PART II

( CHAPTER 5-7)

PHARMACOECONOMICS
ANALYSIS

Esayas Tadesse, B.Pharm, MSc

Lecturer, Department of Pharmacy, Ambo University

1
 INTRODUCTION

• Pharmaceutical evaluation is analysis of alternative

courses of action in terms of both their costs and
consequences
• Identify, measure, value and compare the costs and
consequences

2
 Types of economic evaluation

• There are two types of economic evaluation

1. Full economic evaluation : Measure both cost and

outcomes
2. Partial economic evaluation: measurement of either
cost or outcomes
 Measurement of outcomes only – clinical trial
 Measurement of costs only – cost analysis

3
 Full economic evaluation

• Cost Minimization analysis (CMA)

• Cost Benefit Analysis (CBA)

• Cost Effectiveness Analysis (CEA)

• Cost Utility Analysis (CUA)

• Differentiated by whether and how health consequences

are valued.
4
Full economic evaluations

5
1. Cost Minimization Analysis
(CMA)

6
 Cost Minimization Analysis
(CMA)
• This involves measuring only costs, and applicable
only where the outcomes are identical and need not
be considered separately.
• Used when the treatment being evaluated have
similar outcomes
• The comparison is limited to analyzing the cost

7
 CMA…

• The critical first step before conducting a CMA is

determining the therapeutic equivalence of the
interventions.

• All CMA need to be preceded by equivalence study.

• Once this equivalency in outcome is confirmed, the costs

can be identified, measured, valued and compared in
monetary units (dollars).
8
 CMA….

• CMA is a relatively straightforward and simple

method for comparing competing alternatives as long
as they are equivalent in the outcome of interest.
• Look change in cost
• Result: least cost alternative.

9
 CMA…..

• The ideal situation for a CMA is the comparison of a

brand and equivalent generic drug.
• Two or more drugs in same therapeutic class with
similar efficacy and safety profile
• Comparing costs of Drug A and Drug B, which have
evidence of equal efficacy for a given condition and
safety (incidence of ADRs)
10
Advantage

• “Pure” cost comparison

• The cheapest and simple method for comparing
competing alternatives as long as they are equivalent in
the outcome of interest.
Limitation
• Rarely used because it makes difficulties to prove the
equivalence of treatments.
11
 CMA examples

Interventions Cost Outcome

Malaria treatment
A Cost high same as Tx B Reject

Malaria treatment
Cost low same as Tx A Select
B

12
 Cost per year of treatment of brand name vs.
generic paracetamol
Drug Cost/ Annual
year saving
Generic 9000 ?
500mg
Brand 28,880
500mg

Which of the two alternatives you prefer?

What is the annual saving?

13
 Cost per month and per year of treatment of
brand name vs. generic paracetamol
Drug Cost / Cost/ Annual
tablet year saving
Generic 2.5 9000 19,800
500mg
Brand 8 28,880
500mg

14
 Cost per month and per year of treatment of
brand name vs. generic ibuprofen
Drug Dose Cost /dose Cost/ day Cost /7day

Ibuprofen 400mg tid 0.77

Naproxen 500mg bid 2.16

What is the least costly treatment regimen according to your

analysis? 15
 Example of Cost Minimization Analysis of Two
Injectable

Cost Centers Medicine A Medicine B

(USD) (USD)
Acquisition price 8.00 15.00
Pharmacist salary (to prepare the 2.50 1.50
medicine)
Nursing salary (to administer the 2.50 2.00
medicine)
Supplies (to administer the medicine) 9.00 2.25
Laboratory services 4.00 1.00
Total

16
2. Cost Benefit Analysis
(CBA)

17
 Cost-Benefit Analysis (CBA)

• CBA is an economic evaluation that measures

both the costs and the benefits in monetary terms
• The evaluation should take a societal perspective
where all costs and benefits that fall onto society
should be included in the analysis.
• So it goes beyond a traditional CEA and CUA
where usually where health sector perspective
is taken

18
 Cost-Benefit Analysis (CBA)
When to use CBA?
• When a policy maker has a broader perspective and is
faced with one or more of the following
Must decide whether to implement a specific
program
Required to choose among competing options
Has a set budget and must choose and set priorities
from a group of potential projects.
The intervention under consideration could produce
a number of widely differing outcomes.

