Part 2: Understanding Pharmacoeconomic Methodologies

This blog post is a sequel of my first post regarding Pharmacoeconomics that is entitled Part 1: Pharmacoeconomics and the types of medical costs

Pharmacoeconomic Methodologies

Tömöri (2015) introduced in his journal the different pharmacoeconomic methodologies and provided samples to determine and measure the relativity of the costs with the outcomes and benefits of medicines and other healthcare services. These are cost-minimization analysis (CMA), cost-effectiveness analysis (CEA), cost-utility analysis (CUA), and cost-benefit analysis (CBA).

Cost-Minimization Analysis (CMA)

As defined, cost-minimization analysis, also called as cost-identification is “an analytical process used in pharmacoeconomics to examine the cost of drug treatment when the clinical effectiveness of the alternative therapies is identical (Tömöri, 2015).” In the example below, two medications are compared using CMA (Table 1). It could be observed that both medications compared have equivalent clinical effectiveness. Meaning, its overall costs are what is being equated. Simply, medication B that has higher overall cost is not the most preferred to be procured since it has a higher price (patient’s view) or expensive production costs (pharmaceutical company’s view). Thus, making the consumer decide that with the same effect on health outcome, he is buying medication A because it is cheaper by 30 euros.

Name of medication or form of therapy Medication A Medication B
Clinical effectiveness of dose Equivalent
Cost of preparation of dose 160 Euro/dose 180 Euro/dose
Cost of supply of dose 100 Euro/dose 90 Euro/dose
Other expenditures related to preparation 40 Euro/dose 60 Euro/dose
All costs of dose 300 Euro/dose 330 Euro/dose
Decision on further application Yes No

Table 1. Example for the application of CMA in pharmacoeconomic decisions in micro level, (Gergő Tömöri, 2015)

Nevertheless, it should be taken into consideration that this is most applicable at the micro level of the healthcare system. In the macro level, the effectiveness of the drug is not only what is important but also the impact from the common diseases of the society, the structure of the health system, the income status of the population, as well as the drug price and its corresponding taxes. Overall, CMA is not suitable for pharmacoeconomic analysis since there is no way to measure equivalence of the effectiveness of each drug or forms of therapy.

Cost-Effectiveness Analysis

The cost-effective analysis is used to measure and compare outcomes regarding clinical characteristics and costs. Tömöri (2015) also cited that CEA is an “economic or management tool for evaluating which therapy is the most cost-effective to achieve greater effect next to unchanged expenditures or lower costs next to unchanged effects.” Below is an application of cost-effective analysis in the micro level (table 2).

Name or form of therapy Therapy A Therapy B Therapy C Therapy D
Type of disease being treated Identical
Without therapy Cost1 (Euro) 200 500 400 0
QoL1 0.4 0.7 0.3 0.3
With the therapy Cost2 (Euro) 50 700 100 360
QoL2 0.2 0.5 0.6 0.6
Additional cost (EUR), Cost2-Cost1 -150 +200 -300 +360
Effect: QoL gains, QoL2-QoL1 -0.2 -0.2 +0.3 +0.3
ICER (EUR/QoL gains) +750 -1000 -100 +1200
Evaluation Less expensive;

Less effective

More expensive;

Less effective

Less expensive; More effective More expensive; More effective
Decision on further application No No Yes No

Table 2. Example for the application of CEA in pharmacoeconomic decisions in micro level, (Gergő Tömöri, 2015)

As seen in the table above, the type of disease being treated is identical. It also observed that in CEA, the state of health of a person with and without the therapy is what is being compared alongside the different types of therapy. To know the outcome of the therapies, quality of life (QoL) is used. Without the therapy, Therapy B consumes a higher cost than the other therapy types but has a higher quality of life (effect). However, with the therapy, it incurs a higher cost with a lower QoL as compared to Therapy C and D. Incremental Cost-Effectiveness Ratio (ICER) is computed to evaluate the overall effectiveness of a therapy or a drug. To solve for ICER, overall/additional cost is divided by the QoL gains (effect). Thus, the lower the ICER value, the more the therapy is preferred and, in this case, therapy C is less expensive but is more effective or at least has an equivalent effect as compared to the others.

Cost-Utility Analysis

In contrast with CEA, CUA measures the effects of therapy regarding Quality-Adjusted Life Years (QALY) or Daily-Adjusted Life Years (DALY). It is most applicable at the micro level because it is suitable to compare treatment drugs used and developed within an institution. In this case, below is a modified example of the previous CEA table (Table 3).

