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The left-hand side of the equation represents the inputs (costs) used to obtain and
use the pharmaceutical product or service. The right-hand side of the equation
represents the health-related outcomes produced by the pharmaceutical product or
service. The center of the equation, the drug product or service being assessed, is
symbolized by Rx.
If just the left-hand side of the equation is measured without regard for outcomes,
it is a cost analysis (or a partial economic analysis).
If just the right-hand side of the equation is measured without regard to costs, it
is a clinical or outcome study (not an economic analysis).
To be a true pharmacoeconomic analysis, both sides of the equation must be
considered and compared. Theoretically, at least two options must be compared in
pharmacoeconomics, but some assessments consist of a "with or without"
comparison, estimating what would occur if the product or service was provided
(e.g., immunization or pharmacy clinic services) compared with no provision of the
product or service.
Consequences
Similar to costs, the outcomes or consequences of a disease and its treatment are
an equally important component of pharmacoeconomic analyses.
The manner in which consequences are quantified is a key distinction among
pharmacoeconomic methods because the assessment of costs is relatively
standard.
Depending on perspective, the outcomes of health care are multidimensional. The
clinician has traditionally been most concerned with clinical outcomes of
treatments. More recently, healthcare payers and administrators have focused on
the resource use or economic outcome of healthcare decisions. Patients, on the other
hand, are becoming increasingly knowledgeable and involved in decisions regarding
their own health care and are seeking more information regarding the humanistic
outcomes of therapy.
Patients want to know how their quality of life will be affected or how satisfied other
patients with their condition have been with various treatments.
Accordingly, the consequences (or outcomes) of medical care also can be
categorized. One approach is to separate outcomes into three categories: economic,
clinical, and humanistic.
Economic outcomes are the direct, indirect, and intangible costs compared with
the consequences of alternative medical treatment.
Clinical outcomes are the medical events that occur as a result of disease or
treatment (e.g., safety and efficacy end points).
Humanistic outcomes are the consequences of disease or treatment on patient
functional status or quality of life along several dimensions (e.g., physical
function, social function, general health and well-being, and life satisfaction).
Assessing the economic, clinical, and humanistic outcomes (ECHO) associated with
a treatment alternative provides a complete model for decision making.
Types of costs
Economic studies use a range of costs. It is important to be able to distinguish
between the different types of costs that are used. Costs are usually divided into
direct, indirect and intangible (Figure 3) and table 1.
Indirect costs
Indirect costs are incurred by the reduced productivity of a patient and their family,
resulting from illness, death or treatment. They may include time off work or; time
spent going to healthcare providers; time spent caring for the patient by relatives;
time forgone from leisure. Only the following indirect costs can be calculated
reliably from data:
A-Time off work due to sick leave
B-Early retirement
C-Reduced productivity at work.
The significance of indirect costs depends upon the particular illness and treatments
involved. Diseases such as asthma, migraine and depression affect working age
groups, whereas other diseases, such as Alzheimer's, do not.
Indirect costs are difficult to measure, so that they are not often included in economic
studies. However, it is likely that most interventions will affect indirect costs, so they
should always be considered, if not measured.
Intangible costs
Intangible costs are difficult or impossible to measure, but they still occur and it is
of value to identify them. They can include anxiety, pain or suffering from an
illness or treatment.
Imagine we have a choice of two effective treatments, A and B, but only enough
money for one of them. If treatment A is funded rather than treatment B, the
opportunity cost benefits of funding A is in not choosing B.
Consider, for example, two possible interventions: a cancer screening program
(intervention A) and a smoking cessation program (intervention B). If only one of
these interventions can be funded then the opportunity cost of funding A can be
thought of as the number of life years that would have been gained is more than
through the smoking cessation program.
Average cost
Average cost is calculated by dividing the total costs for the intervention by the total
quantity of treatment units provided, such as the number of patients receiving a
course of antibiotics.
It is equally acceptable to assume that expenses occur at the end of the first year (12
months later) and therefore, they are discounted (see Table 2.5).
This example illustrates the impact of discounting the costs of an intervention using
information from a theoretical hip replacement operation compared to drug
treatment for a patient with osteoarthritis.
Intervention
Costs (£) arising during
Year O Year 1 Year 2 Year 3 Year 4
Hip replacement 5,000
Painkillers (undiscounted) 1,000 1,000 1,000 1,000 1,000
The costs for drug treatment occur over a 5-year period. This means that they must
be adjusted for discounting.
Using the above formula and discount rate of 3.5% we can calculate the discount
factor for each year.
The discounted costs are calculated by multiplying the discount factor by the costs
for each year.
This example shows that when discounting is taken into account, drug treatment over
5 years period is cheaper than hip replacement.
Therefore, future costs have to be discounted in any economic evaluation. Studies
will generally discount costs if the intervention lasts more than 1 year.
Cost of illness
The cost of illness (COI) is the personal cost of acute or chronic disease. The cost to
the patient may be economic, social or psychological………etc.
It differs from healthcare costs, meaning the societal cost of providing services
related to the delivery of healthcare, rather than personal impact on individuals.
The direct medical costs of illness include diagnosis, medical treatment, surgery and
follow-up care. Indirect costs of illness are costs attributable to loss of productivity
of patients with that disease or condition.
Intangible costs of illness are the pain and suffering associated with illness.
COI studies are used to indicate the magnitude of resources needed for a specific
disease or condition, and they may be used to compare the economic impact of one
disease versus another (e.g., costs of schizophrenia versus costs of asthma) or the
economic impact of a disease on one country compared with another (e.g., costs of
D.M in Iraq versus costs of D.M in Jordan).
The point of treating a patient with a disease is to reduce these costs of illness.
Measuring patient outcomes for use in economic evaluations
Introduction
An economic evaluation looks at all the implications of deciding to choose one
way of providing care over another, not just the costs.
This means that any factor affect the service, good or bad, has on the patient or
customer needs to be investigated.
Benefits, outcomes and consequences refer to the effect on the patient, not the
effect on people providing the service. Cost is not an outcome measure.
