Health Economics and Pharmacoeconomics

Prof. Albert I. Wertheimer Temple University, U.S.A.

Ankara, Turkey 24 May 2005

What is Pharmacoeconomics?
Economics
Theories to study behavior in allocating scarce resources.

Health Economics
Application of same theories to health and healthcare issues

Pharmacoeconomics
Determination of efficiency in therapeutic purchase and utilization.

Pharmacoeconomics Contd
Economics- allocation of scarce resources guns or butter Health economics - Techniques same - Focus on healthcare delivery systems Pharmacoeconomics - Focus drug therapy [management]

Pharmacoeconomics
Balancing the cost and consequence

(outcomes) of therapies & interventions Assessment of the most efficient use of available resources , defined in terms of patient outcomes and cost

Origins of Pharmacoeconomics
Since the mid-1980s:
Supply of drugs exceeds demand. It is assumed that a product approved by F.D.A. is satisfactory and equivalent. Development of sophisticated large buyers. Emergence of large databases enables observational studies comparing drugs head:head.

Origins Contd
Widely available computer power at low cost. Worldwide profit pressures requiring efficient purchasing and operations New methodologies and emphasis on evaluation and outcomes.

Why Know Pharmacoeconomics?

Understand and critically appraise economic arguments proposed to support healthcare interventions, e.g. new drugs, or professional services. Participate in economic evaluation treatments and services to be a key player in national and local debates on resource allocation. Initiate economic evaluations of services and products. Participate in the debate on and address wider policy issues, such as:
Staff remuneration structures Need for, demand for and utilization of services Reimbursement levels for healthcare.

Supply and Demand Curves

Demand Curve
A graph showing how the quantity demanded for some product during a specific time changes as the price of that product changes, holding all other things constant A change in quantity demanded solely due to a change in price is reflected in movement along the curve Factors that shift the demand curve: consumer income, preferences, prices of similar products

Equilibrium Re-established
D2 D1 S1 S2 E1 E2

Price

Quantity

Elasticity of Demand
Price elasticity of demand is the ratio of the percent change in quantity demanded to the percent change in prices. Highly elastic products have large changes in quantities demanded for a relatively small price change. Highly inelastic products have small changes in quantities demanded for a relatively large price change.

Elasticity of Demand Shown Graphically

Elastic

$
Inelastic Quantity

Equilibrium Point
The balance-point between quantity demanded and supplied at a certain point Where demand and supply lines cross The point where there are no inherent forces to change production or consumption Increases in demand will shift the demand curve outwardsupply will respond by moving outward

Production Possibilities

Surgery Medicine

Major Concepts in Economics

Opportunity Costs Supply and Demand Price Elasticity

Economics studies the tradeoffs (opportunity costs) of selecting among alternative products & services An opportunity cost is what we give up in order to obtain a product or service Opportunity costs increase as more of a particular product/service is demanded Economics cant place humanistic values on product/service. It just identifies options

Health Economics & Pharmacoeconomics Safe

Rx Drugs

CostEffective

Effective

Definitions

Definitions Contd

Types of Costs
Direct Indirect - Food, lodging, transport, loss of family wages Intangible - Pain and suffering

Perspective
Payer (MCO, insurer, employer) Patient Provider Society

4 Types
1. Cost-minimization Analysis - Same results, similar products -$.20/tablet vs. $.25/tablet 2. Cost- effectiveness Analysis -Cost: per mm hg drop 3. Cost-benefit Analysis -$:$ 4. Cost-utility Analysis - $/QALY - Compare dissimilar inputs

Strategies to Manage Costs

Restricting Access- Limiting the use of expensive services Cost Shifting- from insurer to insured or provider Cost Containment- negotiating down the proce of health care services Pharmacoeconomics- Maximizing Return On Investment (ROI)

Restricting Access
Pre-existing conditions Prior approval Limits on health care products

Cost Shifting
Early discharge from hospitals Co-pays OTC medications

Cost Containment
Encourage generic prescription drugs Extract discounts from providers Set limits on health care services Purchase on deals- a pharmaceutical sale Minimize inventory Pay professionals per diem Hold staff to skeleton crew