19
 Cost-Benefit Analysis (CBA)
Steps in Conducting CBA
 Define the problems in terms of question, audience,
perspective, time frame, analytic horizon and discount
rate
 Identify the intervention to be evaluated
 Identify the effects of the intervention for all health and
non-health outcomes and classify them as either benefit
or costs
 Assign values
 Determine and calculate summary measures
 Evaluate the results with Sensitivity Analysis
 Prepare results
20
 CBA…

• Summary Measure
– All cost and benefits associated with a program are
measured in monetary terms and then combined to offer
summary measure- Net Present Value , Benefit Cost
Ratio.
– Net value: benefits minus costs
– Benefit to cost ratio
Benefit($)/Cost ($)
21
• B/C > 1 treatment is of value
• B/C= 1 benefits equal to cost
• B/C< 1 not economically beneficial

express result as:

• ratio: $ benefit / $cost (≥1 desired)
• net: $ benefit - $costs (≥0 desired)

22
 Cost-Benefit Analysis (CBA)

• Advantages over other economic evaluation

– Avoids the need for deciding on acceptable
costs or threshold as it uses summary
measure such as NPV or BCR which includes
all benefits and costs in monetary terms
– The only method that allows comparison of
health program with non health program
– Can readily combine health and non health
outcome associated with a single program

23
 CBA Negatives

• Difficulties in assigning a monetary value to health

outcomes and a patient's life.
• Huge measurement challenges in putting a dollar
value on human lives and health states

24
 Assigning monetary value

• Health effects assigned a monetary value using

– Human Capital (productivity gain/loss) method
– Willingness-to-pay (WTP) survey method

25
 Human capital approach

• For years the most commonly applied method of

benefit measure was the human capital approach.
• Equates the value of life extension and losses due to
morbidity with foregone earnings that are discounted
to their present value.
• This means that the value of a person is defined by
their potential, inherent net product evaluated using
the income gained through employment.

26
 Human capital approach

• health changes should be valued by the changes in

economic productivity they cause
• what is a loss or gain in human life worth?
• what is a loss or gain in productivity worth?
• Mortality loss: years lost due to premature death =
life expectancy at death – age at death

27
 Limitations of human capital approach
1. It excludes cost of pain and suffering due to illness.
 It does not assign any cost of illness to persons who
are retired or live off non-labour income.
2. Wage difference may reflect wage discrimination
instead of differences in productivity.
3. Biased as favours white adult males that have highest
earning potential.
4. The precise social rate of discounting is unknown.

28
 Willingness-to-pay (WTP)

• It is the highest price at which a consumer would still

be willing to buy goods and service
• Stated preferences / Contingent valuation

• Directly estimate welfare gains/losses

• Approach to value non-market goods

29
 WTP…
• WTP is a technique which can potentially be used to place

monetary values on any aspect of health or health care,

including the value of human life

• Use survey methods to present respondents with hypothetical

scenarios about the programmes/ intervention

• Respondents required to imagine that the market exists

• Reveal the maximum they would be willing to pay (WTP)

30
 Example

Willingness to Pay for Three Hypothetical Malaria

Vaccines
To determine the willingness to pay (WTP) for 3
hypothetical malaria vaccines with different levels of
protection (in years), effectiveness, and adverse effects

31
 The 3 hypothetical vaccines had the following
characteristics:

• Vaccine A was 75% effective, protected for 3 years, and was

well tolerated;
• Vaccine B was 85% effective, protected for 6 years, and was
less well tolerated than vaccine A;
• Vaccine C was 95% effective and protected for 12 years, but
was the least well tolerated.

• How we measure outcomes associated with

effectivness??? WTP.
32
Techniques for eliciting WTP
• Open ended
e.g. What is the maximum amount of money you would
be WTP for X?
• Payment card
• Take it or leave it (TIOLI) Yes/N0
• Dichotomous choice (single, double, triple)
• Bidding game
• Structured haggling (exclusively used in
developing countries)

33
 Disadvantages of WTP
 Protest response
 WTP method can give rise to a lot of protest
responses if people mis-understand the task,
especially in pre-paid health care system people
don’t actually pay for health care, the
 Some people don’t understand the hypothetical
nature of the technique and think that we are using
their WTP amt to set charges for health care.
 They protest by either saying nothing or zero.

34
 Disadvantages of WTP
 Derived on the basis of what people say rather than
do. (If become they will not pay or overestimated if
they have health insurance)
 Cognitively demanding
The process of thinking of your max WTP is
actually quite hard to do. Many individuals struggle
with it.
People answer in the way that is expected of them.
They think that if they give a really high WTP then
it is likely that the service will be offered
Difficulty of understanding probability

35
 Examples

• AURH wants to start 3 services

1. Clinical pharmacy service

2. Community pharmacy service
3. Pharmacovigiliance center

36
 Clinical Community pharmacovigili
pharmacy pharmacy ance
Total cost 120,000 160, 000 190,000
Customer 150,000 160,000 170,000
satisfaction

Calculate CBR=?
Which of the three service , the university hospital
choose?
37
 Group discussion

• Ambo university need to introduce NEW X RAY

MACHINE to the hospital, based on the given
information
• Which X ray machine should AU choose?

