Pharmacoeconomics

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8 Pharmacoeconomics

• Expenditure on medicines is increasing at a greater rate than other health care costs.

• Increasingly governments are employing health economics to help prioritise between different medicines and other health technologies.

• In health economics, consequences of a treatment can be expressed in monetary terms (cost–benefit), natural units of effectiveness (cost-effectiveness) and in terms of patient preference or utility (cost–utility).

• Head-to-head studies offer the best way of determining overall effectiveness and cost-effectiveness.

• Sensitivity analysis can be used to address areas of uncertainty.

• Medication non-adherence, medication errors and unwanted drug effects place a considerable burden on societal health care costs.

• Decision analysis techniques offer a powerful tool for comparing alternative treatment options.

The demand for and the cost of health care are growing in all countries. Many governments are focusing their activities on promoting the effective and economic use of resources allocated to health care. The increased use of evidence-based programmes not only concentrates on optimizing health outcomes but also utilises health economic evaluations.

While there have been marked gains in life expectancy in those countries which make up the Organization for Economic Co-operation and Development (OECD), health costs have also risen in all of them. The USA spent 16% of its national income (gross domestic product, GDP) on health in 2007, a value considerably greater than many other OECD countries (Fig. 8.1).

Fig. 8.1 Comparison of health spend as a percentage of gross domestic product in different countries in 2007 (OECD, 2009).

Medicines form a small but significant proportion of total health care costs; this has been increasing consistently as new medicines are marketed. For example, the overall NHS expenditure on medicines in England in 2008 was £11.6 billion. Primary care expenditure was £8.1 million and hospital use accounted for 28.7% of the total cost at £3.3 million, up from 25.8% in 2007. The cost of medicines has increased by 3.4% overall and by 15.2% in hospitals.

Most OECD countries have seen growth in spending on medicines outstrip growth in total health spending over this period. In the USA and Australia, pharmaceutical spending has increased at more than double the rate of growth in total health spending (OECD, 2009).

There are a number of reasons why prescribing costs are increasing:

• Demographic changes have resulted in an ageing population which is living longer and has greater needs for therapeutic interventions. This patient group is more susceptible to unwanted effects of medicines which in turn consume more resources.

• More patients have complex clinical problems and co-morbidities that have higher dependency on medicines.

• Health screening programmes and improved diagnostic techniques are uncovering previously non-identified diseases, which subsequently require treatment.

• The marketing of new medicines that offer more effective and less toxic alternatives to existing agents. Invariably these are more expensive, especially biotechnology medicines, such as monoclonal antibodies which can cost in excess of £30,000 per patient per year.

• The use of existing agents becoming more widespread as additional indications for their use are found.

• Increasing numbers of standards in guidelines of care are being set by national bodies such as the National Institute for Health and Clinical Excellence (NICE).

• Public and patients have a higher expectation of their rights to access high-cost health care.

• Higher acquisition costs are also due to inflation and currency fluctuations.

In the UK, health reforms over the past decade have addressed the quality of care through promotion of quality and safety standards. The formation of NICE in 1998 ‘to improve standards of patient care and to reduce inequities in access to innovative treatment’ has formalised this process. NICE undertakes appraisals of medicines and other treatments (health technologies) and addresses the clinical and cost-effectiveness of therapies and compares outcomes with alternative use of NHS funds. The increased use of evidence-based programmes not only concentrates on optimizing health outcomes but also utilises health economic evaluations. Formalised health technology assessments provide an in-depth and evidence-based approach to this process.

Terms used in health economics

Pharmacoeconomics can be defined as the measurement of both the costs and consequences of therapeutic decision making. Pharmacoeconomics provides a guide for decision makers on resource allocation but does not offer a basis on which decisions should be made. Pharmacoeconomics can assist in the planning process and help assign priorities where, for example, medicines with a worse outcome may be available at a lower cost and medicines with better outcome and higher cost can be compared.

When economic evaluations are conducted it is important to categorise various costs. Costs can be direct to the organisation, that is physicians’ salaries, the acquisition costs of medicines, consumables associated with drug administration, staff time in preparation and administration of medicines, laboratory charges for monitoring effectiveness and adverse drug reactions. Indirect costs include lost productivity from a disease which can manifest itself as a cost to the economy or taxation system as well as economic costs to the patient and the patient’s family. All aspects of the use of medicines may be allocated costs, both direct, such as acquisition and administration costs, and indirect, such as the cost of a given patient’s time off work because of illness, in terms of lost output and social security payments. The consequences of drug therapy include benefits for both the individual patient and society at large and may be quantified in terms of health outcome and quality of life, in addition to the purely economic impact.

