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Pharmacoeconomics: What Is It and Why Do We Need It?

What does it mean to have a pharmacoeconomic outcomes component in randomized trials or observational studies? And why is its role in the pharmaceutical and clinical trial industries crucial?

Pharmacoeconomics simultaneously compares the costs and outcomes of a new drug or new technology to existing practice. The costs are those associated with the drug or device itself, the cost of medical care or equivalent (e.g., surgical implantation, technician administration, etc.), other personnel required (e.g., nurse, physiotherapist, occupational therapist, etc.), laboratory tests (e.g., x-rays, NMR, PET scans, or blood/urine testing), and any other associated costs. Outcomes can be clinical, such as cures, successes, hospitalizations avoided, deaths avoided, or quality of life of the patient. In summary, pharmacoeconomics compares a drug with another treatment with respect to both its costs and its outcomes.

The biopharmaceutical industry needs this information first to evaluate even the advisability of pursuing a certain treatment path (see "Bridging the Gap Between R&D and Marketing"). After a decision is made to develop a candidate drug, pharmacoeconomic studies establish the suitability of the drug for acceptance onto formularies; to evaluate pricing relative to benefit for economic evaluation; to position its drug relative to competitors; and to sustain a drug’s value throughout its life cycle. Studies can be constructed to evaluate drugs across disease states from universal (all diseases, disorders) to body system (CNS, GI, cancer) to specific disease state (diabetes, breast cancer, arthritis). They can provide the pharmaceutical industry with various levels of analysis from global (macro level/broad) to group (intermediate) to patient (micro level/specific).

Study structures
There are several types of pharmacoeconomic studies:
• Cost effectiveness analysis in which costs are reported per clinical outcome, i.e., outcomes determined in clinical unit, such as cure or response, or avoided morbidity or adverse drug reactions;
• Cost utility analysis in which the outcomes are reported as Quality Adjusted Life Years or QALYs, determined by multiplying the quantity of life years gained or saved by a measure of quality of life;
• Cost benefit analysis which reports both costs and outcomes in financial or monetary values;
• Cost minimization analysis which assumes clinical equivalence between the various comparators, hence focusing on differences in costs.

However, sometimes, we include in “pharmacoeconomics” other types of economic studies without comparisons or without clinical outcomes. That is the case of Cost of Illness studies, which determine the costs incurred in a given disease condition and its treatment, and Cost Minimization analyses, which determine costs of two or more comparators after establishing clinical equivalence.

Below are definitions and examples of the various types of outcomes used in pharmacoeconomics:
• Economic, which are outcomes that measure items that have underlying monetary value, employment, goods or services and the dollars equivalent;
• Clinical, which focus on the disease and quantify or valuate the number of cases produced (e.g., number of patients affected by a particular condition or the number of adverse drug reactions [ADRs] caused by a particular pharmaceutical drug);
• Humanistic, which are outcomes that focus on person-patient feedback. The valuation garnered by such intervention could provide valuable data to the industry in the areas of health status, life years lost, early deaths, QALYs (quality adjusted life-years) and time lost and even pain and suffering.

Quality of Life or looking at the humanistic side of a patient is an often neglected aspect of a clinical trial. That is a combination of the physical/mental state of the patient, duration of time spent in that state, and the value (utility) that is associated with being in that state. This is a major outcome that is often measured in pharmacoeconomics.

Another major “pharmacoeconomic” component, as presented above, is the determination of QALYs. It is the calculation of both quality and quantity of life. It is used more and more in pharmacoeconomics, in what is called cost utility analysis. The results of that type of study are presented as cost per QALY gained.

This approach would enable comparison between not only various drugs or interventions, but also across disease areas. It would allow decision makers to allocate overall budgets, based on improved cost-effectiveness both for treatments and target diseases. This type of analysis requires collection of preference-based quality of life data in order to determine utilities, which in turn, would help calculate QALYS.

Study timing
The pharmacoeconomic analysis can be done at any time during the product life cycle, that is, as it is being developed, when it hits the market, or after it has been on the market. The most effective and efficient approach is to do the analysis alongside or within the clinical trial that demonstrates clinical efficacy. Doing it later costs more and requires a lot of estimation or simulation to make up for items that were not measured before. Moreover, modeling may be required if pharmacoeconomic outcomes have not been collected in a trial. In fact, this latter design is the most common because unfortunately many the vast majority of trials are planned and performed without pharmacoeconomics in mind.

A 'MARKOV DECISION TREE' IS A TYPE OF PHARMACOECONOMIC MODELING FOR ECONOMIC EVALUATIONS OF CHRONIC DISEASE AND OTHER HEALTHCARE INTERVENTIONS. credit: PharmIdeas

Whichever approach is used, the results are similar. There is a comparison of costs and outcomes of new versus old pharma, device or intervention. In that way, all components can be combined into a single value or set of values. Thus, the added value of the new product can be assessed.

