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149 Cards in this Set

  • Front
  • Back
assumptions of econ
• Scarcity
• Choices
• Goals
• Rationality, uses as if argument
• Aggregation of preferences--microeconomics, macroeconomics
• Ceteris Paribus
 Change in price or quantity supplied:
move along the curve
 Moral hazard (“hidden action”) is an example
• When health insurance lowers the cost of health care, patients will increase their consumption
 Evidence in health care; RAND Health insurance experiment
• Demand for mental health more elastic than for medical care, tend to “over-consume” (=beyond positive marginal benefit) mental health care
 ELASTICITY of Demand
 Slope of the demand curve, indicated sensitivity of quantity demanded to changes in price (% change P / % change Q)
 Elastic: flat, sensitive
 Inelastic: steep, not at all sensitive
 Other types of elasticity
 Income (Normal good, inferior good)
 Cross-price elasticity: how a change in one good’s price affects the quantity demanded of a different good
subsitute
• (e.g coffee and tea) market demands move opposite. Decrease in price of coffee causes increase in demand for coffee, decrease in demand for tea. Decrease in price of Rx decrease demand for hospital stays. MED COST OFFSET
complement
• (eg. coffee and cream) market demands move together. Decrease in price of coffee increases demand for coffee and increases demand for cream. E.g. Medicare decrease price of office visits, increased demand for Rx drugs.
 Change in price or quantity supplied:
move along the curve
Shocks to Demand: Examples:
Shocks to Demand: Examples: Aging pop, greater income (indiv or aggregate), physician-induced demand, tastes/preferences (fads), advertising direct-to-consumer (DTC)
what is a shock to supply or demand do the curve
move the curve
Perfect" Competition: 4 main characteristics
buyers/sellers are _many___
goods are _similar___
information is _complete___
entry/exit is __open__
Violations of competition in medical care/pharmaceutical care/health care systems, some due to regulation
buyers/sellers are _few___
goods are _unique___
information is _incomplete___
entry/exit is __limited__
Case: What determines pharmacist salaries and job opportunities in a given local market?
Shock 1: More Schools of Pharmacy, graduating more PharmDs in any given year

Shock 2: Change in Medicare reimbursement makes PharmDs a more integral, efficient, and specialized part of the health care team, for example for delivering immunizations
Q: Who prices drugs?
Q: What does it mean to say that drugs are priced at “what the market will bear?”
Monopolistic supply, pricing (during brand phase of an innovator drug)

 Contributes to price competition by creating more elastic demand.

 Marginal Cost assumed to be small and constant, eg 1.00 per pill, so MC horizontal.
 MC=Supply (no explicit market supply curve) because of monopoly power

 Profit maximizing price falls. Purchasers benefit from the introduction of substitutes: more choice, lower prices.
Pharmacoeconomics
is the scientific discipline that assesses the overall value of pharmaceutical health care products, services, and programs. Of necessity, it addresses the clinical, economic, and humanistic aspects of health care interventions in the prevention, diagnosis, treatment, and management of disease. Pharmacoeconomics thus provides information critical to the optimal allocation of health care resources. The field encompasses experts of health economics, risk analysis, technology assessment, clinical evaluation, epidemiology, decision sciences, and health services research (International Society for Pharmacoeconomics and Outcomes Research Book of Terms).
Cost-consequence analysis (CCA)
Multiple outcomes in natural units (“consumer report”)

products and alternatives
listing benefits and risks
Cost-effectiveness analysis (CEA)
Single outcome
1. Intermediate: blood pressure
2. Final: life years gained
Cost-utility analysis (CUA)
Multiple outcomes combined into weighted index (QALYs)
Cost-benefit analysis (CBA)
i. Monetary values (willingness to pay)
ii. Contingent valuation
iii. Conjoint analysis
Quality adjusted life years (QALY’s):
i. Most therapies have multiple heath consequences
ii. Trade-offs
iii. between survival and quality of life (e.g., chemotherapy)
Trade-offs
iv. Policy makers need to compare across diseases between different aspects of health (e.g., depression and dry mouth from drug therapy)
v. QALYs and cost-utility analysis
ICER=
change in total cost/change in QALY= (Ca-Cb)/(Ea-Eb)
Incremental cost-effectiveness ratios (ICER):
Ratio of difference in cost to difference in effectiveness
Framing the question:
i. Viewpoint of study determines which data to collect (e.g.)
i. Hospital
ii. Health Care System
iii. Society
ii. Time horizon of study should be long enough to capture main costs and effects
what quadrant is a new more effective treatment but more costly treatment in
NE
moderate-strong evidence for adoption
what quadrant does an existing treatment fall in
NW
there are additional costs with no additional health outcomes