It is worthwhile here to describe a number of definitions that further qualify costs in a health care setting. The concept of opportunity cost is at the centre of economics and identifies the value of opportunities which have been lost by utilizing resources in a particular service or health technology. This can be valued as the benefits that have been forsaken by investing the resources in the best alternative fashion. Opportunity cost recognises that there are limited resources available for utilising every treatment, and therefore the rationing of health care is implicit in such a system.

Average costs are the simplest way of valuing the consumption of health care resources. Quite simply, they represent the total costs (i.e. all the costs incurred in the delivery of a service) of a health care system divided by the units of production. For example, a hospital might treat 75,000 patients a year (defined as finished consultant episodes, FCEs) and have a total annual revenue cost of £150 million. The average cost per FCE is, therefore, £2000.

Fixed costs are those which are independent of the number of units of production and include heating, lighting and fixed staffing costs. Variable costs, on the other hand, are dependent on the numbers of units of productivity. The cost of the consumption of medicines is a good example of variable costs.

The inevitable increases in the medicines budget in a particular institute which is treating more patients, or treating those with a more complex pathology, have often been erroneously interpreted by financial managers as a failure to effectively manage the budget. To better describe the costs associated with a health care intervention, economists employ the term ‘marginal costs’ to describe the costs of producing an extra unit of a particular service. The term ‘incremental cost’ is employed to define the difference between the costs of alternative interventions.

Choice of comparator

Sometimes a claim is made that a treatment is cost effective. But cost effective against what? As in any good clinical trial, a treatment has to be compared against a reasonable comparator. The choice of comparator is crucial to this process. A comparator that is no longer in common use or in a dose that is not optimal will result in the evaluated treatment being seen as more effective than it actually is. Sadly many evaluations of medicines fall into this trap as sponsors seldom wish to undertake head-to-head studies against competitors. Again, the reader has to be careful when interpreting economic evaluations from settings which are different from those in local practice. A common error can be made when viewing international studies that have different health care costs and ways of treating patients and translating them directly into ‘one’s own practice’.

In addition, hospital charges, including those for hotel services such as heating and lighting overheads, meals and accommodation, which may constitute a major cost, should be considered. These are frequently included in an average cost per patient day.

Types of health economic evaluations

Cost–benefit analysis (CBA)

In CBA, consequences are measured in terms of the total cost associated with a programme where both costs and consequences are measured in monetary terms. While this type of analysis is preferred by economists, its use in health care is problematical as it is frequently difficult to ascribe monetary values to clinical outcomes such as pain relief, avoidance of stroke or improvements in quality of life.

Methods are available for determining cost–benefit for individual groups of patients that centre around a concept known as contingent valuation. Specific techniques include willingness to pay, where patients are asked to state how much they would be prepared to pay to avoid a particular event or symptom, for example pain or nausea following day-care surgery. Willingness to pay can be fraught with difficulties of interpretation in countries with socialised health care systems which are invariably funded out of general taxation. Willingness to accept is a similar concept but is based on the minimum amount an individual person or population would receive in order to be prepared to lose or reduce a service.

CBA can be usefully employed at a macro level for strategic decisions on health care programmes. For example, a countrywide immunisation programme can be fully costed in terms of resource utilisation consumed in running the programme. This can then be valued against the reduced mortality and morbidity that occur as a result of the programme.

CBA can be useful in examining the value of services, for example centralised intravenous additive services where a comparison between a pharmacy-based intravenous additive service and ward-based preparation by doctors and nurses may demonstrate the value of the centralised pharmacy service, or a clinical pharmacokinetics service where the staffing and equipment costs can be offset against the benefits of reduced morbidity and mortality.

Cost-effectiveness analysis (CEA)

CEA can be described as an examination of the costs of two or more programmes which have the same clinical outcome as measured in physical units, for example lives saved or reduced morbidity. Treatments with dissimilar outcomes can also be analysed by this technique. Where two or more interventions have been shown to be or are assumed to be similar, then if all other factors are equal, for example convenience, side effects, availability, etc., selection can be made on the basis of cost. This type of analysis is called cost-minimisation analysis (CMA). CMA is frequently employed in formulary decision making where often the available evidence for a new product appears to be no better than for existing products. This is invariably what happens in practice as clinical trials on new medicines are statistically powered for equivalence as a requirement for licensing submission.