38
 Machine A Machine B Machine C
Cost
Price of software 20,000 28,000 34,000

Cost of installation 2,000 2,000 2,000

User training 1,800 1,800 1,800

Annual maintenance 200 200 200

benefit
Saving days/salary 30,000 32,000 34,000

39
3. COST EFFECTIVNESS ANALYSIS
(CEA)

40
 Learning Objectives

• By the end of this session you should be able

to
– Understand the concept of CEA
– When to use
– When not to use
– Describe the steps necessary to perform cost
effectiveness analysis 41
 Cost-Effectiveness Analysis (CEA)

• Estimates costs and outcomes of interventions

• Costs and outcomes measured in different units
• Costs usually measured in money terms
• The outcomes are measured by “natural” units (life
years gained, saved years of life)

42
 Outcome used…

 Years of life saved

 Hospital days prevented
 Number of case prevented
 Reduction in cholesterol
 Blood pressure reduction

43
Examples of CEA outcomes

44
 Outcomes…

• Only one consequence (effectiveness indicator) can

be used in a cost-effectiveness ratio BUT
• Multiple cost-effectiveness outcomes can be
presented in the same analysis
• Outcomes cannot be combined, so one or two of the
most important effectiveness measures should be
considered (separately) for the CEA.
45
 When to use CEA:

• Recommended Criteria for calling an intervention

cost effective
– Less costly and at least as effective
– More costly and more effective, with the added
benefit worth the added cost
• Challenge:
– Decision as to whether the added benefit worth the
added cost
• Decision Rule: added benefit worth added cost
comparatively
46
 THE COST-EFFECTIVENESS PLANE
47

• Serves to clarify when these choices may be easy or difficult

• Drawn with the differences in cost (or the incremental cost)
on the y-axis and the differences in effectiveness (or
incremental effectiveness) between the two options on the x-
axis.
• Comparison is between the
– a new therapy
&
– existing program, acting as the comparator, will be at the
origin of both the cost and effectiveness axes depicting the
current level of expenditure and benefit.
 THE COST-EFFECTIVENESS PLANE

New treatment more effective

C
New treatment less effective

E
Comparator
intervention

48
THE COST-EFFECTIVENESS PLANE

New treatment more costly

C

E
Comparator
intervention

New treatment less costly

49
 MAKING DECISIONS WITH C-E EFFECTIVENESS PLANE

50
New treatment more costly (+)

CEA useful??????
New treatment more
Existing treatment
effective and more costly
dominates over the new
(trade-off b/n increases in
ones (DOMINATED)
costs and effectiveness)
New treatment New treatment
less effective (-) more effective (+)
Existing
treatment
New treatment is dominant over
the existing one due to its
CEA useful ?????? superior outcome at diminished
New treatment less effective costs.
and less costly (trade-off b/n DOMINANT
decrease in costs and
effectiveness)
New treatment less costly (-)
 The Cost Effective Plane
+
IV I
Less effective More effective and
Difference in cost

and more expensive more expensive

+
-
Less effective More effective
and less expensive and less expensive
-
III II
Differences in effectiveness
Note: Origin is reference intervention
51
 Decision Making on?

Higher Cost Lower Cost

Higher
Effectiveness ? Yes

Lower
Effectiveness No ?

52
 How to conduct CEA?
53

• Frame the problem to be analyzed

• Identify the baseline and options to be analyzed
• Identify the outcome measure
• Identify the relevant costs
• Construct the decision model
• Analyze and interpret the results
 Step 1: Framing the Problem
54

• Define the study questions

• Determine the perspective of the study
• Time Frame and Analytic Horizon
 Step 2: Identify the Baseline and Alternative
Interventions
55

• A CEA requires a comparison between two or more options.

• A single option cannot be cost-effective in isolation.
• However , it is often reasonable to include a “do nothing” option,
especially if doing nothing is a legitimate clinical strategy, but
also as a baseline comparator to assess the clinical realism of the
model and analysis.
• Baseline
– Reference point for the analysis
– Can be placebo, exiting treatment or current standard of care
• Alternative intervention
– New drug or intervention
 Step 3: Selecting Health Outcome Measures
56

• The effectiveness outcome for the analysis must be

chosen, often based on data availability.
– Randomized trials are excellent data sources on the
effects of therapies, but limited applicability to a
more general population
• Must be relevant to the study questions
• Both positive and negative outcomes should be
addressed
– Positive outcomes: drug’s efficacy measure
– Negative outcomes: ADR and treatment failure
 Step 4: Identify Relevant costs
57

• Relevant costs include

• cost of intervention, cost of disease averted, cost of
productivity losses averted, and future unrelated health
costs
• Costs to be included depends on the perspective
chosen
• Controversy on the inclusion of productivity costs
and cost of future unrelated health care costs
 Step 5: Decision Model
58

• Data for the analysis must come from a variety of

sources and may require a decision analysis model as
a framework for data synthesis.
• Can use software, decision tree or done by hand
• Requires outcome and economic data
– RCT
– Peer reviewed published literatures
• Balance between realism and simplification
 Step 6: Analyze and Interpret result
59