Cost vs. Outcome

Worse Costlier
Cost

Same No No Yes
Outcome

Better Maybe Yes Yes

No No Maybe

Same cost Cheaper

Major Paradigm Shifts in Health Care

Characteristics Price Elasticity Decision Maker Patient Care Philosophy Quality Focus Risk Taker Pharmacy Pharmaceutical Company Provider Reimbursement Cost Focus Traditional Health Care Inelastic MD Tailored Treatment Structure, Processes Insurance Company Distribution System Drug Manufacturer Fee For Service (FFS) Cost Containment Todays Health Care Elastic Managed Care Standardized Treatment Outcomes Provider Information System Treatment Plans/Outcomes Capitation Cost Effectiveness

Hypothetical Decision Tree

A. Efficacy- works, ideal setting 3,000 patients B. Effectiveness- phase 4 evaluation, % treated to goal C. Efficiency- cost of treatment to goal x/100 effective
X/80

Outcomes
Primary data or secondary data Data can be
Prospective Retrospective Modeled/projected

Sources:
Clinical data- patient records/charts Administrative data- claim forms Other- drugs from PBM, lab from lab company

Types:
Experimental Non-experimental Quasi-experimental

Common Techniques
Case control- % of condition treated vs. Non Cohort- group with same treatment Unobtrusive

Other Measures
Quality of life- 0-70 emotional/physical Ware SF 36 and SF 12 Patient satisfaction AAHP

Methodologies
Phone interview Mailed questionnaire In-person interview Web-based Observation- underused - Limp, move head, balance, tremor, compensation

Error
Type II- alpha- there is a difference but it is not detected Type I- beta- measure a difference (effect) that is not so Reliability- accuracy, remember, random error Validity- system error- measuring right thing

Outcomes Research
Drug X effective in 65% of treated patients Drug Y effective in 85% of treated patients

Clinical Evaluation (Donabedian)

3 levels
Cost Structure Process Outcome Result Time

Sensitivity Analysis
Whether there is the same result with different assumptions

Present Value
Value of revenue today, that is to be received in the future

Examples
A. SABA (Ventolin) - $1.00/day and 86% effective B. Levalbuterol - $3.00/day and 96% effective But of ineffective are admitted to hospital for $5000/incident

Example Contd
A. 100 patients x 30 days x 1.00/day = $30.00 x 100 = $3000 B. 100 patients x 30 days x 3.00/day = $90.00 x 100 = $9,000 A. 14 failure x .5 = 7 x 5000 = $35,000 (hospital) + 3,000 (drug)= $38,000 (total cost) B. 4 failures x .5 = 2 x 5,000 = $10,000 (hospital) + $9,000 (drug) = $19,000 (total cost)

Examples
Cephalosporins and diarrheas Diuretics vs. Beta-blockers for high blood pressure Quality of life ( impotence)

Evidence-based Practice Vs. Consensus- Based Practice

Cochrane collaboration- UK ARHQ- inventory Can build a disease management algorithm/protocol from the outcomes research and pharmacoeconomic results - Guidelines- these are best practices

Guidelines
Subspecialty societies - NAEP EP2 - JNC 6 - Government - HMOs - Pharmaceutical companies- Singulair

Guidelines Contd
ID patients - Drug use - ICD-9 coding - Procedures - FEV 1 - spirometry - Tests

Guidelines Contd

ICD-9 coding Procedures, Tests, ER

PBM, drugs

Advantages of Evidence-based Disease Management

Optimal care for all Cost-beneficial care Litigation defense NCQA benefit Promotional opportunity Yields higher quality of life, patient satisfaction

Quality of Life
Subjective and ignored until recently -Validated, benchmarked -John Ware SF 36 generic SF 12 generic and by disease states

Patient Satisfaction
Ware for AAHP Story of orthopedic surgeons -Shoulder surgery 4 weeks Expectations- then with 6 weeks

QALYS
Bone marrow transplant
$30,000/QALY

Highway guard rails

$40,000/QALY

Improving H2O supplies

$25,000/QALY

Pediatric immunizations
50/QALY

Geriatric Pneumococcal vaccinations

$10,000/QALY

QALYS Contd
Geriatric flu vaccine
$10,000/QALY

Home healthcare
$35,000/QALY

Treatment after stroke

$30,000/QALY

Mammogram 40 years
$90,000/QALY

Value= utility/cost
Utility= clinical+satisfaction+HQL HCV= clinical outcome+satisfaction+HQL Cost

Components of contemporary clinical decision making

Clinical outcomes

Economic outcomes

Humanistic outcomes

Ten General Principles of Analysis

Define problem State objectives Identify alternatives Analyze benefits/effectiveness Analyze costs Differentiate perspective of analysis Perform discounting Analyze uncertainties Address ethical issues Interpret results

Four General Approaches to Sensitivity Analysis

Type of analysis
Simple sensitivity analysis Threshold analysis Analysis of extremes Probabilistic analysis

Characteristics
Most commonly used Useful for generalizing results Finds point at which two options are equal Needs actual data; doesnt work well with ratios Compares best and worst case scenarios Useful when extremes of data are known or when actual distribution of data is unknown Varies multiple variables within plausible ranges according to the usual distribution of data points

Criteria for Evaluating Pharmacoeconomic Studies

Criteria
Objective
What was the study objective? Is the study question(s) clear, defined, and measurable?

