Pharmaco-Economics Basic Principles

Soumana Chamoun Nasser, Pharm.D.

Secretary, ISPOR Lebanon Chapter (LSPOR)

Objectives

• PE Basic Principles

• PE models and scenarios

• Cost definitions and Factors

• Steps to PE study Evaluation

History of Health Economics

• 1950s ---1970s – an increase in health expenditure • 1960’s – Cost-Of-Illness studies • 1970’s – Cost-Benefit approach accepted but concern

valuing health with money • 1980’s – Cost Effectiveness approach - cost per health

outcome measures • 1990’s – PE Evaluation: CBA/ CEA/ CUA

Jeff Richardson - Economic Assessment of Health Care: theory and practice, 1990

• 2000’s – Integration of CBA/CEA/ CUA in Decision making

What is Economic Evaluation?

Economic Evaluation: compare inputs & outputs of alternatives , to address issue of efficiency to help decision making for resource allocation.”

Choice

Option A

Option B CostsB

CostsA

ConsequencesA

ConsequencesB

What is PE Evaluation? PE is “the analysis of the costs and consequences of pharmaceutical products and services, and their effects on individuals, health care systems and society.”

Inputs ($$ of medical services) Outputs (Healthy)

PE objectives:

- to apply economic principles to pharma interventions

- to improve individual and public health outcomes

- to provide more rational decision making

...to produce efficient/ optimal ECHO in Healthcare

Health Economics

PE

ECHO System in PE Economic, Clinical, Humanistic Outcomes System

Clinical Outcomes

Mortality and Morbidity

Humanistic Outcomes

QOL, QALYs

Economic Outcomes Cost of therapy and effect on society e.g. decrease in hospital stay, faster return to employment, etc

What Question does PE study address?

Could this drug work?

Does this drug work?

Is it worth having this drug?

Efficacy

Effectiveness

Efficiency

Why we need PE?

• PE combines Effectiveness data with Cost data to produce Efficiency in HealthCare

To determine when

the outcome is worth the cost

relative to competing alternatives

Hospital Formulary..

Drug Guidelines

• Micro-economics

Pharmacy

/ Medical Services

Resources Allocation

• Macro-economics

When we apply PE ?

PE Principles

PE Question Alternatives Perception

CEA/CUA/CBA ? Costs & Outcomes

Decision Making Incremental A. Adjusting

Basic Principles in PE Analysis Rubik’s Cube – Rules of the puzzle

• Point of views (perspectives)

• Costs & Consequences (inputs + outputs)

• PE models (Analysis)

Viewpoint/ Perspective taken ? Point of view influences the outcomes and costs used in PE model

Point of View

Patient’s:

Therapy, productivity,

(direct & indirect costs)

Payers’:

Govnt, insurance

(direct M. cost)

Societal’s:

direct & indirect costs

Provider’s: hospital, drugs,

lab test

(direct M. cost)

Identify Type of Costs

• Which to include depends on perspective taken

Intervention

Direct Costs Indirect Costs

Cost implications to

patient/society

eg. lost production

Non-Medical

services.

eg. patient

transportation,

informal care

Medical services.

eg. Inpatient,

outpatient, tests,

drugs

Costs to family

and friends

Costs vs. Consequences • Identification

– Cost: perspective is important

– Consequence: mortality, morbidity units • (eg., LY’s gained, nbr of hospital days, BP reduction, QALYs)

• Measurement – Cost: distinguish bet. types of cost, and counting units

• (e.g. nbr of MD visits)

– Consequence: final vs intermediate outcomes • (change in clinical indicators vs. survival rate)

• Valuation – Cost: price is not equal to cost, and adjust for inflation/currencies

– Consequence: For CUA expressed as QALYs, For CBA expressed as WTP

Cost-Effectiveness Plane cost

cost

effect effect

NE quadrant: more costly, more effective

NW quadrant: more costly, less effective

SW quadrant: less costly, less effective

SE quadrant: less costly, more effective

PERFORM CEA

PERFORM CEA

DOMINATED

DOMINATES

Adapted from: Smith KJ et al. In: Arnold, RJG, editor. Pharmacoeconomics from theory to practice. Boca Raton: CRC Press; 2010. p. 95-108.

