Pharmacoeconomics Principles, Methods and Economic Evaluation of Drug Therapies

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Vol-2/Issue-5/Sept-Oct 2013 PhTechMed

ISSN: 2278-1099

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362

Pharmacoeconomics: Principles, Methods and Economic Evaluation of Drug Therapies

Sumit Kumar, Ashish Baldi*

*Department of Quality Assurance, I.S.F. College of Pharmacy, Moga, (Punjab), India

AbstractPharmacoeconomics identifies, measures, and compares the costs and consequences of drug therapy to healthcare systems and society.

Due to the high pricing of drug, it is very essential in pharmaceutical industry, government, and in the private sector for comparing

various cost consequences. This branch of health care economics offers important guidance for the management of limited

health care resources and medical practice. As a consequence of limited financial resources, health economics, and particularlypharmacoeconomic analyses, are becoming a frequently used criterion for decision making in modern health care policy. The purpose

of this article is to provide an introduction of pharmacoeconomics, its various methods of evaluations such as cost

minimization analysis, cost benefit analysis, cost utility analysis, cost effectiveness analysis and guidelines to deliver quality care

cost effectively and also discuss challenges, limitations and applications of pharmacoeconomics.

Key Words: Cost minimization analysis, Cost benefit analysis, Cost utility analysis, Cost effectiveness analysis, Health careeconomics, Pharmacoeconomics

Introduction Pharmacoeconomics can be defined as the branch of

economics that uses cost-benefit, cost-effectiveness, cost-

minimization, cost-of-illness and cost-utility analyses tocompare pharmaceutical products and treatment strategies

(Brinsmead 2003). Pharmacoeconomics and health outcomes

research are playing an increasingly important role in

informing clinical development and market access decisions of

new innovative medicines. It mainly works on the healtheconomics which particularly focuses upon the costs and

benefits of drug therapy.

It is the part of health economics that focuses on the economic

evaluation of pharmaceuticals. Health outcomes research, and

patient-reported outcomes (PRO) in particular, aim at

understanding patient value in terms of impact of disease andits treatment on physical functioning and psychosocial

wellbeing, known also as “health-related quality of life”(HRQL). Components of pharmacoeconomics are given as

Fig.1. It is the description and analysis of the costs of drug

therapy to healthcare systems and society. The importance of

pharmacoeconomic information to healthcare decision makerswill depend upon the viewpoint from which the analysis is

conducted. Pharmacoeconomic research in the managed care

system is growing. It is currently being used to make

formulary decisions (complementing clinical data), design

disease management programs and measuring the cost-

effectiveness of interventions and programs in managed care

(Lopert 2003). The demand for and the cost of health care

are increasing in all countries as the improvement in and

sophistication of health technologies. The increase in healthcare spending is mainly because of increased life expectance,

increased technology, increased standard of living and

increased demand in health care quality and services.

Medicines form a small but significant proportion of total

health care cost. The writing of a prescription is the most

common therapeutic intervention in medicine. Cost of

medicines are growing constantly as new medicines are

marketed and are under patent law, preference of drug therapy

over invasive therapy, discovering various off label uses of

existing drugs and the irrational drug prescription.

Pharmaceutical companies have to spend a lot of money and

Address for CorrespondenceEmail ID: [email protected]

Tel No.: +91-896842384

Received: 10/08/2013

Accepted: 18/10/2013

time to market any new chemical entity as a drug to fulfill

various research requirements

(Newdy 2003). Since 1961,

pharmaceuticals are fallen under price regulation in India. Atotal of 343 drugs accounting for, 85% of the drug market was

under price control in 1979. With successive polices, the

number diminished and now a mere 15 - 20% of the drug

market is under price control. Therefore drug prices are

quickly spinning out of reach of the common man.Pharmacoeconomics adopts and applies the principles and

methodology of health economics to the field of

pharmaceutical policy (Basskin 1998). Pharmacoeconomic

evaluation therefore makes use of the broad range of

techniques used in health economics evaluation to the specific

context of medicines management.

Figure 1: Components of pharmacoeconomics

Pharmacoeconomics: Needs and Challenges

Multi-factorial Variability of Drug Pricing

Enumerable factors affect the prices of drug; some of them are

as follows:i.