Perspective
What is the perspective(s) of the analysis and is it appropriate given the scope of the problem?

Contd
Criteria contd
Type of analysis
What was the pharmacoeconomic tool used? Is it appropriate given the problem?

Study design
What was the study design? What were the data sources? Is the evaluation suitable if carried out in a clinical trial?

Contd
Criteria contd
Choice of interventions
Were all appropriate alternatives considered? Were any appropriate alternatives omitted? Are the alternatives relevant to the perspective and clinical nature of the story? Were the alternatives appropriately described?

Contd
Criteria contd
Costs and consequences
What are the costs and consequences (outcomes)? Were all the important and relevant costs and consequences for each alternative identified? Are the costs and outcomes relevant to the perspective chosen?

Contd
Criteria contd
Costs and consequences contd
Do they include negative outcomes (treatment failures, adverse events)? Were all sources of values clearly identified? Were costs and consequences measured in appropriate physical units?

Contd
Criteria
Discounting
Was the study performed over time? Did the study use dollar values from previous years? Are any costs or consequences that occur in the future discounted to reflect their present values? Was any justification given for the discount rate used?

Contd
Criteria
Results
Are the results accurate? Are the results practical for medical decision makers? Were the appropriate statistical analyses performed? Was an incremental analysis performed?

Contd
Criteria contd
Results contd
Are all the assumptions and limitations of the study discussed? Were the generalizability of the results to other settings or patient populations discussed?

Sensitivity analysis
Are cost ranges for significant variables tested for sensitivity?

Contd
Criteria contd
Sensitivity analysis contd
Are the appropriate and relevant variables varied? Do the findings follow the anticipated trend?

Conclusions
Are the conclusions of the study justified? Is it possible to extrapolate the conclusions to daily clinical practice?

Contd
Criteria contd
Sponsorship
Was this an industry-sponsored or an industry-connected study? Was there any bias to sponsorship of the study?

Use of Guidelines to Evaluate and Interpret pharmacoeconomic Literature

Elements.
1.

Definition of study aim

Does a well-defined question exist? Are the perspective and alternatives compared clearly specified?

2.

Sample selection
Are the types of patients chosen suitable and are they specified? Are the diagnostic criteria adequately specified?

Guidelines Contd
Elements contd
3. Analysis of alternatives Are all the relative alternatives analyzed? Is/are the the comparison alternative(s) suitable? Is this the most commonly used treatment, or one that will be replaced by a new drug? Is the indication the most relevant one ? Are adequate dosages used? Are the treatments reproducible?(Doses, interval, duration, etc.) Is the do-nothing option analyzed or should it be analyzed? Is a decision analysis applied?

Guidelines Contd
Elements contd
4.

Analysis of perspective
Is it clearly specified (society, patient, hospital, etc.)? Is it justified for the question asked?

5.

Measurement of benefits
Is it adequate for the question asked and the perspective? Are the data on the effectiveness of alternatives adequately established? Is the main assessment variable (endpoint) objective and relevant? Is the time fixed or the evaluation sufficient and is it specified? Are the results quantified by time?

Guidelines Contd
Elements contd
6. Measurement of costs
Is the measurement of costs suitable for the perspective? Are the costs up to date and are the prices those of the market? Is an adjustment of future costs and benefits performed?

Guidelines Contd
Elements contd
7.

Is the type of analysis used suitable?

Financial terms: cost-benefit Physical units: cost-effectiveness Quality of life/utility: cost-utility Equal benefits: cost-minimization

8.

Analysis of the results

If intermediate variables are used, are they representative of the end benefit? Is a marginal analysis performed? Are the costs and consequences of adverse effects analyzed?

Guidelines Contd
Elements contd
9. Is the evaluation suitable if made within a clinical trial? Is the suitable methodology employed? Are the statistical methods used adequate? Is an analysis according to intention to treat made? Are costs resulting from the trial, which differ from those in normal practice, taken into account?

