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![Page 1: Pharmacoeconomics David Matthews 2012 AMCP P&T Competition National Finalist The Ohio State University AMCP Chapter October 9 th, 2012 An Introduction.](https://reader036.fdocuments.in/reader036/viewer/2022062515/56649d1f5503460f949f2b11/html5/thumbnails/1.jpg)
Pharmacoeconomics
David Matthews2012 AMCP P&T Competition National Finalist
The Ohio State University AMCP ChapterOctober 9th, 2012
An Introduction for the P&T Competition
![Page 2: Pharmacoeconomics David Matthews 2012 AMCP P&T Competition National Finalist The Ohio State University AMCP Chapter October 9 th, 2012 An Introduction.](https://reader036.fdocuments.in/reader036/viewer/2022062515/56649d1f5503460f949f2b11/html5/thumbnails/2.jpg)
Outline
Types of economic analyses Definition of cost-effectiveness Determining cost-effectiveness Markov modeling
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What is Pharmacoeconomics?
Economics is the science of balancing best outcomes with limited resources
Pharmacoeconomics applies this concept to pharmacologic interventions
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Types of Economic Analyses
Cost-minimization analysis Cost-benefit analysis Cost-effectiveness analysis Cost-utility analysis
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Cost-Minimization Analysis
Compares two interventions considered equally effective and tolerable
Determines which intervention costs less Costs include more than the price of meds
Costs of treatment failureCosts of adverse effectsDrug monitoring or other healthcare services
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Cost-Benefit Analysis
Adds up costs associated with intervention Compares to monetary benefits of
interventionOutcomes must be converted to dollars
Compares input dollars vs. output dollars Determines whether benefits > cost
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Cost-Effectiveness Analysis Usually compares two interventions Determines the cost to produce an effect Expresses cost of an effect as a ratio:
Numerator = cost ($)Denominator = clinically appropriate marker, for
example: mm Hg blood pressure lowering mg/dL of LDL lowering Quality-adjusted life-years (cost-utility analysis)
![Page 8: Pharmacoeconomics David Matthews 2012 AMCP P&T Competition National Finalist The Ohio State University AMCP Chapter October 9 th, 2012 An Introduction.](https://reader036.fdocuments.in/reader036/viewer/2022062515/56649d1f5503460f949f2b11/html5/thumbnails/8.jpg)
Cost-Utility Analysis
Subset of cost-effectiveness analysis Determines the cost of adding one year of
perfect health to a patient’s life Calculates incremental cost-effectiveness
ratio (ICER)Ratio of cost to effectiveness:
Numerator = cost ($) Denominator = Quality-adjusted life-years
![Page 9: Pharmacoeconomics David Matthews 2012 AMCP P&T Competition National Finalist The Ohio State University AMCP Chapter October 9 th, 2012 An Introduction.](https://reader036.fdocuments.in/reader036/viewer/2022062515/56649d1f5503460f949f2b11/html5/thumbnails/9.jpg)
Cost-Effective ≠ Cost-Saving!!!
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Cost-Saving vs. Cost-Effective
Cost-savingAn intervention that has a lower total cost
than an alternative intervention
Cost-effectiveAn intervention that is sufficiently effective
relative to its total cost when compared with an alternative intervention
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Cost-Effectiveness Planecost
cost
effecteffect
NE quadrant: more costly, more effective
NW quadrant: more costly, less effective
SW quadrant: less costly, less effective
SE quadrant: less costly, more effective
PERFORM CEA
PERFORM CEA
DOMINATED
DOMINATES
Adapted from: Smith KJ et al. In: Arnold, RJG, editor. Pharmacoeconomics from theory to practice. Boca Raton: CRC Press; 2010. p. 95-108.
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Domination
Occurs when one treatment is both cheaper and more effective
Occurs in NW and SE quadrants of plane The cheaper/more effective treatment
“dominates” the alternative The dominating treatment is the preferred
treatment
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Determining Cost-Effectiveness New intervention in NE or SW quadrant Example:
Drug A is a new drugDrug B is the current standard of careDrug A works better than Drug BDrug A is more costly than Drug B
Question:Using Drug A instead of Drug B, how much
does it cost us to add one year of perfect health onto the life of our patient?
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Incremental Cost-Effectiveness Ratio (ICER)
Represents the amount of money spent to add one year of perfect health onto the life of our patient
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KEY POINT:
The ICER is the single most important indicator of an intervention’s cost-
effectiveness.
Its calculation can be complex, and will be the focus of the next several slides.