The sector in which medicines are purchased: The price is

often higher in the private sector due to distilentor’s costs

and profiteering.ii.

The types of procurement agent: e.g. different prices may

be paid for the same product by a public sector purchaser,

such as Ministry of Health (Garber 2004).

iii.

The distribution route. A patient who purchases a medicine

at a hospital pharmacy may have to pay more if the hospital

pharmacy purchased the product from a local wholesalerthan if it has been purchased by tender and supplied

through public health sector distribution system10

. Many

times hospital pharmacy may have limited stock of the

generic drugs which one is cheaper than the branded drugsprescribed to the patient on routine basis and patient has to

purchase the branded drugs in the emergency condition.



Vol-2/Issue-5/Sept-Oct 2013 Baldi et al.,

www.pharmtechmedica.com 363

iv.

The patient status: The price of patented medicine is often

higher than that of their generic equivalent at least whilethe patient is in force (Moayyedi et al 2004).

Many other factors influence the total cost of drugs is as

follows:

• Prices of patented, non-patented and generic drugs;

• Retail and wholesale mark-ups,

• Pharmacists' professional fees,

• Changes in the composition of total population, e.g.

proportion of older persons,

• Changes in prescribing habits of physicians,

• Changes in the utilization of drugs, i.e. number of drugs

used per patient,

• Trends towards using newer drug therapy instead of other

treatments,

Need of Pharmacoeconomics

Pharmacoeconomics identifies measures and compares the

cost and consequences of pharmaceutical products and

services and describe the economic relationship involving drugresearch, drug production distribution, storage, pricing and

used by the people (Rawlins et al 2004). It runs through the

thread of our socioeconomic system, which regulates andinfluences all the sectors involved in pharmaceuticals.

The demand for and the cost of health care are increasing in all

countries as the improvement of health technologies. All overthe world, patients are affected by high price of medicines. In a

developing country like India, 85% of total health expenditure

is financed by house-hold out of pocket expenditure. Many

poor people frequently face a choice between buying

medicines or buying food or other necessities due to limited

resources and high pricing of drug (Russell 1996). So medicine

prices do matter. Pharmacoeconomics has become more

important over the past 20 years, due to an increases emphasis

on efficient drug therapies for disease, which increase health

cost etc.Pharmacoeconomics is a subdivision of health economics and

results from that discipline coming of age through

consolidation to diversification (Siegel 1996). Health

economics, as a branch of economics is itself relatively young.

Basically the pharmacoeconomics is needful in following

manner:

• In Industry- Deciding among specific research anddevelopment alternatives.

• In Government- Determining program benefits and prices

paid.

• In Private Sector- Designing insurance benefit coverage.

Pharmacoeconomic Challenges

This is a challenging time for the pharmaceutical industry,with blockbuster drugs going off-patent, generics competition

and a pressing need for innovative medicines, associated with

rising drug development costs (Vermeulen et al 2000). The

role for pharmacoeconomics could not be timelier.

Pharmacoeconomic evaluations will be able to assist in the

development of performance based pricing and reimbursement

agreements.

The main challenges for pharmacoeconomics continue to be:

1. Establishing guidelines or standards of practice.

2. Creating a cadre of trained producers and consumers of

pharmacoeconomic work.3. Continuing education on the relevant features of this

discipline for practitioners, government officials, private sectorexecutives.

4. Stable funding to support applied pharmacoeconomic

research.

Pharmacoeconomic Evaluations

Components

Pharmacoeconomic analysis will play a central role in futureassessments of new technologies and the guidance of pediatric

care (Weinstein 1996). The components of pharmacoeconomic

analysis are given in Figure 2.