PE Models

Types of Economic Evaluation: C / E

Type of Analysis Result Consequences Costs

Cost Minimisation

Cost Benefit

Cost Utility

Cost Effectiveness

Money

Not necessarily

common measure.

Valued as “utility”

eg. QALY

Different magnitude of a

common measure eg.,

LY’s gained, blood

pressure reduction

Least cost alternative Equivalent

(efficacy & safety)

Money

Money

Money Cost per unit of

consequence. eg.

cost per LY gained

cost per QALY

valued in money

Net Benefit

or

Benefit to cost ratio

Steps to PE Study Evaluation

PE Evaluation – Decision-Tree Model

Rapid recovery

(p)

See doctor

1-(p)

Slow recovery

Become ill

Rapid recovery

(q)

Do not see doctor

1-(q)

Slow recovery

Decision node

INPPUTS (Costs)

Branches

terminal

Chance node

OUTCOMES (Clinical, ECHO)

Four Steps in PE Study Evaluation Deciding upon study Question

• Viewpoint taken

• Alternatives appraised

Assessment of costs and consequences

• Identification of relevant C&C

• Measurement of C&C

• Valuation of C (&C)

• Adjustment for timing

• Adjustment for uncertainty

• Incremental analysis performed

Incremental Analysis presented / discussed

• Making a decision

Well-defined Question?

Does the study compare competing alternatives?

Does the study examine both costs and consequences of each alternative?

Does the study state the viewpoint (perspective) taken?

Point of view influences the outcomes and costs used in a PE study

Viewpoint/ Perspective taken ?

Point of View

Patient’s:

Therapy, productivity, Copay

(direct & indirect costs)

Payers’:

Govnt, insurance

(direct M. cost)

Societal’s:

direct & indirect costs

Provider’s: hospital, drugs, lab

test

(direct M. cost)

Steps in PE Study Evaluation • Deciding upon study Question

• Viewpoint taken

• Alternatives appraised

Assessment of Costs and Consequences

• Identify relevant C&C

• Measure C&C

• Value C&C

• Adjustment for timing

• Adjustment for uncertainty

• Incremental analysis performed

Incremental Analysis presented / discussed

• Making a decision

Costs vs. Consequences • Identification

– Cost: perspective is important

– Consequence: mortality, morbidity units

• Measurement – Cost: distinguish bet. types of cost, and counting units

– Consequence: final vs intermediate outcomes

• Valuation – Cost: price is not equal to cost, and adjust for inflation

– Consequence: QALYs, clinical measures, hospitalization rate

PE Models – summary

PE models Costs Consequences

Cost Minimization m.u. Assumed Equivalent

Cost Effectiveness m.u. Natural Units

Cost Utility m.u. QALYs

Cost Benefit m.u. m.u.

Steps in PE Study Evaluation • Deciding upon study question

• Viewpoint taken.

• Alternatives appraised.

Assessment of costs and concequences

• Identification of relevant C&C

• Measurement of C&C

• Valuation of C (&C).

• Adjustment for timing

• Adjustment for uncertainty

• Incremental analysis performed

Incremental Analysis presented / discussed

Making a decision

Adjustments and Uncertainty

• Unit cost data may need to be adjusted for

– Time preference (Discounting)

– Price inflation (costs from different years)

– International currencies (different countries)

• Uncertainty (Sensitivity Analysis): • Account for impact of assumptions on findings • e.g. Efficacy rate 75% (60% - 90%)

Steps in PE Evaluation Deciding upon PE Question

• Viewpoint taken

• Alternatives appraised

Assessment of costs and consequences

• Identification of relevant C&C

• Measurement of C&C

• Valuation of C (&C)

• Adjustment for timing

• Adjustment for uncertainty

• Incremental analysis performed

Incremental Analysis – present & discuss

• Making a decision

Presentation – Discussion of Results

• What are the study results? – Interpret the meaning of the results – Discuss results of sensitivity analysis

• What are this study limitations?