So, the pharmacoeconomic outcomes component would involve the identification of resources used in implementing a new technology, drug, or program, then quantification of that usage, then attaching costs to them. At the same time, patient outcomes would be measured. Clinical outcomes would be extracted from patient charts, and quality of life would be assessed through questionnaires. Data would then be analyzed and interpreted.

Calculations are done for the drug of interest. However, a very important component is the budget impact analysis. Some drugs may be expensive, impacting the drug budget but may, at the same time, offset other costs (e.g., allow transfer from a hospital to homecare). Thus, the total impact is calculated and projected annually into the future (usually 3-5 years).

Regulatory interaction
The importance of a pharmacoeconomic outcome components to clinical trials and the pharmaceutical industry as a whole are shown in the fact that pharmacoeconomics is now required in many jurisdictions throughout the world as evidence of cost-effectiveness. It is mandatory in Australia, Canada, Great Britain, most of Europe, and by many HMOs in the US. Oftentimes, without evidence of cost-effectiveness in the form of a pharmacoeconomic analysis, new products will not even be considered. So, in these and an ever-increasing number of other places, it is absolutely essential.

It is only a matter of time before all of the US will require such evidence, especially with the continued projected increase in the cost of health care services and the amount of dollars being pumped into research and development in the increasingly competitive pharmaceutical industry. So pharmacoeconomics can transcend geographic areas and be commonly utilized all around the world to achieve a common outcome measure on a specific pharma product. Global data that can be obtained by doing this type of analysis is usually prevalence data, cross section of costs or burden/cost of illness.

Pharmacoeconomics also presents another powerful advantage in marketing. If such analyses are done, the company can use the results to promote their products as cost-effective. Without the proper evidence, that cannot be done; otherwise it is misleading and in some cases fraudulent to even mention “cost-effectiveness.” In today’s world, we have the requirement of evidence-based practice, which started in medicine, but now applies to all healthcare fields. Evidence is needed to support all claims. Pharmacoeconomics provides the highest level of evidence that is accepted by health authorities worldwide.

Pharmacoeconomic analyses are performed from a specific analytic perspective. That is because what one person views as a cost, another may see as a source of income, and vice versa. It depends on the reimbursement mechanism. However, models are easily adapted to change perspectives, and sometimes perspectives can be identical.

While studies are conducted that do not answer all the pertinent components of an in-depth economic study, ideally there are points that should be addressed and or incorporated into the overall design to truly have a proper economic analysis. For example an ideal study should clearly answer the following questions:
• Study Aim (Objective or Purpose)
• Sample (types of patients) selection
• Analysis of alternative therapies/interventions
• Analysis of perspective (patient, hospital, insurer, society at large)
• Analysis type (cost benefit, cost effectiveness, cost utility, etc.)
• Measurement of outcomes/benefits (as defined by the study parameters)
• Measurement of costs.

Once we have made sure we have included or addressed the components necessary to move forward with the collection of the data in a clearly defined way, our objective must then make sure to address the final segment of the study: analysis of results. A complete study will discuss the findings, and also the limitations imposed by the study parameters.

In the ever changing world of pharmaceuticals, it is no longer enough to simply say a product “works.” The efficacy of a medication or intervention must be compared and weighed against other factors such as those mentioned above. By looking at the whole patient and the cost associated with treating their condition from a humanistic, economic and clinical perspective we can then help shape the environment for the benefit of all. PC


    ABOUT THE AUTHORS


Michael Iskedjian is president of PharmIdeas (U.S. office: 25 Northpointe Parkway, Suite 700, Amherst, NY 14228; www.pharmideas.com), which he founded in 1994. He holds a BPharm degree from the University of Montréal, an MSc (Pharm. Admin.) degree from the University of Toronto, and is completing studies for a PhD. He has extensive experience in both pharmaceutical practice (as manager and owner) and healthcare research (in both academia and consulting) spanning over 20 years. At PharmIdeas, the research and consulting company he founded, he has covered. He has published 39 peer-reviewed articles, 50 abstracts, and has given 86 presentations at medical and scientific meetings. Michael also joined the faculty of the State University of New York at Buffalo as a Research Associate Professor under the Biostatistical Department and the School of Public Health.














Amy Hayward is assistant director at PharmIdeas. She brings over 15 years of multi-faceted experience to the PharmIdeas team, with project work at a global clinical data-management company, including organizing multi-nation Phase II and III trials. She has managed the successful use of multiple mediums in data collection which have included patient interviews, telephonic, web based, desk top and interactive voice-response systems. Amy has a BA in business administration, and is pursuing a masters in public health.