Figure 2: Components of pharmacoeconomics analysisIt is implicitly understood that reducing costs and rationing

resources is not compatible with the achievement of optimal

health outcomes. Decisions on resource allocation must be

based on comparisons of cost and benefits as much as possible

(Sackett et al 2000). In an era when resources for health and

health care are scarce, the costs of clinical decisions must be

recognized and accommodated. Pharmacoeconomic analysis is

a powerful tool for such adaptation. In this, the movement

toward outcomes research has been fueled by a number

of factors, including increasing prevalence of chronic

disease among children, the desire of patients (and their

parents) to participate in decision making, the limited

generalizability or external validity of clinical trial data(particularly for a pediatric population), evidence of wide

variation in clinical practice norms that cannot be

accounted for on the basis of evidence, growing interest

in cost containment and acceptance of the need for

accountability on the part of clinical decision makers

(Abarca 2005) and the perceived threat of cost containment

to the overall quality of patient care. The target sector and

assessment methodology adopted for pharmacoeconomic

evaluation is given as Figure 3 and Figure 4.

Figure 3: Target health care sector for pharmacoeconomic

evaluation

Aims and Objectives of Pharmacoeconomic Evaluation

Implementation of pharmacoeconomic evaluation will help to

reduce monetary burden on the consumers (by insuring

global pricing strategy) for the effective management of health

care system as the principle of pharmacoeconomic evaluation

is to make more efficient use of limited resources for

maximization of health care benefit at lower cost (Sculpher et

al 2005). In this way, it can be applied in practice to take

decisions about drug therapies.





Figure 4: Nature of pharmacoeconomic assessments

The Fundamentals

Types of Cost Costs involved in pharmacoeconomic evaluation can bemainly divided into financial cost (mandatory cost) and

economic cost (resource for which no mandatory payment is

made) opportunity cost is the benefit foregone when selecting

one therapy alternative over the next best alternative (Doubilet

et al 1986). Several costs can be measured when weighing up

the cost of any invention. The first step in any cost analysis isidentification of the various costs. These can be direct, indirect

and intangible.

Direct i.e. costs from the perspective of the healthcare funder:

including staff costs, capital costs, drug acquisition costs. It

includes physicians’ fees, cost of administering the

medication, costs of treating an adverse drug reaction, etc.Indirect i.e. costs from the perspective of society as a whole:

for example, these might include loss of earnings, loss of

productivity, loss of leisure time, due to the illness, and cost of

travel to hospital etc (Drummond et al 1997). This would

include not just the patient themselves but also their family

and society as a whole.Intangible i.e. the pain, worry or other distress; which a

patient or their family might suffer. These may be impossible

to measure in monetary terms, but are sometimes captured in

measures of quality of life.

The cost can be measured in following ways:

• Cost / unit

• Cost / treatment

• Cost / person

• Cost / person / year

• Cost / case prevented

• Cost / life saved

• Cost / DALY (disability-adjusted life year)

Outcomes

The second fundamental component of a pharmacoeconomic

study is outcomes or benefits. A cost-benefit analysis

compares the costs and outcomes of alternative therapies and

the outcome is then expressed in monetary terms (Brien et al

1997). Cost-benefit analysis allows researchers to make

comparisons across a wide variety of alternatives. It compares

the costs involved in implementing a programme with the

value of the outcome. Since the endpoints are measured in

monetary terms, different endpoints can be studied, such as a

surgical procedure compared with a pharmaceutical

interventionThe expected benefits from an intervention might be

measured in:

A. “Natural” units e.g. years of life saved, strokes prevented,

peptic ulcers healed etc.

B. “Utility” units - Utility is an economist’s word for

satisfaction, or sense of well being, and is an attempt toevaluate the quality of a state of health, and not just its

quantity (Sanchez 1999). Utility estimates can be obtained

through direct measurement (using techniques such as time

trade off or standard gambles, or by imputing them from the

literature or expert opinion. They are often informed by

measures of quality of life in different disease states.

The Approach

A pharmacoeconomic evaluation may be conducted as aneconomic assessment incorporated into clinical trials

(Sanchez

1999). It is difficult to justify a pharmacoeconomic trial as a

separate, independent trial primarily due to the increase in

costs (Weinstein et al 2003). The evaluation may be done at

any time during phase I or II of the clinical trials.

The reasons for conducting a pharmacoeconomic trial include:

1. Pricing of a new drug;

2. Repricing of an old drug;

3. Convincing a drug formulatory;

4. Generation of data for promotional material; and5. Mandatory legislative requirement for drug licensing and

medical reimbursement (in some countries).

An ideal approach of economic evaluation in health café sectoris given in Figure 5.