– Interpreting and generalizing the results

• How relevant this study is (results vs defined-question)?

• How comparable this study is with other studies?

• What are the study implications?

– in a different institution/country

Applications of Results – Decision Maker

Applications of results – Viewpoints:

e.g. decrease hospital stay is cost effective from the Provider’s

perspective, but not necessarily from the Patient’s perspective

who will end up paying for outpatient care

– Generalizability & feasibility

What does the decision maker want to know?

– Is the cost justified by the outcome/Benefit (Efficiency)?

– Is the result robust or sensitive to parameters?

Sample - Study Abstract: Pharmacoeconomic analysis of paliperidone palmitate for treating

schizophrenia in Greece. Einarson et al. Annals of General

Psychiatry 2012, 11:18

BACKGROUND: Patients having chronic schizophrenia with frequent relapses and hospitalizations represent a great challenge, both clinically and financially. Risperidone long-acting injection (RIS-LAI) has been the main LAI atypical antipsychotic treatment in Greece.

Paliperidone palmitate (PP-LAI) has recently been approved. It is dosed monthly, as opposed to biweekly for RIS-LAI, but such advantages have not yet been analyzed in terms of economic evaluation.

PURPOSE: To compare costs and outcomes of PP-LAI versus RIS-LAI in Greece.

METHODS: A cost-utility analysis was performed using a previously validated decision tree to model clinical pathways and costs over 1 year for stable patients started on either medication. Rates were taken from the literature. A local expert panel provided feedback on treatment patterns. All direct costs incurred by the national healthcare system were obtained from the literature and standard price lists; all were inflated to 2011 costs. Patient outcomes analyzed included average days with stable disease, numbers of hospitalizations, emergency room visits, and quality-adjusted life-years (QALYs).

RESULTS: The total annual healthcare cost with PP-LAI was €3529; patients experienced 325 days in remission and 0.840 QALY; 28% were hospitalized and 15% received emergency room treatment. With RIS-LAI, the cost was €3695, patients experienced 318.6 days in remission and 0.815 QALY; 33% were hospitalized and 17% received emergency room treatment.

Thus, PP-LAI dominated RIS-LAI. Results were generally robust in sensitivity analyses with PP-LAI dominating in 74.6% of simulations. Results were sensitive to the price of PP-LAI.

CONCLUSIONS: PP-LAI dominated RIS-LAI... PP-LAI appears to be a cost-effective option for treating chronic schizophrenia in Greece compared with RIS-LAI since it results in savings to the health care system along with better patient outcomes.

Practice Example.......Article Analysis

• Step 1: (Q1-2-3)

• Step 2 (Q4-5-6)

• Step 3: (Q7-8-9)

• Step 4: (Q 10)

• Well-defined Question: Need to analyze cost and effectiveness of PP-LAI dosed monthly (recently approved), as opposed to biweekly for RIS-LAI in chronic schizophrenia from Payer’s perspective.

• Costs: all direct cost. Consequences: average days with stable disease, numbers of hospitalizations, emergency room visits, and quality-adjusted life-years (QALYs).

• Results: PP-LAI has higher cost with higher effectiveness.

• Adjustment: robust in sensitivity analyses with PP-LAI dominating in 74.6% of simulations.....while sensitive to the price of PP-LAI

• Incremental analysis: extra cost for extra benefit presented?

• Author: PP-LAI dominated RIS-LAI... cost-effective option for treating chronic schizophrenia

• Recommendation to decision maker: ????

Important Reminder when Evaluating PE Study

Know how • to interpret study findings

• to extrapolate study findings to a different setting

(point of view, economic status...)

– Is the decision maker (Not author) willing to pay that extra amount for the extra outcome?

• to apply data in another institution in a different

country (PE transferability)

– Each health care system operates differently

Conclusion HCPs are constantly evaluating patient care choices & acting on them

PE enhances the quality of our practice

by strengthening our evaluation process

to deliver better value in patient care