In order to assess the benefit of healthcare, correct identification and
measurement of patient outcomes is essential in health economics. An
understanding of these outcomes is a prerequisite for economic evaluation.
This lecture defines and describes the main categories of outcome measure used:
effectiveness, quality of life, utility, and expressing benefits as monetary
values, and appraises the importance of using the appropriate outcome measure.
1-Effectiveness
Effectiveness is the outcome of an intervention or service measured in natural units.
These can be general outcome measures, such as:
Cases successfully diagnosed.
Cases successfully treated.
Life years saved.
These measures are relatively simple to use and are often reported in clinical trials
of interventions. They are therefore the most common type of outcome measure
and the most frequently used in economic evaluation.
They are sometimes called intermediate outcome measures because the
implication that changes in them will extrapolate to an effect on the patient's ultimate
health status. For example, a study of diet-based lipid-lowering therapy in the
prevention of coronary heart disease could use the drop in plasma cholesterol level
to assess the effectiveness of this intervention. It is assumed that by reducing a
person's cholesterol level, the risk of developing coronary heart disease is reduced.
We know that this assumption is true because there is epidemiological evidence to
support the link between cholesterol levels and coronary heart disease.
Example of effectiveness
Table 4.1 reports the results from a trial that compared daily recombinant human
deoxyribonuclease (rhDNase), alternate-day rhDNase and hypertonic saline for
treating children with cystic fibrosis. The primary outcome measure was forced
expiratory volume in one second (FEV-1, a measure of lung function).
The results show that rhDNase was more effective at improving lung function than
hypertonic saline, but there was no difference between the two different dosage
schedules for rhDNase.
1-There may be more than one outcome reported for a particular treatment or
service. For example, an analgesic may be more effective than another at relieving
pain, bur cause more nausea.
Does one choose the analgesic with more power, or the one with a lower incidence
of nausea? So, effectiveness measures are limited because they only measure one
part of an outcome and may not reflect the overall impact of the intervention
on the patient's health-related quality of life (HRQoL).
For example, in the cystic fibrosis study reported above, we know that FEV1 was
improved by the interventions. However, we do not know whether that improvement
was large enough to improve the patient's HRQoL, so it is an intermediate
measure of out-come, where we are assuming that improvements in lung function
can improve overall health status. Also, we do not know whether the treatments were
associated with unwanted side effects. There may be side effects that are
sufficiently bad to affect the patient's health status, or so bad that they refuse to have
the treatment at all. Finally, we do not know whether the improvement in lung
function now will continue into the future and extend the life expectancy of the
patient.
2- Many effectiveness measures are disease specific, such as lung function, and so
cannot be used to compare outcomes for different disease states. For example, it
would not be possible to use lung function to assess the outcome of an operation for
a ruptured Achilles tendon.
1- People may die from causes other than that of interest to the study, which can
mask mortality linked to the intervention of interest and thus confound the results.
2- Most illnesses affect quality of life rather than mortality, and so quality of life
improvements due to interventions will not be detected or included in the economic
evaluation.
3- Third, mortality requires a study with many patients and need follow up over
a long period of time.
4- People of different ages and sex have different risks of mortality, so it is
important that patient groups have similar age and sex profiles if they are to be
compared.
The limitations of the use of mortality can be seen in this example. First, it takes up
to 10 years' follow-up in a very large group of patients to detect a change in
mortality. Also, people may die from another cause, which can confound the
results.
It is likely that treating patients with these drugs reduced the progression of many of
them to coronary heart disease. Therefore, the health status of many patients was
probably improved by the intervention, such that they could carry on working or
their normal daily activities. This important effect of the treatment is not picked
up by measuring mortality only.
Everybody dies eventually, so it is actually premature mortality we are trying to
reduce, such that individuals are able to live out an acceptable lifespan. Therefore,
if a premature death is prevented — for example by lipid-lowering drugs - we have
saved years of life for an individual. Therefore, mortality can be converted into life-
years saved or life-years gained.
1. What is the implicit assumption being made by the use of this outcome
measure?
The assumption is that this is a desirable outcome because the reversal of anaemia
will increase the patient's energy levels and hence their quality of life.
2-What is the difference in effectiveness of the two alternatives, for 1000
patients?
Erythropoietin keeps the Hb level >8g/dl for 15% more of the year than do blood
transfusions = 54.75 days per patient per year = 54 750 days per 1 000 patients per
year.
2-Quality of life
Most modern medicine improves quality rather than quantity of life. The
limitations associated with effectiveness measures have led researchers to
develop ways of measuring the whole impact of a disease or treatment on a
patient.
Definitions: it may be helpful to distinguish between the terms quality of life
(QoL) and health-related quality of life (HRQoL). The first term, QoL, is a broad
concept with many aspects that measures people's overall perception of their life.
QoL includes both health-related and non-health-related aspects of their lives
(e.g., economical, political, cultural).
HRQoL is the part of a person's overall QoL that "represents the functional
effect of an illness and its consequent therapy on a patient, as perceived by
the patient."
In health-related research and articles, the term QoL is often used interchangeably
with the term HRQoL, and both might be used to indicate the narrower definition
pertaining to a person's health.
Importance: The use of HRQoL measures has been increasing since the mid-1980s.
Traditionally, health has been considered from a biomedical point of view. From this
viewpoint emphasis is placed on activities associated with repairing injury and
reducing the impact or length of illness.
Although this approach is essential, it does not include all of the aspects that are
important to health. A broad definition of health proposed by the World Health
Organization more than 50 years ago is: "Health is a state of complete physical,
mental and social well-being and not merely the absence of disease or
infirmity".
Many health care providers and health services researchers have adopted this
expanded view of health and now include measures of the overall impact of
diseases and their treatments.
In addition to physical function, the overall concept of HRQoL includes other
aspects of health, called domains, such as psychological and social functioning,
that are important to the patient.
Measuring QoL
Measuring QoL is methodologically complex. There are many functional, social,
psychological, cognitive and subjective factors that affect QoL.