compelling evidence for rejection
what quadrant dose a new treatment that is less costly and less effective fall in
SW
moderate-strong evidence for adoption
what quadrant does a new treatment dominat
SE
less cost, more effective
compelling evidence for adotion
TWO MAIN APPROACHES TO ECONOMIC EVALUATIONModelsTrials
models (cohort model, tornado diagram)
and tables
Cost effectiveness vs. budget impact and affordability
i. Two drugs can have the same incremental cost-effectiveness but very different budget impact
ii. Payers consider affordability as well as efficiency
iii. Some jurisdictions set agreed forecast usage with drug manufacturer
“Leakage”: should you restrict usage to those patients where CE is most attractive?
i. Cost effectiveness of a drug depends on when, how and in whom it is used
ii. Example: COX-2 in low risk patients are not good value for money
iii. General reimbursement means that usage can be non-specific and “leakage” occurs
iv. Restriction policy: limited use criteria where physician must request permission to prescribe

population vs. patient what is the distribution of QALYs
Silo thinking and the income-expenditure identity
i. Budgets as silos
1. E.g. pharmacy vs. medical insurance budgets
ii. Identity: every expenditure is somebody’s possible income

thinking about efficiency and patient pop
Conclusions:
Conclusions:
i. Increasing demand for economic evaluation
ii. Payers focus on value for money
iii. Economics helps but it does not make decisions
iv. Evidence from trials and the need for models
v. Emerging role of pragmatic trials with CE
vi. Patient-centered outcomes; QOL, utility
vii. Need for transparency of studies
viii. Need to educate consumers of studies
Cost of Illness:
Total lifetime cost of a disease state, conditional on incidence in a given year in a given place
• Aggregate, national information in a year
• Useful for policy decisions in public, private context
• Can be used to estimate relative burden of disease worldwide
• Cannot help make individual treatment decisions
Direct Medical Costs:
Costs paid for medical goods and services
 From Claims records "paid claims"; billing records; Average Wholesale Price (AWP); budget line items back estimated; using menus like the Medicare Prospective Payment System based on DRGs
 Typically Expenditures used as "Cost" estimate
 Medication--supply and administration
 Provider visits
 Hospital stays, ER visits
• NOTE: Who pays each cost? Distributional Effects
intervention cost (12 visits, etc)
methadone dosing and administration
 Direct Non Medical Costs:
Costs paid for expenses related to obtaining treatments, but are not the treatment itself
 Travel, child care costs
• NOTE: Who pays each cost?
 Indirect Costs:
 Time off work, reduced productivity, lower job level due to limitations in health
• NOTE: Who pays each cost?
Cost Minimization:
Simply compare costs of two alternative treatments that are therapeutic equivalents
• Goal: ID least expensive alternative
• Assumes away differential efficacy
Define Efficacy
whether something can work, under controlled, ideal conditions, in a test designed to maximize the measurement of causality (double-blind, placebo controlled randomized trials)
Define Equivalence
Therapeutic equivalence (non difference in efficacy study
Cost Benefit
Cost Benefit: Compares the dollar costs and benefits of two or more alternatives
• Outcome is Net Benefit (Benefit minus Cost), some a Benefit-Cost Ratio
• Societal Perspective
Intangible costs):
counted as benefits! Typically as quality of life (satisfaction, pain, suffering)
• Total Benefits:
" In Work, In School, Out of Trouble"
Value of "drug-free days"
Value of LESS/REDUCED substance use?
Value of reducing drop out, reducing absences at school, graduation
Value of paid employment, level of work/wage, years in the market
Value of costs of prosecution
Costs of incarceration/crime to get money for illegal drugs
Victim costs$$$$
Increased employment, increased taxes
Reduced public assistance like food stamps
Public paid benefit to program=
COST!
• Watch for double counting costs as benefits/vice versa, especially at the societal level
Cost effectiveness:
conomic evaluation whose goal is to identify, examine, and compare the relevant costs and consequences of competing drug regimens and interventions.
• Costs are expressed in monetary terms; Consequences measured in natural units, e.g. lives saved, cases cured, years of life gained.
• CEA results express as costs per cases cured, costs per infection avoided etc.
o clinical measures of effectiveness described specific clinical objectives
• CEA is limited to comparing 2 programs/tmts where the outcome is the same and it is the primary outcome e.g. two types of antihypertensives since main goal is to reduce blood pressure, or to prevent excess mortality
o if the goals are disparate, you must go to the broader CBA
• Used when comparator treatment is more expensive and more effective (with the additional benefit worth the additional cost); less expensive and at least as effective as the alternative; less expensive and less effectiveness in instances where the extra benefit provided is not worth the additional expense.
Cost effectiveness can be thought of as ____ for money
value
Does not mean the least expensive or the most effective (independently), considered in combination.
Term is commonly misused. "Cost Effective" is NOT:
• the results of a partial economic analysis that compares costs only
• Refers to a clinically better treatment
Comparative Effectiveness:
Comparing two or more (relevant) alternative treatments in usual care settings to compare effectiveness of treatments.

