There is a lack of standardization in
utility measurement ( I.e. subjective).
Sensitivity Analysis
When estimating costs and outcomes,
you typically have a range of possible
values. Sensitivity analysis requires
that the results be recalculated at the
different values to see if the conclusions
change.
Sensitivity analysis of Cost-Utility
example
Surgery vs Surgery plus chemotherapy
Treatment
Surgery
Cost
14000
Surgery +
27000
chemo
life Utility QALY
years
range
2-4
4-6
CU
Ratio
.8
1.6
3.2
$8,750
$4,375
.6
2.4
3.6
$11,250
$7,500
Incremental
CU ratio
no gain $6,500 per
QALY
Discounting
If the analysis spans more than a year,
then the dollar values must be adjusted
to a common time.
Discounting adjusts future costs or benefits
using an expected interest or discount rate.
Present Value = Future value
(1+r)n
where r = discount rate (.03 - .06 is typical)
and n = the number of years in the future.
Discounting example
You wish to implement
a diabetes DSM
program which will cost
you $1500 per year.
The benefits from this
program won’t be
evident for 2 years, so
you want to evaluate it
after 4 years.
Use r = .05 (i.e. 5%)
Year
Costs
PV
this
year
1,500
1,500
1
1,500
1,429
2
1,500
1,361
3
1,500
1,296
total $6,000 $5,586
Pharmaceutical Pricing
When trying to assess cost you need to
accurately reflect depending on the
perspective.
Two issues impact drug price the
pharmacy must pay
1. Patent
2. Available substitutes
Pricing concepts
Acquisition cost (AAC) for pharmacy is
the trade price less discounts
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Quantity discounts
Promotional discounts
Advertising or display allowances
Average Wholesale price (AWP) is often
used by third-party payers (insurers)
Pricing concepts
Series discounts occur when you have more
than one discount applied to a product. You
cannot simply add the discounts together to
get the single discount equivalent. They are
applied to an already discounted amount.
To get a single discount equivalent, subtract
each rate from 100% and multiply the
percents. Subtract the result from 100% to
get the single discount rate.
Series discount example
Your business gets a standard trade
discount of 25% from list price. Your
order gets a 10% quantity discount.
Finally, you get a 3% cash discount.
.75 x .90 x .97 = .655
100% – 65.5% = 34.5% discount rate
Markup
Percent over cost that is charged for a
product (source of profit).
Example if your standard markup is
75%, then how much will you charge
for a bottle of aspirin that costs you $1?
What is your profit on the sale of that
aspirin?
Pricing for prescriptions &
pharmaceutical services
Generally a markup is added to cost of
ingredients to get price charged.
A dispensing or professional fee can
also be added to obtain a final price.
This fee is typically an average value of
pharmacist services (wage x time
spent) provided during a transaction. It
should be independent of the cost of
ingredients.
Summary of Pharmacoeconomic
issues
1.
2.
3.
4.
5.
6.
7.
8.
Perspective
Type of analysis
Appropriate Comparators?
Relevant costs and consequences
Validated instruments
Time period, discounting
Sensitivity analysis
Generalizability