Pharmacoeconomics and

Management in Pharmacy VII

2013 [UNIT PH 3340] 1

[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]

2013 [UNIT PH 3340] 2

News review

[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]

J. Vella [PH 3340]

Comparative salaries

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J. Vella [PH 3340]

Discussion

• Malta has the second lowest tax rate of 18%

• Cyprus is last with 12% (it is now broke)

• An Italian has a higher average gross wage

• €28,230 as opposed to €21,446, but €12,521 as

compared to €3,860

• Highest minimum wage in Luxembourg, lowest in

Bulgaria

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J. Vella [PH 3340]

Discussion

• COL varies from country to country

• Take-home is more important than gross

remuneration

• The figures are skewed due to higher earning

directors and self-employed owner/directors

• A median figure would have been more

appropriate

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J. Vella [PH 3340]

Countrywide figures

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J. Vella [PH 3340]

More notes

• Average drops when one considers the public

sector

• Worst off are construction sector employees at

€12,665

• Best paid are financial services employees at

€18,159

• Pharmacists seem to be well remunerated at

around €24-25,000

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J. Vella [PH 3340]

Concierge medicine?!

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J. Vella [PH 3340]

Perverse resource allocation?

• Is the pool of doctors available to the man in the

street being reduced?

• Or is the number of patients turning to mass

service hospitals thus diminished and increasing

access to less wealthy individuals?

• An issue in the US where primary care doctors are

at a premium

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J. Vella [PH 3340]

Shortage of GPs

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J. Vella [PH 3340]

Physicians per 100,000 pop.

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J. Vella [PH 3340]

Money is the cause

• Recent studies calculate a shortage of 50,000

primary care physicians in the US in the next

decade

• Specialisation is more lucrative and less

demanding

• Reimbursement is the issue

• 60% of primary care activities are not reimbursed

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J. Vella [PH 3340]

Local situation

• Retention rate in Malta has improved with the

renegotiation of doctors’ remuneration

• This has led to improved staffing and patient

access to primary care

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J. Vella [PH 3340]

Morally unacceptable!

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J. Vella [PH 3340]

Unaffordable healthcare

• Initial tests amounted to $ 50,000!

• Adding on preliminary treatment bill went up to $

89,000

• Insurance costing almost $ 500 monthly not

sufficient

• Life-saving treatment beyond the average

individual

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J. Vella [PH 3340]

Local fears

• Could the advent of private healthcare lead to such

a situation?

• Could the farming out of state procedures to

private hospitals eventually entail payment or an

increase in SSC contributions?

• Private insurance premiums are bound to rise with

an increase in the amount of tests prescribed

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J. Vella [PH 3340]

Demographics US 1900

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J. Vella [PH 3340]

Demographics US 1995

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J. Vella [PH 3340]

Paying for organ donation?

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J. Vella [PH 3340]

Going too far or about time?

• A radical suggestion!

• From a financial aspect, the cost of the kidney

transplant would be balanced out in 18months by a

less costly care regimen for the patient

• Such a step would have to be heavily regulated

and pass through a multitude of legal, moral and

social discussions and consideration

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J. Vella [PH 3340]

Theory is only a guideline (i)

• A new book published recently, Models behaving

badly (E. Derman) 1

• It puts forward a thesis that is gaining much ground

recently

• Economics is not an exact science and cannot

accurately predict financial markets

• 1 Previously a physicist and financial modeler

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J. Vella [PH 3340]

Theory is only a guideline (ii)

• The main reason for this is that human nature

plays an important role

• This is a principle that we must take forward into

our daily professional practice and evaluation of

economic situations

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J. Vella [PH 3340]

Discussion

• It brings us back to the very basic ECHO model for

pharmacoeconomic analyses

• One cannot separate the human element from the

economic and clinical aspects

• After all, the first element is the reason for the

existence of the other two

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J. Vella [PH 3340]

A different take on the US

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J. Vella [PH 3340]

Life expectancy is not an accurate

indicator • The US finished at the top of the table, with Japan

in the middle

• Japan leads the life expectancy table

• Thus LE is not always a good surrogate for

healthcare outcomes

• There is a case for measuring outcomes at the

point of intervention

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J. Vella [PH 3340]

Counterfeit Avastin!

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J. Vella [PH 3340]

Money talks!

• A worrying article in the Economist

• 19 separate instances of a fake oncological drug in

the United States

• Criminals tend to forge copies of costlier

medication, without regard for the fact that

innocent people might die

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J. Vella [PH 3340]

But is it really worth it!