Figure 5: An ideal approach of pharmacoeconomic evaluation

Methods of Pharmacoeconomic Evaluation

Pharmacoeconomic evaluations include any study designed to

assess the costs (resources consumed) and consequences

(clinical, humanistic) of alternative therapies The evaluation

mechanisms delineated were often helpful in demonstratingthe cost impact of innovative treatments, therefore grantingthem greater acceptance by healthcare providers,

administrators, and the public.

There are basically four types of pharmacoeconomic studies.

• Cost-minimization analysis (CMA)

• Cost-effectiveness analysis (CEA)

• Cost-utility analysis (CUA)

• Cost-benefit analysis (CBA)

Cost-Minimization Analysis (CMA)

Cost-minimization is a tool used in pharmacoeconomics and is

applied when comparing multiple drugs of equal efficacy and

equal tolerability. This is done when the outcomes are thesame for the two interventions. In this, only the input, i.e. the

cost, is considered. The option that has the least cost is

selected, e.g. if a hospital decides to introduce compulsory

prescribing of generic names of drugs instead of their brand

names, then the pharmacoeconomic evaluation of this would





be done by CMA (Rawlins 1999). The objective of this method

is to select the least costly among multiple equivalentinterventions. It cannot be used to evaluate programmes or

therapies that lead to different outcomes.

CMA is a relatively straightforward and simple method for

comparing competing programs or treatment alternatives as

long as the therapeutic equivalence of the alternatives being

compared has been established. If no evidence exists tosupport this, then a more comprehensive method such as cost-

effectiveness analysis should be employed. However, CMAshows only a “cost savings” of one program or treatment over

another. Employing CMA is appropriate when comparing two

or more therapeutically equivalent agents or alternate dosing

regimens of the same agent (Tan et al 2006).

Cost Effective Analysis (CEA)

CEA is a technique designed to assist a decision-maker in

identifying a preferred choice among possible alternatives.

Generally, cost-effectiveness is defined as a series of analytical

and mathematical procedure that aid in the selection of a

course of action from various alternative approaches.CEA evaluates multiple drug treatments for the same

condition. The cost of the drug treatments are weighed against

the effectiveness of the drug (Thwaits et al 1998). The costs ofdrug treatments include acquisition costs, physician

involvement, and nursing costs for administration of the drug.

The effectiveness of drug treatment is measured in tangible

measures such as length of hospital stay, duration of treatment

required, and mortality rate. The results of a CEA are

expressed as cost/outcome for both therapies.

Pharmacoeconomic analysis should be incorporated in the

clinical trial itself. However, for the majority of drugs, CEA is

done on the basis of pre-existing data available in the medical

literature.

CEA is the most commonly applied form of economic analysis

in the literature, and especially in drug therapy (Lee et al

1991). It does not allow comparisons to be made between twototally different areas of medicine with different outcomes.

The key measure of these evaluations is the incremental cost

effectiveness ratio (ICER), which can be determined as

follows:

Incremental cost effectiveness ratio=

Cost of drug A -

Cost of drug B

Benefits of drug A -

Benefits of drug B

Cost Utility Analysis (CUA) CUA is a type of evaluation in which drugs/interventions with

different outcomes can be compared. CUA is the most

appropriate method to use when comparing programs and

treatment alternatives that are life extending with serious side

effects (e.g., cancer chemotherapy), those which produce

reductions in morbidity rather than mortality (e.g., medical

treatment of arthritis), and when HRQOL is the most

important health outcome being examined (Bootman 1995).

CUA is employed less frequently than other economic

evaluation methods because of a lack of agreement on

measuring utilities, difficulty comparing QALYs (quality

adjusted life years) across patients and populations, and

difficulty quantifying patient preferences.