QoL measures can be divided into generic and disease specific.
B-Generic measures are more useful when looking at groups of patients who
may have different illnesses, and can be used to compare outcomes in different
patient groups. One of the most widely used is the Short Form (SF)-36 health survey.
This looks at:
• Physical functioning
• Physical role
• Bodily pain
• General health
• Vitality
• Social functioning
• Emotional role
• Mental health.
Typical questions asked include: Does your health limit you in these activities?
Table 8.3: Examples of items from the SF-36 general HRQOL instrument:
Using these types of tool can give a much better indication of the impact of the
treatment or service on the patient's QoL than using effectiveness measures.
In the example of the study of lipid-lowering drugs in men aged 45-54 with pre-
existing heart disease, a tool such as the SF-36 health survey could assess the effect
of reducing the incidence of coronary heart disease on the QoL of the patients who
have the treatment.
3-Utility
Utility is a measure of the relative preference for various options.
Utility is the value attached by an individual to a specific level of health or a
specific health outcome.
Different individuals may attach different values to the same health state. For
example, some people may be prepared to tolerate a lot of nausea to allow them
to be pain free. Others may prefer to tolerate more pain and reduce the level of
nausea.
The important concept here is that utility measurement allows patients to
value their health status based on their own preferences.
Like generic QoL measures, utility can be used when looking at groups of
patients who may have different illnesses, and can be used to compare
outcomes in different patient groups.
Utility measures go beyond generic quality of life measures because they enable
quantitative comparison. Simply, utility is used to "attach a numerical value
to the value a person has for a particular health state.
Imagine that treatment A improves a group of patients' health by an average of 6
points on a utility scale, and that treatment B improves a group of patients' health
by an average of 3 points. Treatment A can be said to be twice as effective as
treatment B. However, treatment A might be surgery for a ruptured Achilles
tendon and treatment B might be rhDNase for cystic fibrosis.
This example shows that utility can be used to compare outcomes for very
different treatments in very different patient groups.
The specific methods used to derive utility are complex and are still under
development. They are preference-based, which means that they allow individuals
to indicate the direction and strength of their preference for a particular health state.
Attaching values to health states can be carried out using standard gamble or time
trade-off methods, or a rating scale. The last is rarely used.
A- Rating scale
To understand these methods it is necessary to be familiar with visual analogue
scales (VAS). Figure 4.1 illustrates a typical VAS.
To help you understand this, try the following:
1- Mark on the scale where you think indicates how you feel now.
2- Mark on the VAS where you would value your health state if you had pneumonia.
The difference between (1) and (2) is the difference in your health state, as valued
by you. So, if you had pneumonia, and you were given some antibiotics to cure it,
that difference in health state would be the health gain obtained by the drugs.
B-Standard gamble
The standard gamble is considered by some health economists to be the gold
standard for utility valuation. In this approach, an individual is asked to choose
between the following:
1-The certainty of surviving for a fixed period in a defined health state
(Choice A—livings in health state i (a chronic health state between perfect health
and death) with certainty).
2- Choice B: A gamble between a probability (p) of surviving for the same period
without disability or a probability (1 — p) of immediate death.
The probability (p) is varied until the person shows no preference (is indifferent)
between the certain option and the gamble.
The limitations of the standard gamble are that it is time-consuming, that people
have difficulty understanding probabilities, and that how people value health
states can be influenced by how the questions are phrased or presented.
A variety of other problems with the gamble have become apparent. For example,
treatment of most chronic diseases does not approximate the gamble. There is
no known product that will cure a patient with arthritis or one that is likely to kill
him or her. In other words, the decision-making experience of the patient is not likely
to include an option that has a realistic gamble.
C-Time trade-off (TTO)
The third technique for measuring health preferences or utilities is the TTO method
Figure 6.3. Again, the subject is offered two alternatives.
Alternative 1 is a certain disease state for a specific length of time (t), the life
expectancy for a person with the disease, and then death.
Alternative 2 is being healthy for time x, which is less than t. Time x is varied until
the respondent is indifferent between the two alternatives. The utility score for the
health state is calculated as x divided by t.
For example, a person with a life expectancy of 50 years is given two options:
Alternative 1 is being blind for 50 years, and alternative 2 is being healthy (including
being able to see) for 25 years followed by death. If the person says he or she would
rather be blind for 50 years than sighted for 25 years, the number of years (x) of sight
(healthy state) is increased until the person is indifferent between the two
alternatives. If the person would rather be sighted for 25 years than blind for 50
years, the number of years (x) of sight is decreased until the person is indifferent
between the two alternatives. Let us say that for a person who expects to live 50
more years, the person's point of indifference is 40 years of sight versus 50 years of
being blind. The utility score would be x/t = 40/50 or 0.8.
Figure 6.3: Time trade-off (TTO). This TTO schematic represents the choice a respondent makes
about trading off years of life for better health for a shorter period of time. The respondent is given
the choice of living a full life (to time t) with a specific condition or living fewer years (to time x)
without this condition (being healthy). The time of living healthy is varied until the respondent is
indifferent between living in full health x years and living with the condition for t years. The utility
calculated for the condition is x/t.
5-Preference-based multi-attribute health status measurement
Three main methods are used: Euroqol (EQ-5D), Quality of Well-Being (QWB)
and Health Utilities Index (HUI). EQ-5D is described below.
Euroqol (EQ-5D)
The EQ-5D (1997) is a standardized instrument for use as a measure of health
outcome. Applicable to a wide range of health conditions and treatments.
EQ-5D has five dimensions: mobility, self-care, usual activities, pain/ discomfort
and anxiety/depression. There are three levels per dimension and
respondents/patients describe themselves within this system. The EQ-5D
dimensions are shown in Table 4.3:
EQ-5D Quality of Life instrument (from http://www.euroqol.org):
This means there are 243 possible health states plus unconscious. This is what some
of these health states look like:
Health State 11111 Health State 21111
No problems walking about Some problems walking about
No problems with self-care No problems with self-care
No problems performing usual activities No problems performing usual activities
No pain or discomfort No pain or discomfort
Not anxious or depressed. Not anxious or depressed
Pharmacoeconomic Methodologies:
There is often more than one way of doing something in healthcare.