• Treatment with Avastin costs around $4,400

monthly ($3.5 billion annual sales globally)

• In a case of emotion trumping reality, further

investigation of the evidence shows us that Avastin

only prolongs life by a few months, and may or

may not offer significant advantages over other

therapies

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J. Vella [PH 3340]

Difficult situations (i)

• At the same absolute cost a healthcare system

administrator could launch promotional campaigns

against obesity and save countless more lives per

monetary unit

• These are the quandaries that individuals

entrusted with the responsibility of controlling

pharmaceutical resources are faced

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J. Vella [PH 3340]

Difficult situations (ii)

• In such cases reason and cold numbers should

always hold precedence over emotional, knee-jerk

decisions

• The lack of formal PE evaluation and transparent

procedures is evident locally

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J. Vella [PH 3340]

Are our beliefs flawed?

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J. Vella [PH 3340]

Does money or patient welfare

drive healthcare?

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J. Vella [PH 3340]

Editorial

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J. Vella [PH 3340]

Social conscience or cost-based

rationale to spending? • This editorial makes the point that social welfare

and advancement should be used as a yardstick

for decision-making

• Rather than a set of hard-and-fast cost

effectiveness based algorithms

• What is socially beneficial or not gives rise to the

argument of how to develop indicators to measure

such an impact

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J. Vella [PH 3340]

The Malta Medicines List (i)

• A useful addition to the e-resources available

• The only easily accessible compendium of locally

available medicine

• No need for a regular purchase of a physical drug

register

• Free of charge

• Updated by the competent authorities and thus

credible and reliable

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J. Vella [PH 3340]

The Malta Medicines List (ii)

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J. Vella [PH 3340]

Drawbacks

• No field to reference local distributor

• No hierarchy in the database

• Variants of the same AI are listed as a separate

entry, thus bloating the amount of items in the

initial search field

• Despite the above, an invaluable addition to the

few IT/web-based tools available locally

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J. Vella [PH 3340]

No public awareness on generics!

38

J. Vella [PH 3340]

The general public is in the dark

• The article states that 85% of people are not aware

of the advantages of generic medicines

• Yet no news of a nationwide campaign to educate

the public!

• The larger originator companies still wield

considerable, and in some cases, undue influence,

to the detriment of the consumer

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J. Vella [PH 3340]

Conflicting evidence!?

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J. Vella [PH 3340]

Flawed conclusions?

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J. Vella [PH 3340]

No more statins for all?

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J. Vella [PH 3340]

Points about statins

• The current mantra has been to promote statins for

all adults at a risk of CVS, and even as a primary

care strategy to all adults of a certain age

• This study discredits this approach, also citing the

fact that studies supporting statin-led interventions

were funded from within the pharmaceutical

industry

43

J. Vella [PH 3340]

The worth of the statin market

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2013 [UNIT PH 3340] 45

International price variations

[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]

J. Vella [PH 3340]

Expenditure per capita

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J. Vella [PH 3340]

Cheaper Europe!

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J. Vella [PH 3340]

Analysis

• Uniformity across the EU

• Great disparity to the United States

• North Americans accuse Europe of rent seeking or

taking advantage of the R&D funded by higher

prices in the US & Canada

• The reimbursement system incentivises higher

prices and price fixing

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J. Vella [PH 3340]

Point of argument

• One of the greatest sources of debate in any

country

• Consumers always compare to cheaper countries

or regions and accuse retailers or suppliers of

profiteering

• The real picture is not so clear-cut

• The following slide lists the main reasons for inter-

country pharmaceutical price variation 49

J. Vella [PH 3340]

Main reasons for price differences

International Price Variation

Cost of living (adjusted by PPPs)

Manufacturer Strategy

Insurance payer or state subsidy

Reference pricing

Presence of generic variants

Fixed price control

Monopoly market situation (distribution or retail)

Market throughput volume (purchasing power)

Geographic or logistical factors

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2013 [UNIT PH 3340] 51

Are innovative medicines

only for the wealthy?

[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]

J. Vella [PH 3340]

The rich live longer!

52

J. Vella [PH 3340]

Discussion

• A higher GDP leads to longer lives

• Are longer lives due to better education and thus

healthier lifestyles and habits

• Or does a wealthier country afford a higher

standard of healthcare and pharmaceutical

expenditure that leads to the prolonging of its

inhabitants existence?