• Calculate the summary measure-CE ratio

• The basic components of a C/E ratio are:
– Numerator: Net cost C
– Denominator: Health Outcome
• Cost-effective compared to what?
– No public health intervention is cost-effective by itself -- it is
either more or less cost-effective than another intervention.
• The ratio may take either of the following forms
– Average C/E ratio (ACER)
– Incremental C/E ratio (ICER)
 Average C/E Ratio (ACER)
Step 6: Analyze and Interpret result-cont
60

6.1 Average Cost Effectiveness Ratio (ACER)

– Ratio of costs to outcomes for a single intervention
(strategy A)

Cost Strategy A

Outcome Strategy A eg life

years gained
 ACER

– Use to evaluate the average cost per health

outcome for a single program
– Use to allocate resources between independent
programs and programs are ranked based on
ACERs.
• For example, Hepatitis B vaccination vs. HIV
testing
– Not used to evaluate mutually exclusive
(competing) strategies

61
 Step 6: Analyze and Interpret result-cont
62

6.3 Incremental Cost Effectiveness Ratio

• Ratio of additional costs to outcomes obtained
when one intervention is compared to the next
most effective intervention

Cost Strategy B - Cost Strategy A

Outcome Strategy B - Outcome Strategy A

N.B Strategy B is more costly than strategy A.
 ICER…

• When comparing 2 therapies, ICA assesses what the

added cost per net effect for alternative therapy would
be
• ICEA is the difference in total costs of 2 therapies
divided by difference in effectiveness of the 2
therapies

63
 Some Terminologies
64

• Cost-effectiveness ratio: The cost of an intervention

divided by the resulting change in health status. Eg
dollars per DALY.
• Average cost-effectiveness: The total cost of
addressing a particular health problem using a
particular intervention divided by the total health
gain.
• Incremental cost-effectiveness: The additional cost
of extending a particular intervention compared with
the other divided by the additional health gain that
would result.
 Example
65

Therapy A: costs $2500 and saves 10 lives

C/E ratio= $250/life saved

Therapy B: costs $5000 and saves 15 lives

C/E ratio= $333/life saved

ICEA: $5000-$2500 or $500/life saved

15-10
 Step 6: Analyze and Interpret result-cont
66

• In the first place, the alternative interventions are ranked

according to their effectiveness – on the basis of securing
maximum effect
• The least effective intervention ( say, P1) has the same ACER
as its ICER, because it is compared with the alternative of
‘doing nothing’.
• Calculation shall then proceed starting from p1 to pt.
programmes cost Effect(LY) C E ICER

P1
P2
Pn
 Step 6: Analyze and Interpret result-cont
67

• Exclusion of Dominated Alternatives

– If intervention is both less effective and more
costly than the next most effective alternative-
Strongly Dominated and be eliminated.
– An intervention can also be dominated when its
ICER is higher than that of the next most effective
intervention- Extended or Weak Dominance
 Step 6: Analyze and Interpret result-cont

Eg. The ICER for P2 compared with P1 = –$125/LY

means that by adopting P2 rather than P1, there is an
improvement in life-years gained and a reduction in
costs.
Similarly, the ICER for P3 works out to be 120, - means
it costs £120 to generate each additional life-year
gained compared with P2.

68
 Interpret the Cost-Effectiveness Results

• policy makers and reimbursement agencies.

– With ICER thresholds from which to judge whether a
drug or healthcare technology is CE

• USA - $50,000 per LY

• UK (NICE guidelines) £ 30,000 per LY

69
 WHO ICER guidance:

< GDP per capita (Very cost-effective)

1-3 x GDP per capita (cost-effective)
> 3 x GDP per capita (not cost-effective)
• Setting a threshold is controversial

70
Exclusion of Dominated Alternatives
#1
– If intervention is both less effective and more
costly than the next most effective alternative-
Strongly Dominated and be eliminated

71
Exclusion of Dominated Alternatives
#2

– An intervention can also be dominated when its

ICER is higher than that of the next most effective
intervention- Extended or Weak Dominance

72
 EXAMPLE

Alternative Cost Saved years of

Life
'A' 2,000 600
'B' 3,000 500

Which of the following alternative is dominated?

73
 EXAMPLE1….

• If effectiveness of alternative ‘A’ is higher and

its costs is lower than those of alternative ‘B’.

• Alternative ‘A’ is called dominant

• Alternative ‘B’ is called dominated

74
 EXAMPLE 2
Alternative Cost Effect
‘No' 0 0
'A' 200 4
'B' 300 5
'C' 380 6
Which of the following alternative is dominant and
dominated?