As previously described, CEA examines the costs associated with achieving a defined health outcome. While these outcomes can be relief of symptoms such as nausea and vomiting avoided, pain relieved, etc., CEA frequently employs years of life gained as a measure of the success of a particular programme. This can then offer a method of incrementally comparing the costs associated with two or more interventions. For example, consider a hypothetical case of the comparison of two drug treatments for the management of malignant disease.

Treatment 1 represents a 1-year course of treatment for a particular malignant disease. Assume that this is the current standard form of treatment and that the average total direct costs associated with this programme are £A per year. This will include the costs of the medicines, antiemetics, inpatient stay, radiology and pathology. Treatment 2 is a new drug treatment for the malignancy which as a result of comparative controlled clinical trials has demonstrated an improvement in the average life expectancy for this group of patients from 3.5 years for treatment 1 to 4.5 years for treatment 2. The average annual total costs for treatment 2 are £B. A comparative table can now be constructed.

Strategy	Treatment costs	Effectiveness
Treatment 1	£A	3.5 years
Treatment 2	£B	4.5 years

Incremental cost-effectiveness ratio:

Cost–utility analysis (CUA)

An alternative measurement for the consequences of a health care intervention is the concept of utility. Utility provides a method for estimating patient preference for a particular intervention in terms of the patient’s state of well-being. Utility is described by an index which ranges between 0 (representing death) and 1 (perfect health). The product of utility and life years gained provides the term quality-adjusted life-year (QALY).

There are a number of methods for the calculation of utilities.

• The Rosser–Kind matrix relies on preferences from population samples from certain disease groups.

• The visual analogue scale method seeks to obtain patient preferences for their perceived disease state by scoring themselves on a line scaled between 0 and 1 as above.

• The standard gamble method requires individuals to choose between living the rest of their lives in their current state of health or making a gamble of an intervention which will restore them to perfect health. Failure of the gamble will result in instant death. The probabilities of the gamble are varied until there is indifference between the two events.

• The time trade-off method requires individuals to decide how many of their remaining years of life expectancy they would be prepared to exchange for complete health.

Using the previous model, if treatment 1 provides on average an increase of 3.5 years life expectancy but that this is valued at a utility of 0.9, then the health gain for this intervention is 0.9 × 3.5 = 3.15 QALYs. Similarly, if the increase in life expectancy with treatment 2 only has a utility of 0.8 (perhaps because it produces more nausea) then the health gain for this option becomes 0.8 × 4.5 = 3.6 QALYS. An incremental CUA can be undertaken as follows:

Incremental cost–utility ratio:

The calculation of QALYs provides a method which enables decision makers to compare different health interventions and assign priorities for decisions on resource allocation. However, the use of QALY league tables has provided much debate amongst stakeholders of health care as to their value and use.

According to NICE, there is no empirical basis for assigning a particular value (or values) to the cut-off between cost-effectiveness and cost-ineffectiveness. The general view is that those interventions with an incremental cost-effectiveness ratio of less than £20,000 per QALY should be supported and that there should be increasingly strong reasons for accepting as cost-effective interventions with an incremental cost-effectiveness ratio of over £30,000 per QALY.

Costs and consequences

Discounting

Discounting is an economic term which is based mainly on a time preference that assumes individuals prefer to forego a part of the benefits of a programme if they can have those benefits now rather than fully in an uncertain future. The value of this preference is expressed by the discount rate. There is intense debate amongst health economists regarding the value for this annual discount level and whether both costs and consequences should be subjected to discounting. If a programme does not exceed 1 year then discounting is felt to be unnecessary.

Decision analysis

Decision analysis offers a method of pictorial representation of treatment decisions. If the results from clinical trials are available, probabilities can be placed within the arms of a decision tree and outcomes can be assessed in either monetary or quality units. An example of this can be found in the assessment of glycoprotein IIb/IIIa inhibitors in acute coronary syndrome (National Institute for Health and Clinical Excellence, 2002). The evidence of clinical and economic outcomes compares percutaneous coronary intervention and coronary artery bypass grafting. To populate a decision tree, it is necessary to obtain information from the literature on the probabilities for the clinical benefits and risks of each procedure (Table 8.1). The costs of the various procedures, consumables and bed stay are then calculated (Table 8.2). From these a decision tree can be constructed that determines the cost-effectiveness of one intervention over another (Fig. 8.2).