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J. Vella [PH 3340]

More money, bigger budgets

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J. Vella [PH 3340]

More money, more drugs

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J. Vella [PH 3340]

Global inequality

• The majority of pharmaceutical sales are

concentrated in North America, Europe and Japan

• Less developed regions are ignored as they do not

offer the potential for huge profits

• Most R&D is targeted at diseases of the Western

world and Japan, to the detriment of the rest

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J. Vella [PH 3340]

Levelling the playing field

• Legislation for orphan drugs and neglected

diseases has been introduced, with drug

companies given fast-track approval and tax

credits for investing in such areas

• Deals have been struck, such as forward

purchasing agreements, by GAVI, which enable 3rd

world countries to purchase vaccines at marginal

cost

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J. Vella [PH 3340] Source: IMS

Worldwide distribution of pharmaceutical

sales 2003

J. Vella [PH 3340] Source: IMS MIDAS, MAT February 2006 (totals do not add due to rounding)

47,0%

30,0%

10,7%

8,2%4,2%

North America (USA,

Canada)

Europe

Japan

Africa, Asia

(excl.Japan) & Austr.

Latin America

Worldwide distribution of pharmaceutical

sales 2005

J. Vella [PH 3340] Source: IMS Health (totals do not add due to rounding)

Worldwide distribution of pharmaceutical

sales 2010

J. Vella [PH 3340]

Patented/generic market shares

J. Vella [PH 3340] 62

Patented/generic market shares

J. Vella [PH 3340]

Pricing of an innovative pharmaceutical

product • Typical pricing strategies for new innovations:

• Market skimming strategy (high initial

prices)Signals market that innovation is significant

and can recoup development expenses (assuming

there’s demand)

• Attracts competitors, may slow adoption

J. Vella [PH 3340]

Pricing of a generic pharmaceutical

product • Generics adopt Penetration Pricing (very low

price or free to gain market share)

• Accelerates adoption, driving up volume

• Requires large production capacity be established

early

• Manufacturing must be efficient as it the resale

price is much closer to the marginal cost of

production

J. Vella [PH 3340]

Average wholesale margins in Europe

J. Vella [PH 3340]

Average retail margins in Europe

J. Vella [PH 3340]

VAT Rates on medicine

J. Vella [PH 3340]

Generic penetration 24-months post expiry

2013 [UNIT PH 3340] 69

Value Based Healthcare

[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]

J. Vella [PH 3340]

Value Based Healthcare

• This is a conceptual framework of thought That has

been dealt with in depth by Dr. Michael Porter of

Harvard Business School

• His initial work was on competition, clusters and

the competitive advantages of nations

• His latest labors have been devoted to the

insoluble quandary that is the United States

healthcare system

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J. Vella [PH 3340]

Why bother?

• The perversity of the situations that what I am

teaching today is the past not the future

• Presently we are adopting a silo mentality to

treatment budgeting and costing

• The cost of a treatment intervention or a

pharmaceutical cycle is based on a narrow Cost

Effectiveness Evaluation or a Cost Minimisation

Analysis

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J. Vella [PH 3340]

Inverse incentives

• Economics is all about incentives

• Individuals or organisations tend to act in the

manner that profits them the most

• Rewards are directed towards providers or

administrators that supply treatment at a lower cost

• This has led to a situation ideal for zero sum

competition

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J. Vella [PH 3340]

Zero sum competition

• In zero sum competition, service providers

compete on a narrow range of determinants and

erode each other's positions by abrasive

competition on price and service levels

• The end consumer, in this case the patient, is not

better off, the quality of the care provided is the

same, at best, if not decreased

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J. Vella [PH 3340]

Positive sum competition

• In positive sum competition, various service

providers compete on the quality weighted

outcomes of their product, with better health

outcomes for patients being incentivised

• Instead of prizing the provision of cheaper health

services, we must reward healthcare plans

providers that produce healthier patients and

citizens

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J. Vella [PH 3340]

Refocus

• In an effort to more efficient in the economic sense,

we have lost track of the aim!

• The centre of all healthcare is the patient, and yet

he/she does not figure in the evaluation of

treatment interventions

• The key of value driven care is to crystallise the

concept of a better outcome as opposed to a

cheaper one 75

J. Vella [PH 3340]

Simple!