Main characteristics:
 "head-to-head" comparison of active treatments (no placebo)
 Not in highly controlled settings or for a highly selected population
 Could be non-randomized (observational) or randomized
 Could be prospective or retrospective
Inflation: % change in price over time
Generally increasing prices: Inflation= X (1+i)t
X= value in past
i=inflation rate
t=time periods
 Consumer Price Index
market "basket" of goods and services
 Wage/Prince Index
reflects local market conditions
 Other Types of Price Indices:
Bureau of Labor and Statistics (BLS) overall and industry-specific indices
 Producer Price Index
 Food and Energy Indices (and CPI less food and energy)
 Other Types of Adjustments: Seasonality
 Adjusted "takes out" effects of price changes associated with changes that occur at the same time, and in about the same magnitude, every year
 e.g. changing climactic conditions, production cycles, model changeovers, holidays, and sales
 Unadjusted data are of main concern to consumers = prices paid
 Also used for negotiations of rates such as premium increases, pension plans, collective bargaining
PV=
(present value)
Value / (1+r)t
t=period/time determined by project, could be year, or month
r=discount rate could be determined empirically based on other projects, or suggested/given in guidelines from professional organizations; often 3-5% range, somewhat mirroring inflation.
what 2 quadrants do you not compute ICERs for
NW and SE
because there is a - cost per QALY gained

end up with a - ICER
Steps to Conducting or Critiquing CEA
1. Define the problem--perspectives! Determine which costs to include (costs to whom?)
E.g. if from the payer perspective, would not include indirect productivity costs to patient
2. Identify treatment alternatives and cost-effectiveness outcomes
Make sure you include relevant alternatives, don’t leave out major comparisons
3. Select a study design—trial or other data source vs. simulation/models
Usually depends on your circumstance (accessibility of data) but should be driven based on the best available evidence.
4. Select, identify, and measure costs and clinical inputs
Measuring and valuing costs and clinical inputs —inflation (costs), discounting depending on time horizon
5. Report results
Transparency, replicability (to allow further studies to either refute or support the findings)
• Table 2 – disaggregate results on costs and consequences as well as incremental cost-effectiveness ratio (ICER)
6. Sensitivity Analysis--vary parameters to see how sensitive your conclusion is to your assumptions.
Robust results don’t change qualitatively as you vary key parameters
• Figure 2 – One-way sensitivity analysis (tornado diagram)
7. Limitations
in a tornado diagram what does the biggest bar indicate
makes the most influence on the ICER
6. Sensitivity Analysis (continued
Ways to assess uncertainty in the model inputs: One-way sensitivity analysis, Probabilistic Sensitivity Analysis -> Cost-Effectiveness Acceptability Curve and Value of Information Analysis.
88,500
89,000
89,500
90,000
90,500
91,000
91,500
92,000
92,500
93,000
-0.10
0.00
0.10
0.20
0.30
0.40
0.50
0.60
Incremental costs
Incremental QALYs
Cost-effectiveness Plane

changing more than 1 input at a time
distribution of incertainity
Cost-Effectiveness Acceptability Curve
generated by sensitivity analysis
plots giving the willingness to pay and be cost effevtive
want above 50% (that is where it always intersects)
There will always be uncertainty in the decision to adopt a new intervention. This uncertainty suggests there is a chance that the supported alternative was the wrong choice.
DEFINITION of Expected Value of Perfect Information (EVPI):
The expected opportunity loss of making the wrong decision. Since fully eliminating the uncertainty in any given parameter is not practical and only occurs with infinite sample sizes, EVPI can be thought of as a ceiling value for the cost of further research.
7. Limitations:
Study limitations should be noted and discussed. Results should be compared to other estimates in the literature (if available). Analysts should shy away from suggesting that a particular product is “cost-effective.” This determination should be reserved for decision-makers.