75
 EXAMPLE 2…..

• NO dominant and dominated alternatives

• In this case we compare the interventions based on

ICERs

76
 EXAMPLE 2…..

Alternative Cost Effect C E C/E

‘No' 0 0 0 0 0

'A' 200 4 200 4 50

'B' 300 5 100 1 100

'C' 380 6 80 1 80

Which of the following alternative is EXTENDED

dominated? 77
 Extended dominated

C/
Alternative Cost Effect C E E
Extended dominated

‘No' 0 0 0 0 0

'A' 200 4 200 4 50

'B' 300 5 100 1 100

'C' 380 6 80 1 80
78
 Identify the dominated options?

Option Cost Life Expectancy

1 $750 1
2 $1,500 1.75
3 $3,500 2
4 $3,500 3
5 $6,000 4
6 $9,000 4
79
 Example with multiple options:
illustration of dominance
Option Cost Life Expectancy
1 $750 1
2 $1,500 1.75
3 $3,500 2
4 $3,500 3
5 $6,000 4
6 $9,000 4
80
 Example with multiple options:
illustration of dominance
Option Cost LE Δ CE
1 $750 1
2 vs 1:
2 $1,500 1.75 ($1500-750)/(1.75-1)

3 $3,500 2
4 $3,500 3 4 vs. 2

5 $6,000 4 5 vs. 4

6 $9,000 4
81
 Steps of choosing cost-effective interventions

1. Sort the interventions according to ‘cost per patient’ in

ascending order
2. Find dominated interventions
3. Keep the survived interventions using the same sorting
procedure as in step 1
4. Calculate ICER between interventions
5. Find the interventions which are ‘extended dominated’ and roll
them out
6. Keep the survived interventions
7. Calculate the ICER of the survived interventions and roll out the
‘extended dominated interventions’ and continue this process
until all extended dominant interventions are rolled out
8. Now you find the interventions which have survived the cost-
effectiveness analysis

82
 Example 1: Calculate the ICER

Mutually Total Total Costs ICER

Exclusive Outcomes
Interventions (Life Years)

Treatment A 11 110000

Treatment B 9 90000

83
 Step 1: Arrange in order of increasing
effectiveness or Cost

Mutually Total Total Costs ICER

Exclusive Outcomes
Interventions (Life Years)

Treatment B 9 $ 90,000

Treatment A 11 $110,000

84
 Step 2: Check and Exclude dominated Alternatives

Mutually Total Change in Total Change ICER

Exclusive Outcomes Effectiven Costs in Cost
Interventi (Life ess
ons Years)

Treatment 9 $90,000
B

Treatment 11 2 $110,000 $20,000

A

85
 Step 3: Calculate the ICER

Mutually Total Change in Total Change in ICER

Exclusive Outcomes Effectiven Costs Cost
Interventi (Life ess
ons Years)

Treatment 9 90000
B

Treatment 11 2 110000 20000 10000

A

86
Example 2: calculate ICER?

Averted Cases Cost

Program A 100 $ 50.000
Program B 150 $ 130.000
Program C 110 $ 170.000

87
Step 1: Order by Increasing Effectiveness

Averted Cases Cost

Program A 100 $ 50.000

Program C 110 $ 170.000

Program B 150 $ 130.000

88
Step 2: Check for Dominance

Averted Cases Cost

Program A 100 $ 50.000

Program C 110 $ 170.000

Program B 150 $ 130.000

89
 Step 3: Eliminate Dominated Programs

Averted Increm.
Cost
Cases Effec.
Program A 100 - $ 50.000
Program C 110 10 $ 170.000
Program B 150 40 $ 130.000

90
 Step 4: Re-Calculate ICER without
dominated programs

Averted Increm. Increm. Increm.

Cost
Cases Effec. Cost C-E Ratio

Program A 100 $ 50.000

Program B 150 50 $ 130.000 $80.000

91
 Step 4: Calculate ratios
without dominated programs
Averte Incre Increm.
Increm.
d m. Cost C-E
Cost
Cases Effec. Ratio

Program
100 - $ 50.000 - -
A

Program
150 50 $ 130.000 $ 80.000 $ 1.600
B
92
Step 5: Choose program with Incremental C-E Ratio <=
perceived value

• If perceived value of an averted case >= $ 500 and <

$ 1,600, choose Program A;
• If perceived value of an averted case >= $1,600,

choose Program B.