Pharmacoeconomists sometimes want to include a measure of

patient preference or quality of life when comparing

competing treatment alternatives. CUA is a method for

comparing treatment alternatives that integrates patient

preferences and HRQOL. CUA can compare cost, quality, and

the quantity of patient-years. Cost is measured in dollars, and

therapeutic outcome is measured in patient-weighted utilities

rather than in physical units (Hepler et al 1990).Often the

utility measurement used is a quality-adjusted life year

(QALY) gained. QALY is a common measure of health statusused in CUA, combining morbidity and mortality data. Results

of CUA are also expressed in a ratio, a cost-utility ratio (C:U

ratio). Most often this ratio is translated as the cost per QALY

gained or some other health-state utility measurement. The

preferred treatment alternative is that with the lowest cost per

QALY (or other health-status utility). QALYs represent thenumber of full years at full health that are valued equivalently

to the number of years as experienced. For example, a full yearof health in a disease free patient would equal 1.0 QALY,

whereas a year spent with a specific disease might be valued

significantly lower, perhaps as 0.5 QALY, depending on the

disease (Eisenberg 1989). An example of QALY measurement

for two different treatment approaches is given in Figure 6

.

Figure 6: Calculating QALYs - A simple example

Cost Benefit Analysis (CBA)

CBA is the most comprehensive and the most difficult of all

economic evaluation techniques. In this technique, the benefits

are also assigned a monetary value so that costs and benefits

can be easily compared. Thus, totally different interventions

can be compared, making it a useful tool (like CUA) forresource allocation by policy-makers. It is a basic tool thatallows for the identification, measurement, and comparison of

the benefits and costs of a program or treatment alternative.

CBA should be employed when comparing treatment

alternatives in which the costs and benefits do not occur

simultaneously. CBA also can be used when comparing

programs with different objectives because all benefits are

converted into dollars and to evaluate a single program or

compare multiple programs.

The benefits realized from a program or treatment alternative

are compared with the costs of providing it. Both the costs and

the benefits are measured and converted into equivalent dollars

in the year in which they will occur. Future costs and benefitsare discounted or reduced to their current value. These costs

and benefits are expressed as a ratio (a benefit-to-cost ratio), a

net benefit, or a net cost (Bootman et al 2005). The most

difficult and challenging part of CBA lies in calculating the

benefits in economic terms. Some benefits are easy to convert,

others need subjective judgment. CBA may ignore intangible

benefits (pain, anxiety, stress) that are difficult to express in

monetary terms (Freund et al 1992).

Analysis of Results in Pharmacoeconomic Evaluation Health economics, and particularly its branch precision healtheconomics, help us choose between two alternatives, which we

compare with regard to their clinical benefit on one hand and

their cost on the other. The users of pharmacoeconomicevaluations are not interested in the results themselves but in

where and how these results can help them for a better care of

their patients (Barner et al 2003).





Health benefits and costs can be accessed from a different

viewpoint called "perspective". There are three common typesof perspectives in economic studies: a producer's perspective, a

payer's perspective and a social perspective. The perspective of

an economic assessment is important. In general, the social

perspective is the broadest and most appropriate for making

financial decision because it leads to optimal decisions but

other perspectives are also valid (Blumenschein et al 1999).

Consider the four possible results arising in a CEA given in

Fig.7. First, if costs are lower and health benefits higher forone drug relative to another, the former is said to dominate and

would be the preferred treatment. Second, the opposite applies,

i.e. the new drug is more expensive and less effective, and thus

is considered inferior and not recommended. The third andmost common case is where the new drug is both more

effective and more expensive than the standard; on the basis of

ICERs, a judgment must be made regarding whether the

additional benefits are worth the extra costs of the new drug

and, therefore, whether it is ‘cost-effective’. This might be

defined by a previously agreed ICER threshold value (Thar

1992). The fourth case is similar to the third, with the roles of

the new therapy and the standard reversed; the question now is

whether the extra benefits provided by the standard justify theadditional costs of retaining it as the preferred treatment when

the option of a new, cheaper but less effective drug exists.

Figure 7: Difference in costs

Applications of Pharmacoeconomics I.

One of the primary applications of pharmacoeconomics in

clinical practice today is to aid clinical and policy decision

making. Through the appropriate application of

pharmacoeconomics, practitioners and administrators can

make better, more informed decisions regarding the

products and services they provide (Detsky et al 1990).

Complete pharmacotherapy decisions should contain

assessments of three basic outcome areas whenever

appropriate: economic, clinical, and humanistic outcomes(ECHO). Traditionally, most drug therapy decisions were

based solely on the clinical outcomes (e.g., safety and

efficacy) associated with a treatment alternative (Kozma et

al 1993).

