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Introduction to Pharmacoeconomics September 15 -16, 2009 Karen L. Rascati, PhD, Professor The University of Texas College of Pharmacy Austin, Texas, USA The Universidade Federal do Rio Grande do Sul (UFRGS) and the Programa of Pós-graduação em Economia (PPGE/UFRGS) Outline Day 1 Part I - What is pharmacoeconomics Part II – Types of pharmacoeconomic studies Part III – Costs/Outcomes Part IV – Evaluating Studies Part V – Evaluation Example 1 Outline Day 2 VI – Decision Analysis Part VII – Markov Modeling Part VIII – Evaluation Example 2 Part IX – Future Issues Part Part I What is Pharmacoeconomics? Definition Pharmacoeconomics “identifies, measures, and compares costs and consequences of pharmacy products and services” Some consider it a sub-set of health technology assessment (HTA) Pharmacoeconomic Equation COSTS RX OUTCOMES How much is spent on health care per year as a percent of GDP? In OECD countries? 0 8.9 8.8 8.7 8.4 8.4 8.3 8.2 8.2 OECD Australia (3) Norway Spain United Kingdom Hungary Finland Japan (4) 6.4 6.2 Korea Poland 5.7 6.6 Mexico Turkey (4) 6.8 Czech Republic 7.1 9.0 Italy Slovak Republic (4) 9.1 Iceland 7.3 9.1 Greece Luxembourg 9.2 Sweden 7.5 (1) Public and private components are current expenditure,i.e. investments are not separated. (2) Current expenditure. (3) Data refer to 2005/06. (4) Data refer to 2005. Ireland 9.3 New Zealand 10.0 Canada 9.3 10.1 Austria Netherlands (2) 10.2 Portugal 9.5 10.4 Belgium (1) Denmark (1) 10.6 Germany 11.1 4 France 8 11.3 12 Switzerland United States 15.3 Health Expenditure as a Share of GDP, 2006 % of GDP 16 Public Private Brazil? Brazil About 8% GDP on healthcare SUS = tax funded system About half is public spending and half is private spending (for about 20-30% of population) = much more spent per person if using private insurance What is the average lifespan for various OECD countries? Brazil? Brazil Life expectancy is about 72 years Why is Pharmacoeconomics important? Pharmacoeconomics helps assess if scarce health care resources are being spent wisely on pharmacy products and services. Part II -Types of Pharmacoeconomic Studies Cost-minimization analysis (CMA) Cost-benefit analysis (CBA) Cost-effectiveness analysis (CEA) Cost-utility analysis (CUA) COSTS RX OUTCOMES More than one type may be included in a study (e.g. CEA and CUA) Types of Pharmacoeconomic Studies Cost-Minimization Costs = Monetary units Analysis (CMA) Outcomes = The same CostEffectiveness Analysis (CEA) Costs = Monetary units Outcomes = Natural/clinical units Cost-Utility Analysis (CUA) Costs = Monetary units Outcomes = Adjusted by quality/utility (e.g., QALY, DALY) Cost-Benefit Analysis (CBA) Costs = Monetary units Outcomes = Monetary units Other ‘Cost’ Studies Cost-consequence analysis (CCA) Lists costs and various outcomes presented but no calculations or comparisons made Cost-of-illness (COI) Estimate of total economic burden (prevention, treatment, losses in productivity) of a particular condition or disease on society Part III – COSTS/OUTCOMES Cost analysis :To identify resources used or consumed in the production of a good or service and assign monetary values to these resources. COSTS RX OUTCOMES Part III – COSTS/OUTCOMES PERSPECTIVE Payer = Whose Costs? (third-party private/public and/or patient) Provider/ Institution Employer Society Types of Costs Direct Medical Costs Direct Non-Medical Costs Indirect Costs Intangible Costs Direct Medical Costs What is paid for specific health care services, such as physician services, hospitalization, and pharmaceuticals EX: Physical therapy, drugs to tx side effects, costs of clinic visits Direct Non-Medical Costs Costs necessary to enable patients to receive medical care EX: Transportation to and from visits, lodging, baby-sitters (special diet) Indirect Costs Measure