93
 Example 3: calculate ICER?

Intervention Cost per SYoL

patients (C) (E)
No 0 0
E 500 20
(Pneumonia)
A (Polio) 100 10
D (Diphtheria ) 400 19
C (Syphilis) 300 15
B (TB) 200 14

94
 Step 1: Sort in ascending order using cost/
effectivness of treatment
Intervention Cost per patients (C) SYoL (E)

No 0 0
A (Polio) 100 10
B (TB) 200 14
C(syphilis) 300 15
D(Diptheria) 400 19
E (Pneumonia) 500 20

95
 Step 2: Find Dominated interventions
If effectiveness of alternative ‘A’ is higher and its
costs is lower than those of alternative ‘B’.
Alternative ‘B’ is called dominated

Intervention Cost per patients (C) SYoL (E)

No 0 0
A (Polio) 100 10
B (TB) 200 14
C(Syphilis) 300 15
D(Diptheria) 400 19
E (Pneumonia) 500 20

There is no dominated intervention

96
 Step 3: Keep the survived interventions using step 1
All interventions are kept

Intervention Cost per patients (C) S YoL (E)

No 0 0
A (Polio) 100 10
B (TB) 200 14
C(syphilis) 300 15
D(Diptheria) 400 19
E (Pneumonia) 500 20

97
 Step 4: Calculate ICER between interventions

Intervention Cost per patients (C) SYoL (E) ∆C ∆E ∆C/∆E

No 0 0 0 0 0
A (Polio) 100 10 100 10 10
B (TB) 200 14 100 4 25
C(syphilis) 300 15 100 1 100
D(Diptheria) 400 19 100 4 25
E (Pnumonia) 500 20 100 1 100

98
 Step 5: Find ‘extended dominated’ interventions and roll
them out
Intervention Cost per SYoL (E)
patients (C) ∆C ∆E ∆C/∆E
No 0 0 0 0 0
A (Polio) 100 10 100 10 10
B (TB) 200 14 100 4 25
C(syphilis) 300 15 100 1 100
D(Diphtheria) 400 19 100 4 25
E (Pneumonia) 500 20 100 1 100

One intervention (D) is said to be ‘extended dominant’ if its ICER is

lower than the previous intervention(C). Here, alternative D is
called the extended dominant alternative. And the rolled out
intervention is called ‘extended dominated’. Here , C is extended
dominated by D. 99
 Step 6: Keep the survived interventions
Intervention Cost per S YoL (E)
patients (C)
No
0 0
A (Polio) 100 10
B (TB) 200 14
D(Diphtheria) 400 19
E (Pneumonia) 500 20

100
 Step 7: Recalculate ICER of survived interventions and roll
out the ‘extended dominated interventions’

Intervention Cost per S YoL (E)

patients (C) ∆C ∆E ∆C/∆E
No 0 0 0 0 0
A (Polio) 100 10 100 10 10
B (TB) 200 14 100 4 25
D(Diphtheria) 400 19 200 5 40
E (Pneumonia) 500 20 100 1 100

Observation: No ‘extended dominated intervention’ is found.

101
 Step 8: Interventions which have survived the cost-effectiveness
analysis
Intervention Cost per patients (C) S YoL (E)
No
0 0
A (Polio) 100 10
B (TB) 200 14
D(Diphtheria) 400 19
E (Pneumonia) 500 20

Here, A is most cost effective alternative.

102
 Applications of cost effectiveness analysis

103

– The assessment of cost-effectiveness is an

essential component in determining whether a
therapy is approved for reimbursement and
formulary inclusion.
4. Cost Utility Analysis

CUA

104
 Lecture Outline

• What is CUA?
– Definition
– When to use it
– When not to use it
• Outcome Measure
• DALY
• QALY

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 Introduction

• Apart from economic aspects, PE evaluations may also

focus on humanistic concerns.
• For pharmacotherapy decisions.
– various factors like patient preferences, patient
satisfaction, impact of disease and Rx of disease on
a patient's health related QOL are applied in PE.

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 What is CUA

Compare ‘cost per consequence’ of two or more

interventions, where the consequences are measured
by “utility” related to health (quality-adjusted life
years)

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 Cost-utility analysis/CUA

• CUA is a special form of cost-effectiveness analysis

(CEA)
– both in CUA and CEA we are interested in the
incremental costs and incremental consequences
between alternatives.
– It is similar to the CEA, except that it includes
societal and/or patient preferences to adjust
outcomes, such as additional years of life saved
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 CUA……

• The difference between the 2 methods lies in the

nature of the outcomes compared.
– In CUA, the numerator of (ICER) is a measure of
cost (similar to other forms of CEA) and the
denominator is measured typically using a metric
called the quality-adjusted life year (QALY).
– In CEA compares alternatives based on a common
clinical effect
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 CUA…
Utility
• is expressed as the number of life years saved adjusted to
account for loss of quality or for disability (QALYs or
DALYs)
• Numerical estimate of quality of life (QOL) associated
with a disease state or treatment
– e.g., per quality-adjusted life year (QALY) gained

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 CUA..

• A QALY accounts for both survival and quality of

life (QoL) benefits associated with the use of a
healthcare technology.
• In CUA the outcomes measure that is used to
compare alternatives is one that combines both the
quality and quantity of life.
• QALYs is the most commonly used in CUA
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• Quantity of life.
• length of year/ extra life
• the additional years of life gained by taking a drug

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• QOL : the assessment of functional effects of
illness and its consequent therapy as perceived by the
patient.
• expressed as emotional, physical or social
impacts on patients
• QOL can be measured with the help of
structured questionnaires filled by patients.