For example, there may be two different drugs that can be used to treat
depression, or two surgical techniques for the management of dysmenorrhoea.
Note that interventions may be compared against each other (for example
antibiotic A against antibiotic B) or against a 'do nothing' scenario.
There are different ways in which we can choose one of these options. We may
decide to pick the more effective surgical technique, or we may decide to select
the less costly antidepressant.
Economic evaluation is a generic term for techniques that are used to identify,
measure and value both the costs and the outcomes of healthcare interventions.
Economic evaluation is concerned with identifying the differences in costs and
outcomes between options.
It can be defined as a study that compares the costs and benefits of two or
more alternative interventions; so, the main components are costs and benefits.
Types of economic evaluation
There are four main types of economic evaluation (table 1):
• Cost- minimization analysis (CMA)
• Cost-effectiveness analysis (CEA)
• Cost-utility analysis (CUA)
• Cost-benefit analysis (CBA).
Although they employ similar methods to define and evaluate costs, they differ in
the methods used to estimate the benefits from a program or intervention.
Figure 5.3 illustrates how an operation can be shown as a process with inputs
(resources consumed) and outputs (effect on the patient).
Cost-minimization analysis (CMA)
In CMA, the outcome of the treatments being compared is the same. Having ensured
that the outcomes between the comparators are equivalent, then the approach used
is to consider the costs of each option. The preferred option is the cheapest.
Example: suppose two antibiotics, G and C, are equally effective in the treatment
of Pseudomonas pneumonia, according to the current evidence. Therefore, we
should use the least costly alternative. The following assumptions have been
made:
• The two interventions are equally effective.
• We have included all the costs.
A recent economic evaluation of Atenolol versus Captopril in hypertensive
patients with type 2 diabetes reported that there was no statistically significant
difference in life expectancy between groups (Gray et al., 2001). However, the
mean cost per patient over the trial period was £6,485 in the Captopril group and
£5,550 in the Atenolol group. The reduction was statistically significant and
was due partly to differences in drug acquisition prices, and partly due to fewer
and shorter hospitalizations in the Atenolol group. The results from this CMA
would suggest that Atenolol should be used in preference to Captopril in this
group of patients.
Another common example of CMA is comparing medications that are the same
chemical entity, the same dose, and have the same pharmaceutical properties
(i.e. they are bioequivalent) such as brand versus generic or generic made by one
company compared with generic made by another company. In these cases only
the cost of the medication itself needs to be compared because outcome should
be the same.
Another example of CMA includes measuring the cost of receiving the same
medications in different setting. For example researchers could measure the
costs of receiving I.V. antibiotics in a hospital and compare this with receiving
the same antibiotics (at same doses) at home via a home health care service.
CMA is the simplest of the four types of pharmacoeconomics analysis because the
focus is on measuring the left-hand side of the pharmacoeconomic equation (the
cost) and the right –hand side of the equation (outcomes) is assumed to be the same.
This method is limited in use because it can only compare alternatives with the
same outcomes.
Cost-effectiveness analysis
Cost-effectiveness analysis is a technique designed to assist a decision-maker in
identifying a preferred choice among possible alternatives.
Generally, cost-effectiveness is defined as a series of analytical and
mathematical procedures that aid in the selection of a course of action from
various alternative approaches.
Cost-effectiveness analysis has been applied to health matters where the
program's inputs can be readily measured in dollars, but the program's outputs
are more appropriately stated in terms of health improvement created (e.g., life-
years extended, clinical cures).
Cost-Effectiveness Ratios
Results from a CEA are typically expressed as a cost-effectiveness (C/E) ratio;
the numerator of the ratio reflects total costs, while the denominator is the
expression of the outcome variable.
Two forms of the C/E ratio exist: (1) average, or simple, and (2) incremental
(ICER). The average/simple C/E ratio is a straightforward approach, defined as
follows:
Although average C/E ratios provide useful information for analysts, incremental
analyses are considered a hallmark of CEA.
In cost-effectiveness analysis (and cost-utility analysis) you will come across the
regular use of incremental economic analysis. This is a systematic method for
identifying the difference (increment) in costs and outcomes between two
healthcare interventions.
The following questions are always asked:
What is the difference in cost between the interventions?
What is the difference in outcome between the interventions?
The answers to these questions allow the explanation of the incremental cost-
effectiveness ratio (ICER). Incremental cost/outcome ratios may be calculated using
the following equation:
Outcome1 is the number of patients successfully treated with intervention 1.
Outcome 2 is the number of patients successfully treated with intervention 2.
Cost 1 is the cost of treating patients with intervention 1.
Cost 2 is the cost of treating patients with intervention 2.
The ICER expresses the cost required to achieve each extra unit of outcome.
When one alternative is more effective but requires more resources, the ICER must
be calculated. In the situation when one alternative is more effective and less costly,
this alternative is the dominant therapy. When there is dominance, ICERs do not
need to be generated (see Worked example 5.1).
The generation of the ICER allows us to see how much extra cost is incurred
for the extra benefit.
It is then left to the decision-maker to make a value judgment as to whether the
extra benefit is worth the extra cost.
In the example above, the decision-maker must decide whether they think that
the extra case of pneumonia successfully treated with antibiotic C is worth £200.
This is a disadvantage of cost-effectiveness analysis.
Cost-Effectiveness Grid
A cost-effectiveness grid can be used to illustrate the definition of "cost-
effectiveness" (Figure 5.1). To determine if a therapy or service is cost effective,
both the costs and effectiveness must be considered. Think of comparing a new drug
with the current standard treatment. If the new treatment is:
1) Both more effective and less costly (cell A),
2) More effective at the same price (cell B), or
3) Has the same effectiveness at a lower price (cell D),
The new therapy is considered cost effective.