other CEA in the same area should be compared
shock to supply
new tech, shock to input market (flood or shortage), tax breaks
MC= (monopoly)
supply because monopoly power
Prevention is _____ beneficial to hospitals on to ___________
not
healthplans
decision analysis
a systematic approach to decision-making under uncertainty that permits: (1) a structure to the decision, (2) consequences for each alternative, and (3) assessment of degrees of uncertainty.

defining the decision and estimating costs and outcomes

one way to get at cost effectiveness
Why do Decision Analysis?
• Making real-world decisions often involves assessing the probability and value of multiple outcomes
• It is difficult to evaluate complex decisions
• Decision analysis allows for the incorporation of data from multiple sources, makes assumptions explicit, and quantifies the decision parameters
When to Use a Decision Analysis:
• There should be some uncertainty about the appropriate clinical strategy
• Clinical trial may not include all outcomes
• Different levels of risk have not been evaluated
• The interventions to be compared should have tradeoffs
oEffectiveness vs. cost
oBenefit vs. risk

can list out all alternatives not just puts info together from many sources to get outputs
Step 1. Identify and Bound the Problem (DA)
•What is the decision problem; what is the research question?
•What are the potential alternative actions?
•What are the events that follow the decision? (pieces along the way that get us to our outputs)
How complex should a decision tree be?
•Key factors that impact cost-benefit must be included
•But an model that is unnecessarily complex may be ineffective for influencing decisions
•Model structure is usually data driven
•Model building is an iterative process

more complex=more assumptions
Step 3. Gather the data (DA)
•Conduct systematic search where appropriate
•Can use RCT’s, meta-analysis, expert opinion, etc.
•Use best estimate for “base-case” analysis
•Use 95% CI’s or ranges for sensitivity analysis
Step 4. Analyze the tree (DA)
• Calculate expected value of each strategy
• Also referred to as “rolling back” or taking the average of the tree
• Start at terminal node and multiply probabilities as you trace tree to origin to get probability of outcome
• Sum weighted outcomes for each strategy
Step 5. Run Sensitivity Analyses (DA)
• Perform 1-way sensitivity analyses on all inputs (parameters) to debug tree
• Vary probabilities from 0 to 1; response of model to changes should be logical
• Set all costs/outcomes to zero; strategies should have same expected value
Limitations of Decision Analysis:
• Difficult to model long-term time horizons
• Framework is not very dynamic (cannot easily model progression of disease or transitions from one health state to another)

ex: DM--> things don't happen instantly so would want time verizon included
Other Methods for Modeling Cost-Effectiveness:
• Markov Model (Population-level health state transition model) – good for chronic diseases
• Discrete Event Simulation (Patient-level disease simulation model) – best for complex diseases where there is heterogeneity in the study population that drives varying risk of consequences. Often, patient-level data and analyses are needed to build a discrete event simulation.
Value Preference:
How do you feel about one outcome for certain
relative to another outcome for certain?
Risk Preference:
How do you feel about one outcome for certain
versus a gamble on other outcomes?
Time Preference:
How do you feel about a certain outcome today
versus the same outcome in the future?
patient preference
Assess a person’s preference for length and quality of
life using three types of measures
values
risks
time
example of risk preference
Imagine 2 choices…
A. Dinner for 2 at your favorite restaurant
B. A check for $____?


1. $25
2. $50
3. $75
4. $100
example of value preference
Imagine 2 choices…
A. Dinner for 2 at your favorite restaurant
B. A check for $____?
1. $25
2. $50
3. $75
4. $100
risk preference
• Compare expected value of gamble with
your“certainty equivalent” for the gamble
• Certainty Equivalent: Amount one accepts as equal to
gamble
-Risk Averse if CE<50
-Risk Neutral CE=50
-Risk Seeking CE>50
value prefernce
At point of indifference, your dollar
amount is a measure of your value
preference
Example: time preference
Imagine 2 choice…
A. $100 today
B. A certain amount guaranteed one year from
now: $___

1. $100
2. $150
3. $200
rational for decision making requires
risk
uncertainty
trade offs
the best treatment is in partr subjuctive to....
-Age
-Race
-Income
-Gender
-Other factors