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 How to determine utility?

• by asking actual patients to assign utility weights to

their own health status.
• by asking people who do not have the disease to
think about a hypothetical situation and then assign
utility weights to the state of health described in the
scenario.

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 How to measure utility?

• Measured using questionnaires

• a numerical value between 0 and 1 is identified, with
0 being the worst health and 1 being the best health.

• Anything else…somewhere in between

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 CUA…

• Allows comparison of different health interventions

– Provision of antiretrovirals (ARVs) for HIV-infected
persons VS prevention of mother-to-child
transmission (PMTCT)
– Provision of ARVs Vs Polio vaccination
– migraine pharmacotherapy VS angioplasty

• compare cost, quality, and the quantity of patient-years

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 SUMMARY MEASURE

• Decision index: cost-utility ratio

• –Cost per QALY gained
• –ICUR

= 𝐶𝑜𝑠𝑡𝑛𝑒𝑤 −𝐶𝑜𝑠𝑡𝑜𝑙𝑑
𝑄𝐴𝐿𝑌𝑛𝑒𝑤 − 𝑄𝐴𝐿𝑌𝑜𝑙𝑑

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ICUR = cost of new- cost of standard
QALYs of new - QALYs of standard

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 Adopt/ Reject?

• policy makers and reimbursement agencies.

– With ICER thresholds from which to judge
whether a drug or healthcare technology is CE
– UK : ￡ 30,000 per QALY gained ;
– USA: $50,000 per QALY gained
– WHO: ICER < 3X per capita gross
domestic product (GDP) for a given country
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 CUA…
• When to use CUA
– Health-Related Quality of Life is THE important
outcome
– Programmes affect both mortality and morbidity and
you want to combine both effects
– Programmes affect wide range of outcomes and you
want common unit for comparison

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 CUA…
• When not to use?
– Effectiveness data show outcomes are equivalent
– Effectiveness data show dominance
– Extra cost of obtaining utility values is itself not
CE (requires judgment on whether doing so would
change result)

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 Outcome Measures

• Defining the outcome of interest

• Measures changes in health taking into account

fatal and non fatal health outcomes

• Includes DALY and QALY

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 Outcome Measures...
Two Basic Outcomes of Health care

Mortality QOL

Life Years Health

gained state
Natural units cannot capture both outcomes
We need other measures like DALY and QALY
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 Outcome Measures... Life Years

• Life Years

– Simplest and widely used measure of health

– Used when the dominant gain from a change is

extra life rather than relief of pain or disability

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 Outcome Measures... QALY

• Quality Adjusted Life Years (QALY)

 the number of years of perfect health.
 Life expectancy adjusted based on utility

• all of the health benefits (i.e., quality and length of

life)

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 QALY

• is the product of the length of life (e.g., the

additional years of life gained by taking a drug) and
the patient’s assessment of the quality of health
during that period of time, or the utility of the health
status, to which people in this field refer.
• QALY = utility X life years gained

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 Calculating QALY

• In order to calculate QALY we need two pieces

of data

– The path of the health states and the duration of the health
states over the time span for which QALY are to be calculated

– The preference weight for health states for the same duration

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 QALY

• 1 QALY = 1 year of life lived in perfect health

• 0 QALY = dead
• 0.5 QALY?
– Six months spent in perfect health
– One year spent in poor health, valued as halfway
between death and perfect health

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 Exercise 1
• Suppose you have drug Y and drug X. Suppose that you
knew that the QoL of people living with the disease that
these drugs treat is relatively poor.
• If the research has shown the utility value for this health
status to be 0.3.
• Drug Y saves 6 years of life and Drug X saves 5 years of life

With this information, calculate the QALYs associated with

each drug and interpret both by utility value and health
status ?? 129
 • For Drug x
• For Drug Y
– Utility value= 0.3
– Utility value= 0.3

– Number of years of life – Number of years of life

saved= 6 saved= 5

QALY = 0.3 x
QALY =
5 = 1.5 years
0.3 x 6 = 1.8 years

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 Exercise 1 …
Interpretation:
• drug Y achieve the equivalent of 1.8 years of life at a
utility of 1
or
• drug Y achieve the equivalent of 1.8 years of life of the
best possible health.

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 Exercise 1 …
• Once you have calculated the QALYs for drugs Y and
X,
• You can now determine the incremental difference in
the costs and outcomes, or incremental cost utility ratio
(ICUR).
Suppose, The ICUR in this example is ETB 80,000:1,
how do you interpret this ICUR????

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 Exercise 1 …
ETB 80, 000:1, ICUR means that

You would have to spend an additional 80,000 ETB for

drug Y over drug X to achieve one additional QALY.