For the middle cell E, other factors may be considered to determine which
medication might be best. For the other two cells (C and G), an ICER is calculated
to determine the extra cost for each extra unit of outcome.
Dominant strategies are defined as offering both lower cost and higher
effectiveness compared with an alternative, while a dominated strategy is one
that costs more than the comparator and is less effective.
Options requiring a trade-off include technologies that present a higher cost with
higher effectiveness or lower cost with lower effectiveness relative to
comparators.
Cost-Effectiveness Plane
A graphical depiction of cost-effectiveness comparisons is also sometimes seen in
the literature. Figure 5.3 is a cost-effectiveness plane.
The point on the plane where the x and y axes cross indicates the starting point
of costs and effectiveness for the standard comparator.
A point is placed in the plane for each alternative to the standard comparator by
indicating how much more or less it costs than the starting point (y-axis) and how
much more or less effective it is than the starting point (x-axis).
If an alternative is more expensive and more effective than the standard
comparator, this point will fall in quadrant I, and a Trade-off is required (i.e., is
the increased cost of the new treatment worth the increase in effectiveness?)
If an alternative is less expensive and more effective, the point would fall in
quadrant II, and the alternative would dominate the standard comparator.
If an alternative was less costly and less effective, the point would fall in quadrant
III, and again a tradeoff would have to be considered. (Do the costs savings of
the alternative outweigh its decrease in effectiveness?).
If an alternative was more expensive and less effective, the point would fall in
quadrant IV, and the alternative would be dominated by the standard
comparator.
Pharmacoeconomics
To illustrate the differences between the simple/average and incremental C/E ratios,
Example One presents two treatments as follows:
Treatment One (a baseline comparator) costs $500 to treat 100 patients and
treatment Two (a new innovation) costs $750 to treat the same number of
individuals.
The effectiveness measure is a final outcome, cure rate; where in 95 percent of the
patients are cured with treatment One and 97 percent of the patients are cured with
Treatment Two.
Calculating the average C/E ratio yields a relatively small difference between
the average costs to treat the patient groups between the two alternatives,
$246.88.
However, an incremental analysis finds the cost of treatment two to be
substantially higher, costing $12,500 to obtain one additional cure.
Cost-Utility Analysis (CUA)
What Is Cost-Utility Analysis?
CUA is a formal economic technique for assessing the efficiency of healthcare
interventions. It is considered by some to be a specific type of cost-effectiveness
analysis in which the measure of effectiveness is a utility- or preference-adjusted
outcome.
Utility is the value or worth placed on a level of health status, or improvement in
health status, as measured by the preferences of individuals or society.
Measurement of health state utilities or preference values is necessary for calculation
of the most commonly used outcome measure in this type of analysis: quality-
adjusted life-years (QALYs) gained.
CUA has some distinct advantages over cost-effectiveness analysis:
Cost-effectiveness analysis is limited by the inability to simultaneously
incorporate multiple outcomes from the same intervention or to compare
interventions with different outcomes.
In cost-effectiveness analysis, although the outcome measure is in natural units
(eg, life years saved), no attempt is made to value the consequence or outcome in
terms of quality or desirability.
In contrast, CUA incorporates the quality of (or preference for) the health
outcome achieved.
CUA, using QALYs gained as the outcome measure, is the most common approach
to combining quantity and quality-of-life outcomes in economic evaluations.
In a cost-utility analysis (CUA) the outcomes of the two alternatives are measured
using utility values, that is, the value attached to the health states produced by the
two interventions. The value may be attached by patients, health professionals or
the general population, but the last is preferred. CUA is actually a form of cost-
effectiveness analysis but utility is used instead of natural units to measure
outcomes.
Cost information:
Total costs to manage the 1000 patients for 1 year using blood transfusions:
£3,128,000.
Total costs to manage the 1000 patients for 1 year using erythropoietin: £5,547,100.
Outcome information:
Utility data for the two alternatives available from the literature suggest that patients
maintained on erythropoietin value their health states at a higher level than those
maintained on blood transfusions. In a study, 100 patients stated that for a treatment
period of 10 years, their utility value for each year (when valued from 0 to 1) on
erythropoietin was 0.80, whereas on blood transfusions it was 0.75.
1. What is the difference in cost between the two alternatives for the 1000
patients?
£2,419,100.
2. What is the difference in utility production of the two alternatives, i.e. how
many extra QALYs are produced by erythropoietin per year of treatment, for
the 1000 patients?
Change in utility = 0.80 - 0.75
= 0.05 QALYs per patient per annum
= 50 QALYs per 1000 patients per annum.
Figure 6.1 illustrates the difference in utility production for the two alternatives.
Figure 6.2 Cost-effectiveness plane for erythropoietin Vs blood transfusions
Pharmacoeconomics
Results from a study suggest that the practice will have cost reductions and the
patients will have improved outcomes (Table 6.1)
The practice has to decide whether to reduce emergency admissions due to asthma
by 10 a year and save £1,000, or reduce emergency admissions due to chest pain by
25 a year at no change in costs to the practice.
How can the GP objectively compare and choose between improving the health
of asthma and IHD patients?
Groups A and B elicit utility values from the 200 asthma and 250 IHD patients. Time
trade-off was used to elicit the utility values and these were used to calculate
QALYs.
The groups obtain the following results:
Asthma patients IHD patients
Mean QALYs before intervention 0.75 0.60
Mean QALYs after intervention 0.85 0.75
Incremental QALY change caused 0.10 0.15
by intervention
The results refer to a 1-year period. The asthma patients improved their quality of
life per year by 0.10 QALYs each. The IHD patients improved their quality of life
per year by 0.15 QALYs each.
Incremental cost-effectiveness ratio (ICER):
If the GP practice funds the IHD service it will cost them £1,000 per year more than
the asthma service, but they will obtain 17.5 more QALYs for their patients.
Several treatments exist to treat fungal toenail infections. Four oral medicines used
are drugs A, B, C and D. The table below shows the costs (£) associated with treating
one patient with each of these four treatments:
You then find some evidence to suggest that two of these agents have differing
effects on patients' quality of life owing to difference in their side-effect profiles.