Name or form of therapy Therapy A Therapy B Therapy C Therapy D
Type of disease being treated Identical
Without therapy Expected Lifespan 3 2 8 3
QALY1 3*0.4=1.2 2*0.7=2.1 8*0.3=1.8 3*0.3=0.9
With the therapy Expected Lifespan 8 5 2 1
QALY2 8*0.2=1.6 5*0.5=2.5 2*0.6=1.2 1*0.6=0.6
Unchanged Additional Cost (EUR) -150 +200 -300 +360
Effect: QALY gains, QALY2-QALY1 +0.4 +0.4 -0.6 -0.3
ICER (EUR/QALY gains) -375 +500 +166.67 -1200
Evaluation Less expensive;

more effective

More expensive;

more effective

Less expensive; less effective More expensive; less effective
Decision on further application Yes No No No

Table 3. Example for the application of CUA in pharmacoeconomic decisions based on data in Table 2, (Gergő Tömöri, 2015)

As seen in table 3, the disease type being treated is also the same and a health state with and without therapy is also compared alongside the four types of therapy. Contrasted with CEA, CUA uses expected lifespan and QALY as variables to measure the effectivity of a drug. Using unchanged additional cost as well as the QoL (renamed as QALY) from table 2, and adding expected lifespan as one variable, Therapy A is evaluated as more effective drug with a lower cost. However, looking at technicalities, it could be observed that there are several miscomputations (in red marks), and are therefore changed as seen in table 4.

After adjustments with QALY and ICER values, Therapy A is still more cost-effective as compared with the other therapies.

Name or form of therapy Therapy A Therapy B Therapy C Therapy D
Type of disease being treated Identical
Without therapy Expected Lifespan 3 2 8 3
QALY1 3*0.4=1.2 2*0.7=1.4 8*0.3=2.4 3*0.3=0.9
With the therapy Expected Lifespan 8 5 2 1
QALY2 8*0.2=1.6 5*0.5=2.5 2*0.6=1.2 1*0.6=0.6
Unchanged Additional Cost (EUR) -150 +200 -300 +360
Effect: QALY gains, QALY2-QALY1 +0.4 +1.1 -1.2 -0.3
ICER (EUR/QALY gains) -375 +181.82 +250 -1200
Evaluation Less expensive;

more effective

More expensive;

more effective

Less expensive; less effective More expensive; less effective
Decision on further application Yes No No No

Table 4. Example for the application of CEA in pharmacoeconomic decisions based on data in Table 2, (revised, table 3)

Cost-Benefit Analysis

Cost-benefit analysis is a “technique that is used to determine options that provide the best approach for the adoption and practice regarding benefits in labor, time, and cost savings,” (David R., 2013). This type of analysis compares the effect or outcome of a drug with its cost – both in monetary units. Because there is a common basis for comparability, it is both applicable in the micro and macro level. Below is an example of the application of CBA (table 5).

It can be inferred that in using CBA, the type of disease being treated by the projects being compared should be identical at the same duration and with a common discount rate. Just by looking at the results, it can be concluded that the lower cost-benefit ratio (such that the benefit is higher than the cost) a drug therapy or a project is evaluated, the better it is as an option. Nevertheless, using this method is difficult since there may be problems in the valuation (monetary) of benefits as well as the drug costs in a span of time (years).

 

Name of health project Project A Project B Project C Project D
Type of disease being treated Identical
Duration of the projects 5 years
Discount rate 12%
Initial cost of the project (EUR) 2000 2500 1000 1200
Benefits decreased by the current costs

(EUR)

Year 1 600 100 360 80
Year 2 610 130 340 100
Year 3 590 160 310 100
Year 4 540 180 280 100
Year 5 480 200 300 90
∑ PV (r=12%) 2057 535 1161 337
Net present value NPV,

∑ PV – initial cost

+57 -1965 +161 -863
Cost-benefit ratio 0.97 4.68 0.86 3.56
Decision on further application No No Yes No

Table 5. Example for the application of CBA in pharmacoeconomic decisions in macro level, (Gergő Tömöri, 2015)

Therefore, these methods apply effectively when the drugs and therapies being compared treat the same type of disease, considering the overall health of an individual or population, as well as financial and economic factors. It was also advised that cost-utility analysis is best applicable to the micro level while cost-benefit analysis to the macro level.

 

References

Daniel Mullins, N. C. (2014). Guidance Document: Global Pharmacoeconomic Model Adaption Strategies. Value in Health Regional Issues, 7-13.

Cheung KL, W. B. (2016). Using Best-Worst Scaling to Investigate Preferences in Health Care. Pharmacoeconomics, 1195-1209.

David R., N. P. (2013). A cost-benefit analysis of document management strategies used at a financial institution in Zimbabwe: A case study. Journal of Information Management .

Dubois, D. J. (2010). Grand Challenges in Pharmacoeconomics and Health Outcomes. Frontiers in Pharmacology, 1, 7.

Dunlop, W. C. (2017). Benefits, Challenges and Potential Strategies of Open Source Health Economic Models. Pharmacoeconomics, 35(1), 125–128.

Gergő Tömöri, Z. B. (2015). Application of Cost Analysis Methods in Pharmacoeconomic Decisions. Procedia Economics and Finance, 416-422.

Getzen, T. E. (2007). Health Economics and Financing. London: John Wiley & Sons Inc.

MacKinnon, G. E. (2013). In Health outcomes and Pharmacoeconomics (p. 5). Burlington, USA: Jones & Bartlett Learning, LLC.

Pradelli, L. W. (2012). Principles and Practice. Pharmacoeconomics, 16-20.

 

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