How do you see this cost? Is it excess of the benefit

gained?

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 Exercise 2
Suppose, a patient suffer from disease ‘X’ and has been receiving
Drug therapy ‘A’ which has a survival benefits of 10 years. If the
patients is left untreated, the patient will only live for 5 years.
Estimated utility value (relative to ‘perfect health’) with drug
therapy ‘A’ and without therapy is 0.7 and 0.5respectively. The
cost incurred by the patient with drug therapy ‘A’ and without
therapy A is 18,000ETB and 4,000ETB respectively.
Calculate QALY with and without treatment?
Calculate ICUR and interpret your result?
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 ANSWER

• Drug A 0.7 x 10 = 7
• Without Rx 0.5 x 5 = 2.5
• ICUR = 3,111 per QALY

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 Exercise 3
• Suppose you are a ward pharmacist of oncology clinic at hospital
X in Ethiopia. in your hospital you have been using Drug A as a
standard of care and now, the new chemo drug is to be
considered for procurement by the hospital. both chemo drugs
prolong life and both cause side effects which reduce QOL. Your
standard chemo (Drug A) prolongs life by 1 year and reduce QoL
of your patients by 35% due to its side effects. The new chemo
prolongs life by 1.5 years at estimated utility value of 0.5.

136
You are requested to perform a PE analysis which is
CUA.

A. Calculate the QALYs for each chemo drugs??

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 Exercise 3…
Standard chemo (Drug A)
• Life expectancy = 1year
• Utility values = 1-0.35= 0.65
• QALYs = 1 x 0.65= 0.65 years
– The standard treatment is expected to add 0.65
quality-adjusted life-years to your patient’s life.

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 New chemo
• Life expectancy = 1.5 years
• Utility value = 0.5
• QALYs = 1.5 x 0.5 = 0.75 years

– The new treatment is expected to add 0.75 quality-

adjusted life-years to our patient’s life.

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 Exercise 3…
2. Suppose a full course of treatment costs of both chemos
are as follows,
– 1,200 ETB for standard Chemo
– 1,500 ETB for new Chemo
• Calculate ICUR?
• Interpret your result?

140
 Exercise 3…
• ICUR = cost of new chemo- cost of standard chemo
QALYs of new chemo - QALYs of standard
chemo

= 1,500ETB – 1,200ETB = 3,000 per

QALYs
0.75- 0.65

141
Interpretation:
On average, it costs us 3,000 ETB to add one
year of perfect health onto the life of your
patient.

• So is this considered cost-effective?

142
3. Suppose, Ethiopia’s per capita GDP is 400
USD?

So, can the new chemo be considered as cost-

effective?
Based on WHO recommendation.

143
• WHO recommendation is < 3x per capita GDP of ICER to

judge whether a given drug therapy or health technology is

CE or not.

– So, as for this case your ICUR is 3,000 Per QALYs

– And the per capita GDP is 400 x 20 = 8,000

From this date the new chemo may be considered CE

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 3. Methods of Measuring Preference

• Example: EQ-5D (EuroQol 5 dimensions; n=245)

• Health state 1:
• no problems walking about; no problems with self care;
no problems performing usual activities; no pain or
discomfort; not anxious or depressed

• Health state 2:
• no problems walking about; no problems with self care;
some problems performing usual activities; no pain or
discomfort; extremely anxious or depressed
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 3. Methods of Measuring Preference

Quality of • Classifies patients according to four attributes

• Mobility
well Being • Physical Activity
• Social Activity
(QWB) • Symptom Problem Complex

• Five attributes
• Mobility
Euro Qol(EQ • Self Care
• Usual Activity
5D) • Pain/ Discomfort
• Anxiety/depression

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 Forms of economic evaluation
Analysis Outcome valuation
Cost-minimisation Multiple outcomes in natural units
Assumes outcomes identical/very similar
Comparison of costs
Cost-effectiveness Cost per unit of effect
Single outcome, common effect; natural units:
- Intermediate (e.g. blood pressure)
- Final (e.g. LYG)
Cost-utility Broader measure of benefitis: utility
Generic outcome measure (eg. QALY)
Cost-benefit Monetary values (WTP)
Considerable progress WTP, but controversial
Human capital / stated preferences (contingent valuation)

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 Summary

Type of analysis Cost Consequences Result

Cost Least cost

Money Identical in all respects
minimization alternative

Different magnitude of a
Cost per unit of
Cost common measure eg., LY’s
Money consequence eg.
effectiveness gained, blood pressure
cost per LY gained
reduction.
Single or multiple effects not Cost per unit of
Cost utility Money necessarily common. Valued consequence eg.
as “utility” eg. QALY cost per QALY.

As for CUA but valued in Net £

Cost benefit Money
money. cost: benefit ratio.
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• THANK YOU!!
• May you have a 11111 day

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