II.

Pharmacoeconomic data can be a powerful tool to supportvarious clinical decisions, ranging from the level of the

patient to the level of an entire healthcare system. Fig. 8

shows various decisions that can be supported using

pharmacoeconomics, including effective formulary

management, individual patient treatment, medication

policy, and resource allocation (Bungay et al 2003). Fordiscussion purposes, the application of pharmacoeconomics

to decision making is divided into two basic areas: drugtherapy evaluation and clinical pharmacy service

evaluation.

III. While the proper output of pharmacoeconomics is

information needed for making decisions on selection of

pharmaceuticals and medical devices as viewed from the

standpoint of cost-effectiveness, the techniques areapplicable in a diversity of domains (Druglis et al 1989).

IV.

Pharmacoeconomics provides precious input in studies of

product portfolios by pharmaceutical firms and

manufacturers of medical devices. Because QALYs may be

equated to pharmaceutical value per se, the aggregate

QALYs of a firm's products may be equated to its corporatevalue (Drummond at al 1997).

V.

Healthcare practitioners, regardless of practice setting, canbenefit from applying the principles and methods of

pharmacoeconomics to their daily practice settings.

Applied pharmacoeconomics is defined as putting

pharmacoeconomic principles, methods, and theories intopractice to quantify the value of pharmacy products and

pharmaceutical care services used in real-world

environments

(Cox 2003).Today’s practitioners

increasingly are required to justify the value of the products

and services they provide. Applied pharmacoeconomics

can provide the means or tools for this valuation.VI.

Pharmacoeconomic analysis is important since payers such

as third-party payers or government/private health plans

utilise them when determining whether to reimburse aclaim. These results in decreased adherence, lack of

prescription filling, decreased physician visits and

increased emergency room care (Sanchez 1994).

Figure 8: Decisions for pharmacoeconomic applications

Guidelines for Pharmacoeconomics Evaluations

In 1999, the Health Care Insurance Board published the

‘Dutch Guidelines for Pharmacoeconomic Research’. TheseGuidelines were updated in 2005 and published in the report

‘Guidelines for Pharmacoeconomic Research; Evaluation and

Actualisation. The guidelines are intended for designing,

conducting and reporting pharmacoeconomic research, but areapplicable to economic evaluations in general within the field

of health care (Schrand et al 2001).

Guideline 1 - The perspective of the evaluationThe pharmacoeconomic evaluation should be performed and

reported from a societal perspective, in which all costs and

benefits are included, irrespective of who actually bears the

costs or receives the benefits (Armstrong et al 2003).

Guideline 2 - Choice of comparative treatment/ indicationThe drug for a certain indication should be compared with the

standard treatment, or if that does not exist, the usual

treatment. This can either be a medicinal or a non-medicinal

treatment. The standard treatment is the treatment regarded in

daily practice as first-choice, for which effectiveness has beenproven.

Guideline 3 - Analytical techniqueIf the improvement in quality of life forms an important effect

of the drug being assessed, then it is necessary to carry out a





CUA. If this is not the case, then CEA has to be carried out. If

the manufacturer does not expect the drug to have an addedtherapeutic value, nor that it will be mutually replaceable with

(a) different drug(s), then a CMA can be carried out.

Guideline 4 - Time horizonThe time horizon of a pharmacoeconomic evaluation must be

such that it enables valid and reliable statements to be made

regarding the effects and costs of the treatments beingcompared. This includes both intended and unintended effects

and costs e.g. side effects (Milne 1994).Guideline 5 - Cost identification, measurement and

evaluationWhere possible, the Health Care Insurance Board’s ‘Manual

for cost research’ should be applied for the identification,measurement and evaluation of costs. The aim of using this

manual is to promote the uniformity and the standardization of

cost measurement and evaluation in pharmacoeconomic

evaluations.

Guideline 6 - Assessing quality of life and QALYsIf improvement in the quality of life is an important effect ofthe drug being assessed, then a CUA should be performed.

When carrying out a cost-utility analysis, assessments for

health states of patients need to be determined in order tocalculate the number of 'quality-adjusted life-years’ (QALYs).