of the patient’s lost productivity plus the lost productivity of all unpaid caregivers EX: Time off from work, less productive days, spouses time off from work. Intangible Costs Reflect the patient’s level of pain and suffering. These are the hardest to measure. Anxiety, chronic pain, loss of functioning 25 Examples A daughter takes a week off from work to attend to her ill father Inpatient charge of R$268 per day for acute care Fatigue from chemotherapy Taxi fare to emergency department Ambulance service to emergency department Examples A daughter takes a week off from work to attend to her ill father INDIRECT COSTS (productivity) Inpatient charge of R$268 per day for acute care DIRECT MEDICAL Fatigue from chemotherapy INTANGIBLE COSTS Taxi fare to emergency department DIRECT NON-MEDICAL COSTS Ambulance service to emergency department DIRECT COSTS MEDICAL COSTS Example – Types of Costs for Schizophrenia Direct Medical Medications Outpatient/profession al services Inpatient services Long-term care Direct Non-Medical Law enforcement Shelters Indirect Unemployment Reduced productivity at work Premature mortality (suicide) Caregiver Incremental Costs Average costs = total cost / total units Incremental = Change in total cost / change in units Example: Drug A is R$500 per patient and is 95% effective while Drug B is R$750 per patient and 97% effective Incremental Calculation (R$750 – R$500) / (0.97 – 0.95) = R$12,500 per extra cure Adjusting for Time Differences Two different concepts Inflation If data collected over more than one year Prices may be adjusted to uniform price Time Preference If program or therapy extends more than one year, “discounting” is appropriate Used even if inflation rate is zero Adjustment for Inflation Can count number of services/ resources used and multiply by standard costs at one point in time OR Use inflation rate for past years times cost from past years Adjustment for Inflation Example of Standardization: Using Consumer Price Index (CPI) - Brazil Medical Resources Cost Estimate for To Treat Mild Resource Infection Office Visits R$115.00 Lab to Culture R$50.00 Organism Antibiotic R$28.84 Medication TOTAL a: Brazilian CPI for 2005 to 2007 = 11.3% b: Brazilian CPI for 2006 to 2007 = 7.1 % Year of Cost Estimate Cost Adjusted to 2007 R 2005 2006 R$128.00a R$53.55b 2007 R$28.84 R$210.39 Discounting A time preference is associated with money Current and future costs are not valued the same If the treatment costs (and outcomes*) extend for more than one year, discounting should be conducted to account for this difference. Present Value (PV) Formula PV = Sum of [FC / (1+r)n] for each year in future FC = Future Costs (or benefits) n = number of years r = discount rate per year Discounting Example Year Costs are Estimated Costs Calculation Incurred w/o Discounting Year 1 R$ 5,000 R$ 5,000 /1.05 Year 2 R$ 3,000 R$ 3,000 / (1.05)2 Year 3 R$ 4,000 R$ 4,000 / (1.05)3 Total Net Present R$ 12,000 Value (NPV) Using a 5% discount rate Present Value (PV) R$ 4,762 R$ 2,721 R$ 3,455 R$ 10,938 Sensitivity Analysis For any costs “estimates” that are uncertain, a sensitivity or “what if” analysis should be conducted. How do we know the discount rate is 5%?. Vary the rate from 0% to 10% and see if decision of “least costly” alternative still holds. Or vary cost of hospitalizations by area Costs - Summary When determining costs: What is the perspective? Are relevant/realistic costs included? Is discounting or cost adjustment appropriate? Is a sensitivity analysis conducted for uncertain values? Types of Pharmacoeconomic Studies Cost-Minimization Costs = Monetary units Analysis (CMA) Outcomes = The same CostEffectiveness Analysis (CEA) Costs = Monetary units Outcomes = Natural/clinical units Cost-Utility Analysis (CUA) Costs = Monetary units Outcomes = Adjusted by quality/utility (e.g., QALY, DALY) Cost-Benefit Analysis (CBA) Costs = Monetary units Outcomes = Monetary units Cost-Minimization Analysis (CMA) Costs are measured in monetary units Outcomes are assumed to be equivalent Examples: compare generics or home vs. outpatient services. CMA Research Example Cost-minimization analysis of erlotinib in the second-line treatment of non-cell lung cancer: A Brazilian perspective Doral Stephani S; Giorgio Saggia M; Vicino dos Santos EA. Journal of Medical Economics 2008; Vol. (3), p. 383-96. Example CMA Budget impact of erlotinib versus docetaxol or pemetrexed as second-line treatment for NSCLC Perspective = Private healthcare payer Costs = Panel assessed local costs Outcomes = from clinical trial that assessed progression-free survival Example CMA Erlotinib was cost saving ($R26,825) compared to established chemotherapy (R$40,217 and R$78,911) Sensitivity analysis showed robustness Cost-Effectiveness Analysis (CEA) Advantage: Do not have to place a dollar value on clinical outcomes Disadvantage: Can only compare options with the same type of outcome, and only one outcome at a time can be measured. Cost-Effectiveness Grid Cost Outcome Lower cost Same Cost Higher Cost Less effective A B C Same effectiveness D E F More effective G H I Cost-Effectiveness Grid Cost Outcome Lower cost Same Cost Higher Cost Less effective A B C Same effectiveness D E F More effective G H I Cost-Effectiveness Plane Cost Differences (+) Quadrant IV Dominated Quadrant I Trade-off Effect Differences (-) Effect Differences (+) Quadrant III Trade-off Quadrant II Dominant Cost Differences (-) Cost-Effectiveness Plane Cost Differences (+) Quadrant IV Dominated Quadrant I Trade-off Effect Differences (-) Effect Differences (+) Quadrant III Trade-off Quadrant II Dominant Cost Differences (-) Examples of Ways to Present Cost and Effectiveness Results Method Method 1 CostConsequence Analysis (CCA) Drug A Drug B Drug C Costs Costs Costs R$ 600 per year R$ 210 per year R$ 530 per year Outcomes Outcomes Outcomes GI SFDs = 130 GI SFDs = 200 days GI SFDs = 250 days % Healed = 50% % Healed = 70 % % Healed = 80 % GI SFDs = gastro-intestinal symptom-free days Examples of Ways to Present Cost and Effectiveness Results Method Method 2 Average Cost Effectiveness Ratios Drug A Drug B Drug C R$ 600 / 130 = R$ 210 / 200 = R$ 530 / 250 = R$ 4.61 per SFD R$ 1.05 per SFD R$ 2.12 per SFD R$ 600 / 0.5 = R$ 1,200 per cure R$ 210 / 0.7 = R$ 300 per cure R$ 530 / 0.8 = R$ 662 per cure GI SFDs = gastro-intestinal symptom-free days Examples of Ways to Present Cost and Effectiveness Results Method 3 B compared to A = dominant for both SFDs and % healed; Incremental CostEffectiveness Ratios C compared to A = dominant for both SFDs and % healed; C compared to B = R$ 530 – R$ 210 / 250 – 200 SFDs = R$ 6.40 per extra SFD C compared to B = R$ 530 – R$ 210 / .8 – 0.7 = R$ 3,200 per extra healed ulcer GI SFDs = gastro-intestinal symptom-free days Cost-Utility Analysis (Some consider this a type of CEA) Costs measured in dollars Consequences measured in preferencebased measures, such as QALYs/DALYs Incorporates mortality and morbidity (quality and quantity of life) Steps in Utility Analysis Describe the health state Choose the instrument Administer the instrument Calculate utility Calculate QALYs Describe the Health State Example: You often feel tired and sluggish. A piece of tubing has been inserted into a vein in your arm or leg. This may restrict your movement. There is no severe pain, but rather chronic discomfort. You must go to the hospital 2-3 times per wk (8 hours per visit). You must follow a strict diet (low salt, little meat, small amount of fluid, no alcohol). Many people become depressed because of the nuisances and restrictions, some feel they are being kept alive by a machine. Choose the Instrument THREE COMMON METHODS Rating Scales Time