This evidence is summarized below:
Cost-benefit analysis
Introduction
In a cost-benefit analysis (CBA) the outcomes of the two alternatives are measured
using monetary values, that is, the monetary value attached to the health states
produced by the two interventions. The value may be attached by patients, health
professionals or by the general population, but the last is preferred.
Advantages and Disadvantages of Cost-Benefit Analysis
An advantage of this type of analysis is that many different outcomes can be
compared as long as the outcomes measures are valued in monetary units. The
disadvantage is that placing economic values on medical outcomes is not an easy
task and there is no universal agreement on one standard method for accomplishing
this.
Assume you are a decision maker and you must choose one program from Table 7.1
to implement in your organization.
Assume that you only had cost-effectiveness ratios available to help make the
choice. How would you choose? One can quickly see that it would be difficult to
compare the programs using only cost-effectiveness ratios because of the varying
outcomes (e.g., case prevented, life years saved).
On the other hand, the benefit-to-cost ratios can be ranked, and programs with
similar, as well as dissimilar, outcomes can be compared.
The financial pressures are forcing decision makers to consider the following
questions: Do the benefits of a program or intervention outweigh the costs? And
which program will provide the greatest benefit? CBA is a tool that can be used to
address these questions.
Conducting a Cost-Benefit-Analysis
For example, a clinical pharmacist would like to start an asthma clinic. The
alternative could be to compare the costs and benefits of having an asthma clinic
with not having an asthma clinic. Another alternative could be to compare
implementing an asthma clinic for all persons who had an asthma-related emergency
department visit. A third alternative could be to compare implementing an asthma
clinic with implementing a diabetes clinic.
To illustrate the components of a CBA, we will use the example of an asthma clinic.
The clinic will focus on people with asthma who have had an asthma-related
emergency department visit. These people would automatically be referred to a
clinical pharmacist, who would provide education on managing asthma. These
clinical pharmacy services could include education on triggers, medication
adherence, and the use of peak flow meters and inhalers. In this example, the
alternative will be no asthma clinic. After the program or intervention and
alternatives are identified, the next step is to identify the costs and benefits.
Figure 7.1. Components of cost-benefit analysis (CBA). This schematic represents the types of
costs measured when conducting a CBA. Input costs (the numerator) usually consist of direct
medical and direct nonmedical costs. The benefits of alternatives can include measures of direct
medical and nonmedical costs avoided, indirect costs avoided (measured by human capital [HC]
or willingness-to-pay [WTP] methods) and intangible costs avoided (measured by patient
preferences or WTP methods).
Figure 7.1 shows the basic components of CBA. As shown, there are two categories
of costs, direct medical and direct nonmedical, and three categories of benefits,
direct benefits (both medical and nonmedical), indirect benefits (productivity), and
intangible benefits. CBA can incorporate as few as one category of benefits or as
many as all three of the benefit categories.
In CBA, both costs and benefits are measured in dollar values. For example, in the
asthma program, a cost to the program could be an increase in medical costs related
to visits to the pharmacy. A "cost saving" or benefit as a result of the program could
be a reduction in medical costs for asthma- related emergency department visits.
Various methods have been developed to estimate the monetary value of health
benefits. The two most common methods seen in the pharmacoeconomic literature
are the human capital (HC) approach and the willingness to pay (WTP) approach.
Depending on the type of study, a yearly wage rate or a daily wage rate can be
calculated. A yearly wage rate (income per year) would be calculated for a program
or intervention that would reduce long-term disability or death. For example, a
pneumococcal vaccination program might result in preventing premature death.
Thus, it would be appropriate to use a yearly wage rate and assess the value of the
number of years saved because of the intervention.
A daily wage rate (income per year ÷ by number of days worked per year) may be
calculated for a program or intervention targeted at an acute or chronic illness with
short-term disability. A person may not be adversely affected by the disease state
on a continual basis, but he or she may have short-term periodic disability. For
example, asthma, a chronic disease state, may include episodic asthma attacks. Thus,
a person may only experience problems with the disease state on a periodic basis.
For this type of disease state, a daily wage rate would be calculated. To calculate a
daily wage rate both income and number of days worked per year must be assessed.
We may assume that the average person works 240 days a year when accounting for
weekends, vacation, and sick leave. A formula to calculate number of days worked
per year is.
If a yearly wage rate is calculated, then assessment of the number of years lost
because of a disease or illness must be made. If a daily wage rate is calculated, an
assessment of the number of missed days because of illness must be calculated.
Because many pharmaceutical interventions involve chronic disease states with
intermittent episodes, we will use an example calculating the daily wage rate and
number of missed days. Missed days because of illness can fall into four groups,
(Table 7.2)
Notice that for housekeeping and child care, estimates of productivity loss are
estimated (imputed) even though no payments are directly associated with these
activities.
Using the asthma clinic example, we will calculate an indirect benefit. Assume that
the population served by the clinic is made up of adults with an average income of
$40,000 and 240 days worked per year. The daily wage rate (average income/number
of days worked per year) would be $40,000/240 = $167/day. An average of 20 days
a year were missed from work before participating in the asthma clinic, and an
average of 7 days a year were missed from work after participating in the asthma
clinic. Multiplying the daily wage rate times the number of missed days results in
the value of lost productivity. In other words, the value of 20 days lost from work is
$3340, and the value of 7 days lost from work is $1169. The difference between
before and after the program is $2171, which is the cost savings or the indirect
benefit of the program or intervention (see Table 7.3 for the calculation).
The primary concern with using the HC approach is that it may be biased against
specific groups of people, namely unemployed individuals.
It assumes that if a person is not working, he or she has little or no economic
benefit.
Children and unemployed elderly individuals are two groups with which bias
can occur.
The HC assumption that the value of health benefits equals the economic
productivity they permit may also be biased. The earnings for some individuals
may not equal the value of their output.
For example, there is a large difference between the daily wage rates of a
professional football player compared with that of an elementary school teacher.