The assessments of the health states and the survival data need

to be reported separately. The combination of these two

elements into a QALY should be presented clearly (Barr et al

1996).

Guideline 7 – ModelingIn order to be able to support decision-making, the model must

be transparent: preferably based on 'peer-reviewed'

publications and with a user-friendly electronic version. In

order to make a model transparent, the model must be as

simple as possible, and obviously it must include all the most

important processes. Modelling should be supplementary, and

in line with pharmacoeconomic analysis of the clinical studies(preferably ones that have already been published).

Guideline 8 - Incremental analysis

The cost effectiveness of the treatments to be compared is

presented by reporting the incremental effects and costs

between the treatments.

Guideline 9 - Discounting future effects and costsIf data on effects and costs are collected over a period longer

than one year, then the effects and costs need to be discounted

after the first year (Touchette et al 2003). In the primary

analysis the costs should be discounted at a constant discount

rate of 4%. Future effects should be discounted at a constant

discount rate of 1.5%.

Guideline 10 - Uncertainty analysisDefinitive estimate of the costs, effects and a cost-

effectiveness ratio, a number of methodological choices have

been made and a number of parameters have been estimated.

In a sensitivity analysis it is preferred to first formulate an

upper and a lower limit for each estimate reflecting the

uncertainty margins

(Bennett et al 1997). A multivariate

sensitivity analysis examines the effect of simultaneous

alterations in various variables thereby taking into account the

correlation between these variables. When the chance

distribution within these values is known, as well as the

extreme values of the parameters, then simultaneous ‘random’

draws can be used to determine a new estimate of each

parameter.

Guideline 11 - Use of expert panelIn the pharmacoeconomic evaluation, the manufacturer first

needs to demonstrate that the study data are missing. TheHealth Care Insurance Board needs to have access to this

information relating to the expert panel in order to determine

the composition and independence of the expert panel.Furthermore, this information provides insight into the way in

which consensus is reached within the expert panel. Finally,

the data used in the pharmacoeconomic evaluation provided by

the expert panel should be clearly documented in the

reimbursement file (Kim et al 1997).

Conclusion

In the era of rising medical costs, the science focuses on ‘value

for money’. For this, there is an urgent need to develop ascience based on study of cost and consequences of drug

therapy to healthcare system and society (Younossi et al 1990).

Pharmacoeconomics is that science, although still testing its

methodologies which provide the mean to qualify the value ofpharmacotheraphy through balancing costs and outcomes. By

understanding the principal, methods and applications of

pharmacoeconomics, healthcare professionals will be prepared

to make better, motre informed decisions the ultimately

represent ther interest of the patient, the healthcare system, and

society. Hence pharmacoeconomics is also relevantsocioeconomics as it relates patients, society and economy, to

drug therapy. In today’s healthcare settings, various

pharmacoeconomic methods can be applied for effectiveformulary management, individual patient treatment,

medication policy determination, and resource allocation.

Economic, humanistic, and clinical outcomes should be

considered and valued using pharmacoeconomic methods, to

inform local decision making whenever possible.

The perspective of a pharmacoeconomic evaluation is

paramount because the study results will be highly dependent

on the perspective selected. When evaluating published

pharmacoeconomic studies, factors should to be considered are

study objective, study perspective, pharmacoeconomic

method, study design, choice of interventions, costs and

consequences, discounting, study results, sensitivity analysis

and study conclusions (Schecter 1993).Majority of pharmacoeconomic guidelines provide only

general and vague recommendation in many areas may be

because of no consensus among the developers and challenge

of sustenance for relatively young science of

pharmacoeconomics. Therefore strict guidelines having

uniform global standards should be formulated by an

independent body comprising of people from academia,

industry and health authorities. Upon implementation it would

be helpful towards prescribing a rational drug therapy and

pharmacist, the bridge between patients and doctors, will

dispense as well as help in purchasing drugs for hospital

pharmacies. This would also help in reducing the monetary

burden on institutions and public.

Acknowledgements: Authors are grateful to Mr. Praveen

Garg, ISFCP for provides necessary facilities and support.

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Pharmacoeconomics Principles, Methods and Economic Evaluation of Drug Therapies