• Need to quantify these tradeoffs in a way that
facilitates decision making
• We need to measure values for health outcomes in a
way that does not distort preferences
time preference
At indifference, the dollar amount is
a measure of your time preference
patient preference example
Rational decision making for patients requires tradeoffs
like these
• Hormone replacement therapy (HRT) in women with
severe menopausal symptoms:
-Short Term
8HRT has positive (+) effects
8No HRT has negative (-) effects
-Long Term
8HRT has negative (-) effects
8No HRT has positive (+) effects
• Decision to proceed with HRT depends on tradeoff
between short-term treatment of menopausal
symptoms and longer-term treatment risks
Health utility definition
• A quantifiable index of health
• Based on community (societal) preferences
-A health utility only applies to the community in
which a health state is assessed
• Ranges from 0.0-1.0
-0.0 = death; 1.0 = full health
-0.84 ~ average American
-Possible to have a negative score (e.g. -0.05) for a
‘worse than death’ state, such as end-stage cancer
• Interval scale, e.g. 0.5 is ‘half the health’ of a 1.0
• Must value for risk and uncertainty

only applies to you or same pop with the sam edemographics
Examples of health utility
• Perfect health = 1.0
• Dyslipidemia = 0.810
• Hypertension = 0.789
• Stomach ulcer = 0.727
• Stroke (CVA) = 0.650
• Senility = 0.545
• Multiple comorbid conditions make the health utility of
a person worse
health utility vs. health status
• Health utilities differ from ‘health status’
-Health status: how do you function?
-Health utility: how bothered are you by your
function?
• Individuals with identical health status may have
different utilities based on perspective

how bothered are you by your function
3 Measures of utility
-Visual Analog Scale (VAS)
-Time Tradeoff (TTO)
-Standard Gamble (SG)
Measures of utility
• Patient preferences (value, risk and time) are captured
for the purpose of health utilities in three types of
measures:
-Visual Analog Scale (VAS)
-Time Tradeoff (TTO)
-Standard Gamble (SG)
• Imagine that you have monocular blindness, and
there’s the possibility of a cure…
-Monocular blindness = vision in one eye only
-No pain
-Lack of depth perception and visual field
visual analog scale
• The VAS is a scale that asks you to rate exactly how
you feel, typically on a 100-point scale (the feeling
thermometer)

used in populations that have a harder time understanding
Calculating utility from a VAS score:
Calculating utility from a VAS score:
-Directly translatable from the linear measuring scale
• Simple task, easy to use and interpret
• In actuality, results in ‘value’, not utility
• Not a true measure of utility
-Not preference-based
-Not compared to death or alternative health states
-No cost or consequence for marking near ‘zero’
-No time horizon specified… Do you have blindness
now or later?
time tradeoff
• Uses a time horizon
• Measures preference for remaining life years in
current state compared to fewer years in a higherquality
state of being
Example: You have monocular blindness now and 20
years of remaining life expectancy
But there may now be a cure for monocular blindness…
does VAS measure risk and uncertainiyt
nope
Example: Time Tradeoff
Would you rather live 20 more years with
monocular blindness,
or X years in perfect health?

1. 15
2. 12
3. 10
4. 8
5. 5
6. 2
Calculating utility from TTO:
Take normal life expectancy (LE) in current state
-Determine the years of TTO for perfect health
-Utility = X/LE
-The more years of life you are willing to give up in a
current state for perfect health, the worse your
health state is
• More challenging task than VAS
• Still no risk or uncertainty involved, Not a true utility
• ‘Cost’ is premature death
• Time horizon specified
all time tradeoff question
cost is premature death
Standard Gamble
• Requires one to choose between a ‘sure thing’ and a
gamble between the best and worst outcome…
• Imagine there is a painless treatment that will cure
your disability
• BUT there is a chance that it will cause immediate and
painless death
• Think about what chance of death from treatment that
you would take to be completely free of your disability
example of SG
Would you rather live with monocular blindness,
or undergo treatment for a cure with an X%
chance of death?