Some contend that because the underlying goal of using CBA is to measure
the effect of an intervention on society, the HC approach is meant to measure
the loss of productivity to society.
Thus, wage rates should be based on those of the average population, not the
specific patients included in a study.
Although using general wage rates would not represent actual productivity
losses or benefits to a specific group of patients, it would decrease some of the
limitations of inequity already mentioned.
The HC method also does not incorporate values for pain and suffering if these
values do not impact productivity. There may be certain disease states or
conditions (e.g., menopause, hair loss) that may not impact productivity but do
have an impact on a person's health-related quality of life. For example:
Many women experience problems with menopause, including moodiness,
hot flashes, and irregular cycles.
Although this condition may have a significant impact on quality of life,
most women do not miss many days of work because of complications from
menopause.
Thus, the HC method would not be sensitive enough to capture the benefits
of a pharmacist-provided menopause clinic.
But although biases exist with this method, it is the most commonly used
method to measure indirect benefits.
Willingness to Pay Method
The WTP method can value both the indirect and intangible aspects of a disease
or condition.
The WTP method determines how much people are willing to pay to reduce the
chance of an adverse health outcome.
The WTP method is grounded in welfare economic theory, and it incorporates
patient preferences and intangible benefits such as quality of life differences.
WTP values can be collected through face-to-face interviews, mail, telephone, or
via the Internet.
Respondents are then asked to value the health care intervention in a dollar
amount.
Measuring WTP should include two general elements, a hypothetical scenario
and a bidding vehicle.
Hypothetical Scenario
The hypothetical scenario should include a description of the health care program
or intervention (e.g., medication therapy, management program, or new drug
therapy).
The aim of the scenario is to provide the respondent with an accurate description
of the service that he or she is being asked to value. In addition, the scenario
should detail the amount of time the person should expect to spend, as well as the
benefit (e.g., percent improvement in the condition) of the intervention.
An example of a hypothetical scenario for the asthma clinic might read:
Asthma Clinic Scenario
Patients with asthma have improved their condition by learning more about their
disease and by taking their medications as directed. Pharmacists can help people
with asthma understand their condition and the medications used to treat it. In
addition, they can:
1-Help you learn how to use a peak flow meter and an inhaler.
3-Help you recognize and handle situations when asthma attacks occur.
4-Monitor your asthma by keeping a record on file and following up with you-
on a regular basis to assess your progress.
Bidding Vehicles
After the program or intervention has been adequately described, respondents are-
then asked to "bid," or place a value on the program or intervention. Bids can be
obtained through a variety of formats, such as open-ended questions, closed-ended
questions, a bidding game, or a payment card. Below is a brief description of each
of the methods.
Open-Ended Questions Open-ended questions simply ask respondents how
much— they would be willing to pay for the program or intervention. This question
would immediately follow the hypothetical scenario. Here is an example:
What is the maximum amount that you would be willing to pay for a 1-hour
consultation with a pharmacist? --------------------------------------------.
This method is used the least because it results in WTP values that vary widely.
Many people do not know how to value health care programs because they do not
normally pay the full amount out of pocket. The other methods discussed later
provide respondents with more guidance in determining their maximum WTP.
Pharmacoeconomics
This method more closely resembles the marketplace. When consumers shop
for products, they must decide based on the price of the product whether to "take-it-
or-leave-it."
One drawback to this method is that only one question is asked, so only one
WTP value can be elicited from a respondent. Thus, a very large sample would be
required to determine the overall WTP value.
Bidding Game The bidding game resembles an auction in that several bids are
offered to reach a person's maximum WTP. Before soliciting a second response, the
bids are adjusted based on the first response. This iteration could go on a number of
times, but it is suggested that three times is optimal. Here is an example:
Would you be willing to pay $60 for a 1-hour consultation with a pharmacist?
__________________ If yes, ask: "Would you be willing to pay $80?"
__________________ If no, ask: "Would you be willing to pay $40?"
This method is useful to try to arrive at a person's maximum WTP value. It is time
consuming and is best conducted via a face-to-face interview or over the Internet. In
addition, the WTP values can be biased depending on how high (or low) the first bid
is. This is called "starting point bias".
Payment Card The payment card method provides the respondent with a list of
possible WTP amounts (i.e., payment card) to choose from. Here is an example:
What is the maximum amount that you would be willing to pay for a 1-hour
consultation with a pharmacist? Please circle your choice.
$150 $90 $30
$130 $70 $10
$110 $50 $0
This method is very easy to use and it provides respondents with a range of
values to choose from. The advantages of the method can also result in
disadvantages:
Providing respondents with a range of values can bias their WTP values. The
range provided can "suggest" the value of the intervention and can influence what
respondents say.
Also, "range bias" can influence the WTP amount. For example, if the range
of values was from $0 to $75 versus $0 to $150, the respondents' WTP amount can
vary depending on which range or starting point was provided.
Table 7.4 shows the net and ratio calculations for both proposals. Although four
calculations are shown in the table, the benefit-to-cost ratio (when compared with
the cost-to-benefit ratio) and the net benefit calculation (when compared with the net
cost calculation) are used most often because the higher the result, the more cost
beneficial an option becomes.
Using the criteria outlined above for cost-beneficial programs, it is apparent
that both programs are cost beneficial using both the net and ratio methods of
calculations. However, when comparing net calculations, proposal B is more cost
beneficial than proposal A (net benefit = $2500 versus $1000), but proposal A is
more cost beneficial than proposal B (benefit-to-cost ratio = 2.0 versus 1.5) when
using ratio calculations.
In this example, in which both proposals are cost beneficial, the decision maker may
consider other issues, such as the amount of money available for investment.
Whereas A would require $1000 input costs, proposal B would require $5000.
Another consideration may involve the return on investment. Proposal A, with a
2:1 benefit-to-cost ratio, has a higher return than proposal B (i.e., 1.5:1 benefit-to-
cost ratio).