• A healthy patient is an inherently cheaper one

• Simple thoughts, but very difficult to breakdown

into policy and process frameworks

• This is the next challenge for health and

pharmacoeconomics

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J. Vella [PH 3340]

A pervasive mentality

• This type of radical paradigm shift can only take

place if various conditions are in place

• Opposition to change is always encountered, with

fear and vested interests the main contrary factors

• Unless the health professionals entrusted

introduce a sense of change and a ‘can do’

approach, then the status quo will persist

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J. Vella [PH 3340]

Requirements for change Factors required

Political will and consensus on all sides, to enable legislation to be approved and stable

Public backing, obtained by the right educational approach and sub-population targeting

Well mapped process implementation and modelling, followed by the appropriate dry-runs and pilot

systems

Full scale involvement for the health professionals running the day-to-day processes, to enable practicality

and ease of use

Intensive training for all health professionals involved

Wholesale utilisation of IT systems available to eliminate or reduce fragmentation of data and the time

required to enter, process and retrieve it 78

J. Vella [PH 3340]

Variations on PE

• The US and the UK have been working on

adaptions of their current systems of apportioning

healthcare resources

• In the US the PCORI1 has been set up to

supersede traditional methods of distribution, and

the UK VBP2 is being discussed, prior to

introduction in 2013

1Patient-Centred Outcomes Research Institute

2 Value Based Pricing

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J. Vella [PH 3340]

PCORI

• The establishment of PCORI limits formal

measures such as the cost per QALY metric

• A broad set of criteria, including ‘impact on national

expenditures’

• The NCCN1 is piloting a CTI2 categorising products

as preferred, appropriate or acceptable

1National Comprehensive Cancer Network

2Comparative Therapeutic Index 80

J. Vella [PH 3340]

Reaction

• The private sector is moving in response

• HMO’s are reacting by re-arranging their tiered

formularies to reflect the effectiveness and impact

of a pharmaceutical

• This behaviour, in the long term, could lead to a

better correlation between the cost and effect of a

medicine

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J. Vella [PH 3340]

UK – Value Based Pricing

• The UK has utilised as system of price control for

branded medicines known as the PPRS1 since

1957

• This is to be replaced by a system called VBP

• Concerns are being voiced that if pricing is linked

to a system of indexing, R&D will be curtailed – 1 Pharmaceutical Price Regulation Scheme

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J. Vella [PH 3340]

Not all agree!

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J. Vella [PH 3340]

VBP (ii)

• The government, on the other hand wants to

ensure that new and innovative drugs are

accessible to all, and not just the wealthy or the

ones selected through a healthcare lottery

• Such as system would reward breakthrough drugs

and put less emphasis on product-line extensions

and me-too drugs

84

J. Vella [PH 3340]

The QALY again!

• The QALY is being mooted as a measure for the

establishment of the relative efficacy and pricing of

a pharmaceutical intervention

• The QALY is utilised in PE evaluations world-wide

• Its present application is limited in scope, and

subject to the criticism that it is not flexible enough

to accommodate all illnesses

85

J. Vella [PH 3340]

A compromise?

• The British proposition is to create thresholds for

different ranges of diseases and provide for

flexibility and societal relevancies

• With greater weighting given to medicines with a

higher social benefit it is anticipated that R&D in

the UK will move to increase investment in the

same areas1

1 4 billion sterling at last estimation

86

J. Vella [PH 3340]

Time for action!

• More investment is required locally to establish a

unit specifically entrusted with collecting, collating

and analysing data regarding pharmaceutical

healthcare expenditure

• Only when this is up and running can we take

stock of the current situation and create solutions

and alternatives to the status quo

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2013 [UNIT PH 3340] 88

Discussion time

[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]

J. Vella [PH 3340]

Discussion points

• Why did you become a pharmacist?

• What would you consider the role of a pharmacist

• What would you consider the best segment of

pharmacy that you would practice so far?

• Would you choose the same course again?

• Do you think that pharmaco/health economics is

relevant to the profession?

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J. Vella [PH 3340]

Discussion points

• Should wealthy people pay more SSC and tax to

fund care for poorer citizens?

• Or should bigger contributors obtain better care in

view of their investment?

• Are SSC and taxes a social equaliser or simply a

means of investing for the future?

• Should social and healthcare equity be a primary

aim in healthcare system administration?

90

J. Vella [PH 3340]

Practice morals?

• Where does a pharmacist’s loyalty lie?

• Is the well-being of the patient the prime factor or

does the advancement of financial aims (self-

employed or not) take precedence?

• Walking a tightrope

• One can make a living and at the same time be

morally justified and correct

91