1. 75%
2. 50%
3. 25%
4. 10%
5. 5%
6. 1%

not worth dying over
in SG what is being compared
Here, we are comparing the opportunity to live in
perfect health (1.0), with the chance of death (0.0)
calculating utility for SG
• Calculating utility for SG means determine the
preference for probability of death
-Utility = 1.0 – X%
• SG is a true measure of utility, accounts for risk and
uncertainty
• Does not measure time horizon
• Affected by risk attitude
-Risk seeking
-Risk averse
Hierarchy of utility measures
•SG > TTO > VAS
-SG is the only true measure of utility
8Involves choice and uncertainty
-VAS is the most straight forward

have to think about the population that you are giving to
Patient Reported Outcomes (PROs)
• We develop instruments (ie questionnaires) with
multiple measures (ie questions) that assess the
domains of human functioning
• Typical domains: Physical & Mental
• These domains are scored and added up
• The combined score of an instrument can be
translated into health utility
• When a population is surveyed with an instrument,
the results are ‘community-based’ utilities for that
population

questionaire to see if drug is working ovre time
Patient Reported Outcomes: applicability
• Some treatment effects are known only to the patient
• There is a desire to know the patient perspective about the
treatment effects
• Systematic assessment of the patient’s perspective may
provide valuable information that can be lost when that
perspective is filtered through a clinician’s evaluation of the
patient’s response to clinical interview questions (informal
interview)
• The FDA has guidelines posted on how to design and
conduct the administration of a survey
• Pharmacists are often involved in the delivery of these
surveys
PROs steps
PROs • Disease-specific
-Designed to measure complexity of a disease
-Capture efficacy of a treatment for disease
-For example, to heart failure patient with dyspnea:
8 “How would you describe you breathing today?”
8 “Does Drug A improve your ability to breath normally?”

is the drug working to treat the disease
PROs • Global / Generic
-Designed to determine your general physical and mental functioning
-Can be given to a diverse population
-For example, to an elderly person
8 “How far can you walk down the street?”
8 “Do you ever forget items on your grocery list?”

general physical and mental functioning
not specific to disease
PRO Example: EuroQOL 5-Domains (EQ5D)
• Administered to a cross-section of the US population
• Five domains of physical and mental health
-Mobility
-Self-care
-Usual Activities
-Pain/Discomfort
-Anxiety/Depression
• 3 levels to answer for each domain
-No Problem, Some Problem, or Extreme Problems
• 245 possible health states
• Considers productivity of an individual
PRO Example: EQ5D advantages and disadvantages
• Advantages
-US-based preferences
-Uses econometric method of analysis
-Uses TTO and VAS for questions
• Disadvantages
-Floor and ceiling effects
8Majority of people who took the EQ5D score 1.0
8Average score was a 0.84
8Large gaps exist between 1.0 and the nextlowest
state, and 0.0 and the next-best state
-Does not utilize standard gamble, not a true
measure of utility
Other PRO instruments
• HUI3 (Health Utilities Index III)
-Consists of SG and VAS
-Developed for Canada
-More than 1000 health states, very sensitive
-No measure of productivity
• SF6D (Short-Form 6-Domain)
-Consists of SG, only true utility
-UK-based preferences
-Over 1000 health states
-Doesn’t have negative values for utility
SF6D questions on mental health
Have you been a nervous person?
-Have you felt so down in the dumps that nothing
could cheer you up?
-Have you felt calm and peaceful?
-Have you felt downhearted and blue?
-Have you been a happy person?
CUA and Cost-Effectiveness Analysis (CEA)
•CUA is a particular form of CEA
•In fact, on the cost side CUA and CEA are almost identical in nature
•CUA converts effectiveness to one common summary outcome: the quality-adjusted life-year (QALY)
CUA & CEA Compare Value of Health Intervention
•It is not possible to pay for all new treatments
•We currently make the decision of who will NOT receive care by deciding who does receive care
•CUA displays the tradeoffs or “opportunity cost” of each health intervention
•CUA is an aid to decision making -NOT a complete analysis of resource allocation
•CUA is an aid to decision making ____ a complete analysis of resource allocation
NOT
Opportunity Cost
•Question: What is the opportunity cost of a brand name drug?
•The answer is the value of the next best alternative, or…..
Opportunity Cost Answer
•The average wholesale price of a generic
assuming generic alternatives exist
What is Cost-Utility Analysis?
•Incremental cost: $ Treatment A -$ Treatment B
•Incremental effectiveness: Treatment A effectiveness –Treatment B effectiveness
•The incremental cost-effectiveness ratio (ICER):
Incremental cost/Incremental effectiveness
ICER Interpretation
•ICER: the incremental cost of obtaining an additional health effect unit (e.g., 1 QALY) from utilizing treatment A, compared with the base-case of treatment B
•If treatment A is “cost-effective” it is a good value compared with treatment B
What is a QALY?
•QALY: Quality-Adjusted Life Years
•QALYs incorporate the quality and quantity of life years
•Simple to interpret: 10 QALYs equals 10 years of near perfect health