Table 8.1 Baseline probabilities used in the short-term model of percutaneous coronary intervention (PCI) versus coronary artery bypass graph (CABG; National Institute for Health and Clinical Excellence, 2002)

Table 8.2 Unit costs used in the analysis of percutaneous coronary intervention (PCI) versus coronary artery bypass graph (CABG; National Institute for Health and Clinical Excellence, 2002)

Unit cost	Unit	Base-case value
PCI	Procedure	£1410.04
CABG	Procedure	£4902.22
Repeat PCI	Per diem	£2976
Angiogram	Procedure	£748.25
Cardiac ward	Day	£157.47
Non-cardiac ward	Day	£244.00
CCU	Day	£459.04
Outpatient	Visit	£59.70
Cardiac day case	Visit	£108.58
Non-cardiac day case	Visit	£182.00
Guidewire	Item	£61.75
Stent	Item	£599.01
Guiding catheter	Item	£37.05
Blood	Unit	£85.00
Full blood count	Item	£4.00
Endoscopy	Item	£246.00
Tirofiban	12.5 mg vial	£146.11 (+VAT)
Eptifibatide	20 mg vial	£15.54 (+VAT)
Eptifibatide	75 mg vial	£48.84 (+VAT)
Unit cost	Unit	Base-case value
Abciximab	10 mg vial	£280.00 (+VAT)
Omeprazole	28 tab pack 10 mg	£18.91
Clopidogrel	28 tab pack 75 mg	£35.31

CABG, coronary artery bypass graft; CCU, coronary care unit; PCI, percutaneous coronary intervention.

Fig. 8.2 Clinical decision tree for choices of percutaneous coronary intervention (PCI) versus coronary artery bypass graph (CABG; National Institute for Health and Clinical Excellence, 2002). MI, myocardial infarction; IHD, ischaemic heart disease; revasc., revascularisation intervention.

If there is uncertainty about the robustness of the values of the variables within the tree, they can be varied within defined ranges to see if the overall direction of the tree changes. This is referred to as sensitivity analysis and is one of the most powerful tools available in an economic evaluation.

Economic evaluation of medicines

A number of countries have introduced explicit guidelines for the conduct of economic evaluations of medicines. Others require economic evaluations before allowing a medicine onto an approved list or formulary. Guidelines have been published which aim to provide researchers and peer reviewers with background guidance on how to conduct an economic evaluation and how to check its quality (Drummond et al., 2005), whilst others (National Institute for Health and Clinical Excellence, 2009a,b) have set out how they incorporate health economics in the evaluation of medicines.

Risk management of unwanted drug effects

Avoiding the adverse effects of medicines has become a desirable goal of therapeutic decision makers as well as those who promote quality assurance and risk management. Not only can there be significant sequelae in terms of increased morbidity associated with adverse drug effects but the economic consequences can be considerable. For example, gentamicin is often regarded as a relatively inexpensive antibiotic but in the USA each case of nephrotoxicity has been reported to cost several thousands of pounds in terms of additional resources consumed even without any assessment of the reduction in a patient’s quality of life. The increasingly litigious nature of society has resulted in economic valuation of perceived negligence, for example, with irreversible vestibular toxicity associated with prolonged unmonitored aminoglycoside therapy. As a result, many health care systems have targeted a significant reduction in the number of serious errors in the use of prescribed medicines.

Medication non-adherence

The costs of non-adherence with medicines are considerable. In the USA, it has been calculated that 11% of all admissions to hospital are directly associated with some form of non-adherence. This equates to two million hospital admissions a year in the USA resulting from medication non-adherence at a total cost of over £5 billion. In addition, lost work productivity through non-adherence has been estimated to cost in excess of a further £3 billion per year. The scale of the problem in the UK is probably similar.

In the UK, between a half and one-third of all medicines prescribed for long-term conditions are not taken as recommended (Horne et al., 2005) and the estimated drug cost of unused or unwanted medicines in the NHS in England is around £100 million a year (Department of Health, 2008) annually. National guidance on medicines adherence has been issued (National Institute for Health and Clinical Excellence, 2009a,b).

