Pharmacoeconomics

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8 Pharmacoeconomics

J. Cooke

Key points

• 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).

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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

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