trying to imporve survival
QALY =
utility (or preference score) x Duration (or life years/survival)
Utility =
Score to adjust life years for the quality of life years (QALY)
quality of life “weight” for a particular health state
QALY Limitations
•QALYs as a single metric may exclude some health consequences
•Results from an analysis using QALYs may require subjective judgment in the U.S.
–For example, are we willing to pay for a treatment that gives us $100,000/QALY?
–The U.K. has a cutoff value for $/QALY, the U.S. does not
•For chronic diseases, quality of life may be more important than duration
–Tendency is to move towards disease specific measures, meaning we cannot compare with outside disease states
Example Project using Diabetes
•How do we determine whether a new diabetes treatment or technology is cost-effective compared with the alternative?
•How do you interpret information common in the cost-effectiveness literature?
Cost-Effectiveness of Continuous Glucose Monitoring (CGM)
•Continuous glucose monitoring (CGM)* devices can help to reduce overall glycosylated hemoglobin (A1c) levels in adult patients
decreases the progression of complications from diabetes

A1C is a surrogate outcome
CGM: expensive but worth it?
objective
Determine the cost-effectiveness of CGM treatment with intensive insulin therapy
Compared to standard monitoring of blood glucose (SMBG) with intensive insulin therapy in adults with type 1 diabetes in the US
Framing of CGM study
•Perspective: societal perspective
•Target Population: Type 1 diabetes patients, mean age of 40, duration of 20 years, mean A1c level of 8%
•Time Horizon: 33 years, life expectancy at age 40 for patients with type 1 diabetes
•Modeling: Markov cohort Simulation
•Costs from the American Diabetes Association (ADA)
•Utilities from the EQ-5D catalogue
•Data on transition Probabilities: Diabetes Control and Complications Trial (DCCT), the United Kingdom Prospective Diabetes Study (UKPDS), and the Wisconsin Epidemiologic Study of Diabetic Retinopathy.
•Discounting: Costs and QALYs were discounted at 3% per year
•Sensitivity Analyses: Univariate and Multivariate probabilistic sensitivity analyses were conducted using 10,000 Monte Carlo simulations
modeling fro CGM study
•RCT for CGM found clinical evidence
•Goal: develop a model to represent the same patient population in the CGM study
•A model to mimic the control group (SMBG) and the treatment group (CGM) represented in the RCT

makes a model that mimics the trial pop
Markov Cohort Simulation for the CGM study
•Aggregate or individual level
•For modeling the progression of chronic disease complications over time
•The disease is divided into distinct health states (e.g., retinopathy, neuropathy)
Key Inputs for the CGM study
•Movement between disease states:
determined by transition probabilities over discrete time intervals or cycles (e.g., 1 month or 1 year)
•Attach cost and health outcome estimates:
Average costs and health outcomes for disease states
Type 1 Diabetes Model: Key Inputs
•Cost estimates: average expenditures for patients with diabetes (estimated by ADA –2007 US dollars)
•Utilities: The catalogue gives us a list of ICD-9 codes and mean EQ-5D score
•Transition probabilities: DCCT, UKPDS, and Wisconsin Epidemiologic Study of Diabetic Retinopathy
base case results CMG study
•Compared to SMBG, use of CGM with intensive insulin treatment resulted in an expected improvement in effectiveness of 0.523 QALYs
•Expected increase in cost of $23,552, resulting in an ICER of approximately $45,033/QALY

interpretation
•$45,000/QALY, how do we know if that is cost-effective compared with SMBG?
•Well what are we willing to pay (WTP)?
•We can use the Net Health Benefit (NHB) to help with interpretation
NHB=
(incremental effectiveness) –
(incremental cost/willingness-to-pay)
NHB
•Always positive if cost-effective
•Need to specify what we are willing to pay
•CGM NHB = .523 –($23,552/$100,000) > 0, at a willingness-to-pay of $100,000 CGM is the optimal choice

define willingness to pay
Us market driven so would the payer accept that cost
Can Health Care Reformers use CUA?
•Lack of understanding of the methods used in CUA
•Not familiar or confident in the use of QALYs as a measure of effectiveness
•No budget impact information included in many CUA studies
•General American distrust of using CUA for treatment decisions
Questions you may want to know…for the exam! your CE analyst says
–Treatment A has a $/QALY value of -$10,000/QALY compared to treatment B, but doesn’t show you the CE plane. (comes from the (-) effectiveness or (-) cost
–Is treatment A cost-effective compared to treatment B? don't know because not represeted in the plane

if QALY given without the CE plane it is hard to analyze
yor CE analyst says
–The net health benefit between treatment A and treatment B is positive when we specify a willingness-to-pay of $1,000.
–Is treatment A cost-effective compared to treatment B?