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Terminology
UtilityNumerical estimate of quality of life (QOL)
associated with a disease state or treatmentPerfect health = 1, Dead = 0Anything else…somewhere in betweenMeasured using questionnaires
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Terminology
Quality-Adjusted Life-Year (QALY)Life expectancy adjusted based on utility QALY = time in health state × utility of state If patient remains in the state for the remainder
of their life, we can use life expectancy for time
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QALY Example
Consider 2 hypothetical chemo drugsStandard of care vs. new therapyBoth prolong lifeBoth cause side effects which reduce QOL
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QALY Example
Standard of care treatment:Prolongs life by an average of 1 yearEstimated utility of 0.65 due to side effects
New treatment:Prolongs life by an average of 1.5 yearsEstimated utility of 0.5 due to side effects
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Standard of Care QALYs
QALY = Life expectancy × utility
= 1 year × 0.65 utility
= 0.65 QALYs
The standard of care is expected to add 0.65 quality-adjusted life-years to our patient’s life.
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New Treatment QALYs
QALY = Life expectancy × utility
= 1.5 years × 0.5 utility
= 0.75 QALYs
The new treatment is expected to add 0.75 quality-adjusted life-years to our patient’s life.
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Calculating ICER
ICER = difference in cost
difference in effectiveness
Or…
ICER = C2 – C1 $’s
E2 – E1 QALYs
![Page 23: Pharmacoeconomics David Matthews 2012 AMCP P&T Competition National Finalist The Ohio State University AMCP Chapter October 9 th, 2012 An Introduction.](https://reader036.fdocuments.in/reader036/viewer/2022062515/56649d1f5503460f949f2b11/html5/thumbnails/23.jpg)
Back to Our Chemo Drugs…
Suppose a full course of treatment costs…$12,000 for standard of care$15,000 for new treatment
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ICER of Chemo Drugs
ICER = C2 – C1
E2 – E1
ICER = $15,000 – $12,000
0.75 QALY – 0.65 QALY
ICER = $30,000/QALY
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Interpretation of ICER
On average, it costs us $30,000 to add one year of perfect health onto the life of our patient.
So is this considered cost-effective?
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Threshold of Cost-Effectiveness Subjective $50,000/QALY commonly reported in studies WHO recommends 3x per capita GDP for a
given countryWould be around $150,000/QALY in USA
National Institute for Health and Clinical Experience (NICE) recommends £30,000/QALY ($48,396/QALY)
Dasbach EJ et al.. In: Arnold, RJG, editor. Pharmacoeconomics from theory to practice. Boca Raton: CRC Press; 2010. p. 119-143.World Health Organization. Available from: http://www.who.int/choice/costs/CER_thresholds/en/index.html
McCabe C et al.. Pharmacoeconomics. 2008;26(9):733-44. Review.
![Page 27: Pharmacoeconomics David Matthews 2012 AMCP P&T Competition National Finalist The Ohio State University AMCP Chapter October 9 th, 2012 An Introduction.](https://reader036.fdocuments.in/reader036/viewer/2022062515/56649d1f5503460f949f2b11/html5/thumbnails/27.jpg)
Problems with Oversimplification
Much more complex than “averages” in the real world
Some people will tolerate the drugs better or worse than others
Patients do not remain in one health state Each individual experiences different
quality of life, incurs different costs, etc.
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Markov Models
Common in pharmacoeconomic research Used to calculate the entire cost and
QALYs gained for a population Uses a hypothetical cohort of patients Patients move between health states Each state has associated probabilities,
costs, and utilities
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Components of Markov Models Expected health states Probabilities related to treatment failure,
side effects, etc.Normally from probabilities seen in studies
Cycle lengthHow frequently would patients be expected to
transition through health states? Utility and cost estimates for each state Time horizon
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Simplified Example
New treatment for a terminal illness More costly, more effective than standard
of care Patients whose disease progresses incur
greater costsHospitalizationsMore treatments
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Example Markov Model
Cycles patients through health states based on preset probabilities
Example model:Healthy Sick Dead
Each state is assigned its own utility and cost
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Summary of Therapies
Therapy Standard of care New treatment
Cost of treatment, one month
$800 $1,500
Progression from healthy to sick per month
8% 4%
Cost of tx + disease progression per month
$2,500 $3,200
Progression from sick to death per month
20% 10%
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Markov Model ExampleStandard of Care
0.92
0.8
0.08
0.2
Healthy
Sick
Dead
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Markov Model ExampleNew Treatment