Incentives and disincentives

There are good examples of both incentives and disincentives being used in the NHS to save money. In England, the contract for hospitals penalises those organisations that fail to achieve their targets for reducing Clostridium difficile infections. Good antimicrobial stewardship is essential for addressing this as each case of Clostridium difficile infection can cost at least £4000. Reduction in prescribing of both fluoroquinolones and second and third generation cephalosporins is associated with a reduction in Clostridium difficile infection (Department of Health and Health Protection Agency, 2008). It follows from this that reducing the use of these agents can reduce acquisition costs of the medicines.

Examples of incentives to reduce expenditure can be seen within the NHS commissioning processes in England. A typical example involves a scheme where commissioners must make 1.5% of contract value (or equivalent non-contract activity value) available for each provider’s quality and innovation scheme and these include prescribing targets (Department of Health, 2010).

Conclusion

A fundamental element of the use of pharmacoeconomics in practice is the viewpoint from which the analysis is conducted. Ideally this should be from a societal perspective but frequently it is from a government or Department of Health viewpoint. Purchasers of health care may also have a different perspective from provider units, and the viewpoint of clinicians may differ from that of the patient. The pharmaceutical industry will probably have another viewpoint that will be focused on their particular products. As a consequence, with all economic evaluations the perspective from which they have been analysed should be clear.

The effect of having budgets that are rigorously defended in every section of the health service, as occurs with the medicines budget, is to deny the application of economic decision making in the most efficient way for the population served. It is clear that pharmacoeconomics has an important part to play in the practice of therapeutics (Box 8.1) and needs to be an integral part of all planned therapeutic developments.

Department of Health. Pharmacy in England, Building on Strengths – Delivering the Future. London: DH. 2008:1-141.

Department of Health. Using the Commissioning for Quality and Innovation (CQUIN) Payment Framework – An Addendum to the 2008 Policy Guidance for 2010/11. London: Department of Health; 2010.

Department of Health and Health Protection Agency. Clostridium difficile: How to Deal with the Problem. London: DH; 2008.

Drummond M.F, Sculpher M.J, Torrance G.W, et al, editors. Methods for the Economic Evaluation of Health Care Programmes, third ed., Oxford: Oxford University Press, 2005.

Horne R., Weinman J., Barber N., et al. Concordance, Adherence and Compliance in Medicine-Taking. Report for the National Co-ordinating Centre for NHS Service Delivery and Organisation R & D; 2005.

National Institute for Health and Clinical Excellence. Guidance on the Use of Glycoprotein IIb/IIIa Inhibitors in the Treatment of Acute Coronary Syndromes. London: NICE; 2002. Available at: http://guidance.nice.org.uk/TA47/Guidance/pdf/English

National Institute for Health and Clinical Excellence. The Guidelines Manual 2009. London: NICE. 2009:81-91. Available at: http://www.nice.org.uk/media/68D/29/The_guidelines_manual_2009_Chapter_7_Assessing_cost_effectiveness.pdf

National Institute for Health and Clinical Excellence. Medicines Adherence: Involving Patients in Decisions About Prescribed Medicines CG 76. London: NICE; 2009. Available at: http://guidance.nice.org.uk/CG76/Guidance/pdf/English

OECD. Health Data. Available at: http://www.ecosante.org/index2.php?base=OCDE&langh=ENG&langs=ENG&sessionid=, 2009.

Further reading

Audit Commission. Managing the Financial Implications of NICE Guidance. Wetherby: Audit Commission Publications; 2005.

Bootman J.L., editor. Principles of Pharmacoeconomics. Cincinnati: Harvey Whitney Books Co, 2004.

Drummond M.F., editor. Methods for the Economic Evaluation of Health Care Programmes. Oxford: Oxford University Press, 2005.

Øvretveit J. Does Improving Quality Save Money? A Review of Evidence of Which Improvements to Quality Reduce Costs to Health Service Providers. London: The Health Foundation; 2009.

Rascati K.L., editor. Essentials of Pharmacoeconomics. Philadelphia: Lippincott Williams & Wilkins, 2009.

Walley T., Haycox A., Boland A., editors. Pharmacoeconomics. London: Elsevier, 2003.

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