yes, willingness to pay is 1000 and (+)
$/QALY is below threshold

it (+) always cost effective subjective with willingness to pay
 Formulary system:
method whereby medical staff of an institution evaluate, appraise, and select from among numerous available drug entities and drug products those that are considered most useful in patient care, and make only those selected available routinely (Lipsy, PEcon 92)
purpose of fromulary
drug quality and cost containment
 Formulary must be continuously revised due to advances in drug therapy
 Tough: 50K+ different dosage forms of drugs on market
 80/20 rule true for meds too: US 500 most prescribed drugs account for 88% of all Rx
 Approx 30 new drug entities approved annually
 More biotech drugs approved and faster (less than half approval time)
 Significantly higher acquisition costs
Formulary History:
 First institutional formulary in US New York Hospital, published 1816
 Simple catalogue of available agents
 Progressed to dynamic guide for selection, application of drug therapy
 Amer Society of Hospital Pharmacists, published 1959
 Outlined functions of pharmacy and therapeutics committee
 Review of a formulary system included evaluation of new drugs
 Medicare standards included a published list of drugs available for use within institutions 1967
 WHO “international formulary” 1977, mandated by Medicare for hospital participation/payment
 National formularies in Australia, UK, Canada
 PEcon part of new drug approval process
 2 Types of Information used in formulary review
 Therapeutic
 Pharmaco-economic
 Safety, efficacy most important, costs ??
 Types of Studies: for a fromulary review
 Comparison of similar agents
 Comparison with non-drug treatment modalities
 Comparison of active therapy with no therapy
 Perspective will define costs included for formylary
acquisition costs, plus total economic impact of new treatment/treatment failure
Medicaid Pharmaceutical and therapeutics (P&T) Committee, Drug utilization review Committee, and Preferred Drug List (PDL)
 Medicaid is a public insurance entitlement program for low income individuals who meet certain criteria; state administered; co-funded state and federal; progressive in using financial incentives to meet goals
 http://www.cms.gov/MedicaidGenInfo/

 Colorado P&T Committee estd. January 2007
 First Committee meeting in Dec 2007
o Membership of actively practicing physicians, pharmacists, and client representatives with a broad array of expertise
o Purpose to review Therapeutics without respect to Cost
o Open public meetings quarterly, 30 day prior posting
o Can respond to anything raised
 Drug utilization review committee meeting takes it from there (DUR)
o Recommends the prior authorization criteria for non-preferred drugs
 Goal to create a PDL (formulary)
o Encourages use of safe and effective meds also judged more cost effective to comparators (from perspective of payer)
o Preferred Drugs paid immediately
o Use Prior Authorization (PA) for others, call or fax HelpDesk, 24 hour review
o Clients legally have access to all drugs required under federal law
 Finally goes to Medicaid Pharmacy benefit Section
compiles info and analyzes costs issues (not public)
o Encourages generic use
o Main vehicle for saving are manufacturer supplemental rebates for brand name drugs
 Mandated to give a federal rebate on all drugs covered by state Medicaid program, biggest saving from exchange of supplemental rebate for Preferred Drug status
 Pharm Benefit section uses market measures such as drug class market share, current drug costs, percent of pop using that class or drug
 Proposal to Medicaid Director, becomes part of the PDL
OBSERVATIONS FROM MEDICAID P&T MEETING last year:
 Public commentary: up to 3 minutes
 (Most) all public statements started or ended with costs
 Many comments started with “in my practice…”
 No one was assigned to review the literature*
 Need help of P3s! Review of classes*
 Willing to consider moving some meetings to AMC next year*
 DUR Board Step 2—follow 2nd generation SSRIs through committee
 Economic discussion behind closed doors (negotiated rates are top secret)
 hospital P&T committee could be more open discussion
*=P3 class is participating this year