trade-off (TTO) Standard Gamble (SG) Rating Scale Endpoints = Dead / Healthy Other health states are explained and subjects are asked to “rate “ them between the two endpoints May look like a thermometer Can compare many health state options and ask raters to place them on one scale Rating Scale Perfect Health 100 Disease state 58 Death 0 Time Trade-off Subjects are offered two alternatives: State i for time t, followed by death, or Healthy time x (less than t) followed by death Time x is varied until the subject is indifferent between the two alternatives Time Trade-off Alternative 2 1.0 i 0 Alternative 1 x t Standard Gamble Subject is offered two alternatives: Alternative 1 is a treatment with 2 possible alternatives; pt. lives healthy life for x years or dies immediately Alternative 2 is the certain outcome of chronic state i for the rest of their natural life Standard Gamble p 1-p healthy dead i Comparing the 3 Methods Rating Scale easiest but time not incorporated as easily, must transform to QALYs TTO conceptually easier than SG SG and TTO give higher values than most using rating scales TTO sometimes lower than SG Some consider SG to be “gold standard” Much research left to answer “which is best” Administer the Instrument - to whom? The general public societal perspective hard to describe to general public People with the disease if comparing people with the same disease may be biased Health Professionals / Disease Experts do not have to explain or describe may be biased Calculate Utilities Selected utilities from rating scale 1.0 Completely healthy .84 Kidney transplant .58 Hosp. dialysis (pts) .56 Hosp dialysis (public) .33 Hosp confinement 0.0 Dead <0 ? Calculate QALYs For example if dialysis extends a life 10 years at .58 on rating scale = 5.8 QALYs If Option A cost R$5000 and extends life for 6 years at a quality of .8 and Option B costs R$4000 and extends life for 10 years at a quality of .3, according to CUA which would be preferred? Based on CEA (no adjustment for quality) which option would you pick? Option A 2. Option B 3. Need ICER Option Cost YLS 1. A R$5000 6 years B R$4000 10 years QALYS 0.8*6 = 4.8 QALYS 0.3* 10LYS 3.0 QALYS Based on CEA (no adjustment for quality) which option would you pick? Option A 2. Option B 3. Need ICER Option Cost YLS 1. A R$5000 6 years B R$4000 10 years QALYS 0.8*6 = 4.8 QALYS 0.3* 10LYS 3.0 QALYS Based on CUA (QALYS) Which option would you pick? Option A 2. Option B 3. Need ICER Option Cost YLS 1. A R$5000 6 years B R$4000 10 years QALYS 0.8*6 = 4.8 QALYS 0.3* 10LYS 3.0 QALYS Based on CUA (QALYS) Which option would you pick? Option A 2. Option B 3. Need ICER Option Cost YLS 1. A R$5000 6 years B R$4000 10 years QALYS 0.8*6 = 4.8 QALYS 0.3* 10LYS 3.0 QALYS DALYS DALYs = Disability Adjusted Life Years Similar to QALYs DALYs = The sum of years of potential life lost due to premature mortality and the years of productive life lost due to disability. QALYs = Years of healthy life (sum of quality * years) Advantages of CUA Includes patients’ preferences Provides a single measure to incorporate morbidity and mortality Allows comparisons across different options Disadvantages of CUA Time consuming Results vary depending on who assesses the conditions and by what instrument is used Should you discount utilities? Unanswered questions - Is a 20 QALY gain for one person = a 1 QALY gain for 20 people? How much is a QALY/DALY worth? Cost-Benefit Analysis (CBA) Costs measured in monetary units Outcomes measured in monetary units Calculate Benefit-to-Cost (B:C) ratio Cost-Benefit Analysis (CBA) Advantage = can summarize benefits from many sources into one number (money) and compare vastly different options Disadvantage = difficult to place monetary value on health outcomes Medical Non-medical Costs ($) Benefits ($) Direct Benefits $ Indirect Benefits $ Intangible Benefits $ Productivity Patient Preferences Pain Suffering Medical Non-medical Human Capital (HC) Willingness-to-pay (WTP) WTP Human Capital Value of health benefits=the economic productivity they permit Cost of disease=lost productivity Cost of a sick day=how much you earn that day Human Capital Use discounted values of expected earnings Census estimates (age, gender, education) Gather data from individuals Labor income is estimated as before-tax income Non-labor income is excluded (interest, etc.) Use market values value for non-market activities (unpaid household work, child care, etc.) Human Capital Problems Biased against specific groups Age, gender, education Earnings may not equal the value of outputs Professional athlete versus teacher Does not include values for pain and suffering if the disease state or condition does not impact productivity E.g., Menopause, Impotence vs. Diabetes, Cancer Willingness-to-Pay Valuation of goods/services are easier for marketed vs. non-marketed goods/services Health care vs. coffee or pair of jeans Valuation of goods/services are based on: Need e.g., health care (pain/suffering, productivity, etc.) Resources Preference Willingness-to-Pay Determines how much people are willing to pay to reduce the chance of an adverse health outcome. Example: If a person was willing to pay R$20 for a ½ hour visit with a pharmacist to improve their diabetes condition, then the imputed benefit/person/visit would be R$20. Willingness-to-Pay Problems What people say vs. what they will really pay Inherent biases of surveys (e.g., starting point bias, income bias) Can the average person answer questions HC vs. WTP HC WTP Easier to measure Only considers productivity (in terms of earnings) Biases against specific groups More difficult to measure Captures productivity, patient preferences (intangibles) Biases may not give accurate responses CBA Research Example Costs and Benefits of Influenza Vaccination and Work Productivity in a Columbian Company from the Employer’s Perspective Morales A, et al. Value in Health, Vol 7, No 4, 2004, p. 433441. CBA Example Columbian bank employees volunteered to be in a prospective study involving vaccination versus no vaccination for influenza – 8 monthly questionnaires CBA to determine if employer would save money offering vaccination to employees (therefore perspective = employer (title) CBA Example Fever of at least 2 days with at least one symptomatioc symptom (fevers, chills, myalgia) and at least one respiratory problem (rhinorrhea, sore throat, cough, hoarseness) = Influenza-like illness (ILI) CBA Example Input costs Direct = vaccine and materials, nurse Indirect = time lost by employee when getting vaccinated (20 min) and if any days lost due to effects from vaccine Outcome costs (diff vacc vs. no vacc) Indirect = sick leave and reduced efficiency at work due to ILI CBA Example Vaccinated = 14.6% ILI Non-vaccinated = 39.4% ILI Employer saved $6 to $26 US per employee vaccinated (depending on assumed efficiency at work with ILI – range 70% to 30%) Part IV - Assessment of Pharmacoeconomic Studies 1. Is the title appropriate? 2. Is the question (objective) clear? 3. Are the alternatives appropriate? Assessment 4. Are alternatives described in detail? 5. Is the perspective addressed? 6. Is the type of study stated? What type was it? Assessment 7. Are relevant and realistic costs included/ justification for those not included? 8. Are relevant consequences/outcomes included/ justification for those not included? 9. Was adjustment or discounting needed/conducted? Assessment 10. Are assumptions stated/reasonable? 11. Was a sensitivity analysis conducted for important estimates/assumptions? 12. Were major limitations addressed? Assessment 13. Were appropriate generalizations made? Were extrapolations beyond population appropriate? 