يعود دوالرينProposal A اي ان الدوالر الواحد المصروف على
يعود دوالر ونصفProposal B وان الدوالر الواحد المصروف على
A third consideration is the actual net benefit amount. Proposal B has a higher net
benefit than proposal A ($2500 versus $1000).
Using cost-benefit analysis to allocate resources to different services
Worked example 7.1 shows how WTP can be used in a CBA to generate net
benefit. However, in that example we were trying to decide between two ways of
treating the same illness. We could also have used a common outcome such as the
presence of anemia, and the resulting economic evaluation would have been a CEA
(see 5, worked examples).
It is more difficult to compare two healthcare interventions that do not have
comparable outcome measures. CEA cannot be used in this situation, and we have
to use an outcome measure that can be used across different diseases, such as WTP.
CBA can be used to generate net benefit in different disease areas, and so diseases
with different clinical outcomes can be compared. This means that CBA can be used
to allocate resources to different services. Worked example 7.2 illustrates how this
can be carried out.
Cost-Benefit or Cost-Effectiveness Analysis
Cost-benefit and cost-effectiveness analyses are useful tools for assessing the
clinical economic impact of medical care programs or interventions. There are,
however, several important distinctions between the two approaches.
Principles of probability
The sum of probabilities of all possible outcomes of a chance event is always 1.
If the probability of an antibiotic successfully treating a case of pneumonia is 0.8,
then the probability that it will not work must be 0.2.
There may be three or more possible outcomes of a decision. For example, the
possible outcomes of a total hip replacement operation may be survival with
improved mobility, survival with no improvement in mobility, or
perioperative death.
If the probability of perioperative death is 1% (0.01) and the probability of
survival with improved mobility is 85% (0.85), then the probability of survival
with no improvement in mobility must be 14% (1 - (0.01 + 0.85) = 0.14).
•
4. Chance nodes : these are uncertain events and will have probability values
attached to them.
5. Outcome/time horizon ◄: the outcome being used must be defined and the
point at which evaluation ends (time horizon).
The decision tree in Figure 8.1 shows two alternatives for treating urinary tract
infections (UTIs).
The starting point is the patient group who has been diagnosed with a UTI that
now needs to be treated. At the decision node, the policy decision is whether to treat
this group of patients with the standard current treatment (drug T) or whether to use
a newer, more costly agent, drug C.
There is no 'do nothing' option here because current practice is to treat
symptomatic UTIs, to alleviate symptoms, and also to prevent complications such
as pyelonephritis. It would, however, be possible to include more antibiotics in the
model and have more arms in the tree, if it were felt to be necessary.
The probabilistic event here is whether or not the antibiotic is successful in
treating the infection.
Figure 8.2 show decision tree for the treatment of depression using selective
serotonin-reuptake inhibitors (SSRIs) or tricyclic antidepressants (TCAs).
It would also be possible to expand the tree by including the probabilistic events
of side effects and withdrawal from treatment. The endpoint of the evaluation is
whether the antibiotic is successful or not, and the time horizon would probably be
quite short -about 7 days in this intervention.
Another example:
Step 4: Specify Possible Costs, Outcomes, and Probabilities
For each option, information should be obtained for the probability of occurrence
and the consequences of the occurrence.
Probabilities are assigned for each branch of the chance nodes, and the sum of
the probabilities for each branch must add up to 1.00.
Consequences are reported as monetary outcomes, health-related outcomes, or
both.
Table 9.1 lists these data for the antibiotic example.
Table 9.1. Estimates for the antibiotic example
Antibiotic A Antibiotic B
Probability of clinical success 90% 80%
Cost of antibiotic per course of therapy $600 $500
Probability or adverse events 10% 15%
Cost of treating adverse events $1000 $1000
For patients taking antibiotic A, the costs can range from $600 (for medication and
no adverse events) to $1600 (for medication and treatment of adverse events), the
average cost is $700 per patient. Similarly, for patients taking antibiotic B, the costs
can range from $500 (for medication and no adverse events) to $1500 (for
medication and treatment of adverse events), and the average cost is $650 per patient.
These calculations show that antibiotic B is less expensive even when including the
costs of treating adverse events. But because antibiotic A is a better clinical option
(higher probability of success and lower probability of adverse events), decision
makers could use the incremental cost-effectiveness ratio (ICER) to determine
whether to add antibiotic A to the formulary. The calculated ICER would be:
If it is decided that each extra successful outcome is worth at least $500 (patient
discharged from the hospital faster, prevention of second round of treatment costs
with another antibiotic, and so on), then antibiotic A would be added to the
formulary.
The additional cost of treating a patient who withdraws from either drug per year is
£ 500.
Figure 8.3 shows the decision-analytical model for this intervention. The
information above allows us to calculate how many of the 200 patients will go down
each arm of the model. We also know how much each arm costs for one patient.
Therefore, we can calculate how much each arm costs in total
Markov modelling
A simple decision tree may not be capable of modelling chronic disease states. A
model trying to represent a chronic disease, such as relapsing-remitting multiple
sclerosis must be capable of reflecting changes in and out of health states. These
may be referred to as random processes that evolve over time. They are random
because we do not know when they will occur in the disease progression. Markov
models are particularly useful for representing the use of interventions to manage
chronic health states.
A decision-analytical model may become unnecessarily complex, as patients will
move in and out of health states many times. An alternative method for presenting
these events is shown in Figure 8.4.
This shows a simplified version of what can happen to a person with relapsing-
remitting multiple sclerosis. When they are symptom free there is a probability they
will have a relapse, stay symptom free or die. When they are experiencing
symptoms, there is a probability they will become symptom free, the relapse may
continue, or they may die. When a patient dies, they cannot return to the other health
states. Therefore, death is referred to as the 'absorbing' state.
Markov models therefore simulate the natural history of a chronic illness such as
multiple sclerosis in a population of patients over a period of time, and its associated
risk of relapse, remission and death.
The population of patients moves through the model over time. The model will
estimate how many patients are in remission, have relapsed or have died at any given
time. Probabilities of moving from one state to another will be obtained from clinical
data sources.