Guidelines Contd
Elements contd
10. Are the assumptions and limitations of the study discussed? Is a sensitivity analysis performed? Do the assumptions have a basis? Is the exclusion of any important variable analyzed or justified? If intermediate endpoints are assumed, are limitations discussed? 11. Are possible ethical problems discussed and identified?

Guidelines Contd
Elements contd
12. Conclusions
Are they justified? Can they be generalized? Can they be extrapolated to daily clinical practice?

History of Patient-based Assessment

B.C.
Collection of vital statistics in ancient Greece and Egypt?

Mid-1600s
Growth of vital statistics in England

Mid-to-late 1800s
Health interview surveys

1893-1919
Health survey content expanded to include the duration of illness and related disability or dysfunction

History of Patient-based Assessment Contd

Early 1900s
Appearance of psychometric techniques that included traditional approaches, such as those associated with Thurstone, Likert, and Guttman

1930s
More positive definitions of health appeared, possibly first in measures commissioned by the health organization of the league of nations, which included health and vitality among the set of indicators

History of Patient-based Assessment Contd

1940s
Health Opinion Survey used to screen recruits for mental fitness during World War II Utility assessment based on work on mathematical decision theory appeared Karnofsky Performance Status Scale developed for use with cancer patients

1948
World Health Organizations constitution offered definition of health as a state of complete physical, mental, and social well-being and not merely the absence of disease or infirmity

History of Patient-based Assessment Contd

1950s
Shift toward measures that included positive feelings of wellbeing Different dimensions of general health perceptions identified, including the time-bound and relation to others

1960s
Definition of physical health expanded in many measures to include intermediate activities of daily living in addition to the most basic self-care Psychometric approaches were first applied to health measurement

History of Patient-based Assessment Contd

1960s contd
Landmark studies include the 1963 study by Katz and colleagues who used Guttman scalogram analysis to construct the Index Activities of Daily Living to monitor results or rehabilitative care for elderly patients

1970s
Most physical health measures expanded the range of measurement to consider performance of or capacity to perform strenuous physical activities Measures of overall mental health began to tap both psychological distress and well-being

History of Patient-based Assessment Contd

1970s contd
Psychometric methods of enumerating general health perceptions measures became more common Ware and colleagues employed Likerts method of summated ratings to construct a variety of measures , including the General Health Perceptions Questionnaire, the Mental Health Inventory, and other general and mental health measures used in the Health Insurance Experiment (1973-1981) and in the Medical Outcomes Study (1986-1990)

History of Patient-based Assessment Contd

1970s contd
Earliest applications of utility assessment and QALYs to health measurement appeared in work by Fanshel and Bush and by Torrance Documented inclusion of health-related quality of life measures in clinical trials and research dates to the early 1970s Study by Nagi of the Independent Living Index Bergner and colleagues used Thurstones methods of equalappearing intervals to construct the Sickness Impact Profile

History of Patient-based Assessment Contd

1970s to mid-1980s
Social aspects of functioning and well-being tended to be measured distinctly from mental and physical aspects

1989
Omnibus Budget Reconciliation Act creates the Agency for Health Care Policy and Research which funds research to monitor patient-based assessments

History of Patient-based Assessment Contd

Early 1990s
New psychometric models based on Raschs Item Response Theory test measures of pain and functioning in assessing rehabilitative care an physical functioning in general populations

Mid-1990s
Comprehensive overall health measures include physical functioning; health-related limitations in social and role functioning; bodily pain; energy and fatigue; and general health perceptions

History of Patient-based Assessment Contd

Mid-1990s contd
Content of the most recent questionnaires suggest that sleep and sexual functioning are becoming accepted parts of this comprehensive model of overall health Research underway to conceptualize and enumerate childrens health

Cost-minimization Analysis Decision Framework

Pharmacoeconomic problem

Determine the least costly alternative

Are outcomes being measured?

No

Contd
yes Are outcomes equivalent? Cost analysis

yes Cost-minimization analysis

no Cost-effectiveness, Cost-utility, or cost-benefit analysis

Current Status
Used by:
large buyers Military Managed care - Sick funds - Government - Ministries of health * Pricing * Drug approval Process

Future Roles
Evaluation of Genomic Interventions Policy for F.D.A. Revisions Drug Approval Process Basis of Pricing

Thank You!
Albert Wertheimer