0.96
0.9
0.04
0.1
Healthy
Sick
Dead
![Page 35: Pharmacoeconomics David Matthews 2012 AMCP P&T Competition National Finalist The Ohio State University AMCP Chapter October 9 th, 2012 An Introduction.](https://reader036.fdocuments.in/reader036/viewer/2022062515/56649d1f5503460f949f2b11/html5/thumbnails/35.jpg)
Health State Utilities
HealthyUtility = 0.8 (not 1.0 due to side effects)
SickUtility = 0.4
DeadUtility = 0
![Page 36: Pharmacoeconomics David Matthews 2012 AMCP P&T Competition National Finalist The Ohio State University AMCP Chapter October 9 th, 2012 An Introduction.](https://reader036.fdocuments.in/reader036/viewer/2022062515/56649d1f5503460f949f2b11/html5/thumbnails/36.jpg)
10,000 Patient Cohort: New Treatment
0.96
0.9
0.04
0.1
Healthy
Sick
Dead
10,000 pts
![Page 37: Pharmacoeconomics David Matthews 2012 AMCP P&T Competition National Finalist The Ohio State University AMCP Chapter October 9 th, 2012 An Introduction.](https://reader036.fdocuments.in/reader036/viewer/2022062515/56649d1f5503460f949f2b11/html5/thumbnails/37.jpg)
After 1 month
0.96
0.9
0.04
0.1
Healthy
Sick
Dead
9,600 pts
400 ptsCOST: 400 x $3,200 =$1.3MQALY: 1/12 x 400 x 0.4 =13 QALY
COST: 9,600 x $1,500 =$14.4MQALY: 1/12 x 9,600 x 0.8 =640 QALY
![Page 38: Pharmacoeconomics David Matthews 2012 AMCP P&T Competition National Finalist The Ohio State University AMCP Chapter October 9 th, 2012 An Introduction.](https://reader036.fdocuments.in/reader036/viewer/2022062515/56649d1f5503460f949f2b11/html5/thumbnails/38.jpg)
After 2 months
0.96
0.9
0.04
0.1
Healthy
Sick
Dead
9,216 pts
744 pts
40 pts
COST: 744 x $3,200 =$2.4MQALY: 1/12 x 744 x 0.4 =25 QALY
COST: 9,216 x $1,500 =$13.8MQALY: 1/12 x 9,216 x 0.8 =614 QALY
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After 3 months
0.96
0.9
0.04
0.1
Healthy
Sick
Dead
8,847 pts
1,039 pts
114 pts
And so on until all patients are in the “absorbing state” (death)
COST: 1,039 x $3,200 =$3.3MQALY: 1/12 x 1,039 x 0.4 =35 QALY
COST: 8,847 x $1,500 =$13.2MQALY: 1/12 x 8,847 x 0.8 =590 QALY
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Markov Model Results
Model continues until all patients in absorbing state or time horizon complete
Patients accrue QALYs and costs each cycle
Separate models run for new treatment and standard of care
Once complete, ICER is calculated(difference in cost) / (difference in QALYs)
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Markov Models in the Real World
Theoretically, models could be completed by hand
Real life models become much more complexMore health statesAbility to move more freely through statesAccount for issues such as adverse events
Computers solve complex models
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Real Life Example
Shaheen NJ et al. Gut. 2004 Dec;53(12):1736-44.
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Problems with Markov Models
Complex models are difficult to understand Validity of model depends upon utility and
cost estimatesSensitivity analysis to account for variability
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Sensitivity Analysis
The scenario based off initial estimates is called the “base case scenario”
Real life probabilities and costs may be higher or lower than predicted
Adjust assumptions upward and downward and recalculate ICER
Provides a range of possible economic outcomes
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Conclusion
New interventions are usually more effective but at a higher price
Cost-effectiveness analysis helps determine if a new intervention is effective enough to be worth our limited resources
ICER is a numerical value that summarizes cost-effectiveness
Markov models are used to calculate ICER
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Questions?
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References McGhan WF. Introduction to pharmacoeconomics. In: Arnold, RJG, editor.
Pharmacoeconomics from theory to practice. Boca Raton: CRC Press; 2010. p. 1-16. Haycox A. What is cost-minimization analysis? In: Arnold, RJG, editor. Pharmacoeconomics
from theory to practice. Boca Raton: CRC Press; 2010. p. 83-94. Smith KJ and Robers MS. Cost-effectiveness analysis. In: Arnold, RJG, editor.
Pharmacoeconomics from theory to practice. Boca Raton: CRC Press; 2010. p. 95-108. Dasbach EJ, Insinga RP, and Elbasha EH. Cost-utility analysis: a case study of a
quadrivalent human papillomavirus vaccine. In: Arnold, RJG, editor. Pharmacoeconomics from theory to practice. Boca Raton: CRC Press; 2010. p. 119-143.
Beck JR. Markov modeling in decision analysis. In: Arnold, RJG, editor. Pharmacoeconomics from theory to practice. Boca Raton: CRC Press; 2010. p. 47-58.
World Health Organization. Choosing interventions that are cost-effective [Internet]. [Geneva]: WHO; c2012 [cited 7 Oct 2012]. Available from: http://www.who.int/choice/costs/CER_thresholds/en/index.html
McCabe C, Claxton K, Culyer AJ. The NICE cost-effectiveness threshold: what it is and what that means. Pharmacoeconomics. 2008;26(9):733-44. Review.
Shaheen NJ, Inadomi JM, Overholt BF, Sharma P. What is the best management strategy for high grade dysplasia in Barrett's oesophagus? A cost effectiveness analysis. Gut. 2004 Dec;53(12):1736-44.