14. Is an unbiased, impartial attitude portrayed? Was an unbiased summary of the results presented? Part V - Evaluate Example 1 Economic Impact of a Rotavirus Vaccine in Brazil Journal of Health Population Nutrition, 2008, Vol 26 (4), p 388-396. Outline Day 2 VI – Decision Analysis Part VII – Markov Modeling Part VIII – Evaluation Example Part IX – Future Issues Part Part VI - Decision Analysis A systematic, quantitative approach for assessing the relative value of one or more decision options. Steps in Decision Analysis Identify the specific decision What is the perspective? What are the competing options? Over what period of time? Steps in Decision Analysis Draw the structure over time Boxes represent choice nodes (Drug A vs. Drug B) Circles represent chance nodes (S.E. or no S.E.) Triangles represent termination nodes (live vs. die) Steps in Decision Analysis Assess the probabilities Use Use past literature, experts, judges, panels reasonable ranges for uncertain probabilities Steps in Decision Analysis Determine the value of each outcome Options must have the same type of outcome ( $ vs. $ or QALY vs. QALY) Can look at costs and effectiveness in the same model Steps in Decision Analysis Conduct a sensitivity analysis Choose those values or probabilities that are most uncertain or those where a small difference has a big impact on the results Use reasonable ranges Calculate threshold values Example From an article by Alan Baskt, Pharm.D. “Pharmacoeconomics and the formulary decision-making process” in Hospital Formulary, Vol 30, Jan 1995, p.42-50. Example - ID Decision Background DVT prophylaxis Newer agent Enoxaparin (Lovenox) No coagulation monitoring required Lower DVT rate than heparin 26 times more expensive than heparin Example - ID Decision Perspective Societal Options enoxaparin fixed-dose heparin low dose warfarin Time frame about 1 month Example - Draw Structure Example - Assess Probabilities Incidence Proximal DVT Distal DVT Pulmonary Embolism Major Bleeding Minor Bleeding Warfarin Enoxaparin Heparin 5% 2% 4.8% 19% 2% 5.3% 2.7% 0.1% 1.9% 1.3-3.6% 4.1% 6.2% 6.9% 8.2% 5.7% Example - Determine Values Costs Warfarin Enoxaparin Heparin Drug 0.14 159.88 6.10 PT test x 7 d 8.68 0 0 PTT test x 7 d 8.68 0 8.68 3 home visits 60.00 0 0 CCF nurse 20.87 0 0 7.44 0 0 12.30 0 0 $118.11 $159.88 $14.78 PT and APTT x 3 visits Outpt. Rx TOTAL Example - Determine Values Complication Abbrev. Cost Proximal DVT Comp1 $1,394 Distal DVT Comp2 $ 860 P. Embolism Comp3 $6,510 Major Bleed Comp4 $2,791 Minor Bleed Comp5 $ 189 Part VII - Markov Modeling Real health consequences more complex May need to look at long-term consequences over multiple years Patients may “transition” from one health state to another over time Basic decision trees get too complex after a few cycles Researchers use Markov Modeling to assist with more complex and chronic disease states Part VIII Evaluate Example 2 Cost-effectiveness Analysis of Cervical Cancer Vaccine in Five Latin American Countries Colantonio L, et al. Vaccine, Volume 27, 2009, p. 5519-5529 Part IX - Issues Perspective - Whose costs? Appropriate comparators Efficacy vs. Effectiveness Criteria Length of follow-up Switching Outcomes Accuracy of measurement Multiple measures Issues Barriers Does not include budget impact Lack of expertise in economic evaluations Decision-makers mistrust results Seen as “rationing” – may not want to acknowledge resources are limited or that trade-offs are necessary For More Information (in addition to my book, of course)… Methods for the Economic Evaluation of Health Care Programmes, 3rd ed. Drummond, Sculpher, Torrance, O’Brien and Stoddart, 2005 Health Care Cost, Quality, and Outcomes: ISPOR Book of Terms, Berger et al, 2003 – available soon in Portuguese. International Society for Pharmacoeconomics and Outcomes Research http://www.ispor.org