Terms in this set (60)
Cost of illness
Determines total economic burden of a particular disease on society
Includes prevention, treatment, losses caused by morbidity and mortality
Direct costs associated with providing treatment or prevention
Indirect costs attributable to patient loss of productivity
Widely used in public health.
True Cost of any resource
The cost of the best foregone alternative, excluding sunk costs
True cost of delivery, including opportunity cost
Amount Charged to Payer(s): often unrelated to actual cost
Allowable Charge or reimbursed amount
Direct Nonmedical Costs
Costs to patients and families that are not medical
What kind of cost is hard to measure, Pain and suffering
Direct medical cost examples
(examples) Medications, medication administrations, diagnostic tests and clinical visits
Direct non-medical cost examples
Travel to doctors office, hotel stay the night before surgery and child care for the doctors visit.
loss of productivity, unpaid peoples
Pain and suffering
Health Care Sector looks at costs related to Medical resources
Health Care Sector looks at costs related to Medical resources consumed
Other sector costs
housing, education, public services (prison and fines avoided, to prevent future harm etc)
Patient and family costs
patient and family shares of direct medical and direct nonmedical
Perspective- Researchers and studies focus on what kind of cost
Incremental costs, marginal costs or cost differences
Perspective costs usually include
Perspective is usually institution, provider, or payer
Aligning economic and pharmacoeconomic perspectives
Standardization - retrospective costs brought to the present
Medical Consumer Price Index
Interest paid on the principal sum only
Interest paid on the principal and on prior interest that has not been paid or withdrawn
Future Value of a Cash Flow equation
FVn = PV0 (1 + i)n
PV= present value in dollars
FV= Future value
i= interest rate
n= number of periods
Future value at the end of year n for a sum compounded at interest rate i is
Present value Equation
PV intial = FVn [1/(1+i)^n
Type of Study
Relevant Outcomes Measured
Adjustment to Costs or Discounting
Is there graphical excellence? Truth-telling
CMA used only when
outcomes are assumed equivalent, Chiefly used in comparing generics or for internal formulary selection purposes, Seldom published: "no better than existing option
If institutional perspective, only what cost study is used
DIRECT MEDICAL COSTS are used
Retrospective claims data review is cheap but
Costs related to clinical trials that are not likely to be found in normal use should be used or not to be used
not to be used
International costs make .... currency by using period-appropriate exchange rates
International costs make uniform currency by using period-appropriate exchange rates
In the long run, the reputation and credibility of the pharmacist will suffer if physicians and patients believe that drug recommendations are based on self-interest rather than the patient's best interest.
When making a recommendation, the pharmacist needs to consider, among other things, [their] allegiance to each perspective and the financial impact associated with each perspective.
Basskin recommendation of what a cost is
Distribution (Pharmacy to Patient)
Complete and Appropriate Title?
Products compared not identified: LMWH, warfarin
Should have said "Cost minimization"
Clearly identified Objective
Example of what 15 criteria
To retrospectively measure the costs of treating patients with uncomplicated DVT discharged with either oral warfarin alone or a combination of oral warfarin and LMWH [low molecular weight heparin]"
Perspective Stated clearly is that of Health Plan X
medical and prescription claims for Health Plan X", "Costs to the health plan", "overall savings to Health Plan X
Type of Study: Cost Minimization Analysis:
"One-year follow-up showed no differences in readmission rates due to DVT for the two groups of patients, indicating
No evidence found
Perspective in Cost Analysis considers
Patient: Out of pocket expenses
Hospital pharmacy: wholesale drug purchase price
Society: add costs to carers, work time lost, travel costs to obtain care
looks at whether results too closely depend upon particular assumptions.
Insensitive or ROBUST results don't change much.
Sensitive if conclusions change a lot with changing assumptions
Cost Minimization Analysis (CMA)
Compares cost of therapies where there are:
Compares added value to added cost
Must have evaluation of clinical outocme equivalence or "only a cost study"
Relevant cost: total cost of therapy, not just manufacturing cost
Cost-Effectiveness Analysis (CEA)
Incremental: additional cost and effectiveness compared to current therapy
Outcomes measured in "natural units" including mmHg, symptom-free days, years of life saved, increases in mobility on some kind of scale.
CER = Cost Effectiveness Ratio or
∆ Cost / ∆ Effectiveness
Cost-Utility Analysis (CUA)
How useful are the additional years gained?
Measures outcomes based on years of life adjusted by utility weights where:
1.0 = perfect health and 0.0 = dead
Morbidity and mortality combined into one measure frequently
Utility weights are imprecise
Good for comparison across multiple disease states and multiple outcomes
Cost Utility Analysis is a subset of......but uses.......as the clinical outcome measure
Cost Utility Analysis is a subset of CEA but uses QALYs as the clinical outcome measure
What is Utility
the satisfaction consumers derive from consuming goods or services
Here, it means patient preferences, either as individuals or in groups (patient perspective) related to the usefulness of health vs illness
Satisfaction from consuming one more unit of that good or service.
Cost utility analysis method
1. Develop a description of each disease state of interest.
2.Choose a method for assigning utilities:
3.Choose subjects who will determine utilities.
Who will answer the question?
4.Multiply utilities by Length of Life for each option to obtain QALYs.
Problems with QALYs
The appropriateness of the QALY arithmetical operation is compromised by the essence of the utility scale: while life-years are expressed in a ratio scale with a true zero, the utility is an interval scale where 0 is an arbitrary value for death. In order to be able to obtain coherent results, both scales would have to be expressed in the same units of measurement. The different nature of these two factors jeopardizes the meaning and interpretation of QALYs."
Cost Effectiveness Analysis (CEA)
Developed by military budget analysts
Cost outcomes: dollars
Effectiveness outcomes: natural health units: symptom-free days, % healed, etc.
Available data: clinical trials routinely use these units
Alternatives compared must have same clinical outcome units to use CEA
Relevance is in MARGINAL comparisons.
Cost Utility Analysis is a subset of CEA.
CER: Cost Effectiveness Ratio equation
CER = Cost/ Effect
CER Cost Effectiveness Ratio
Averages Cost over outcomes to get an average cost per outcome
If no ratios are calculated, it is simply a cost-consequence analysis
Compares each alternative to "do nothing"
ICER: Incremental Cost Effectiveness Ratio equation
ICER = Cost NS - Cost CP/ Effect NS - Effect CP
NS = New Strategy
CP = Current Practice
Nothing: no cost, no effect = done.
Simple and cheap: aspirin and β-blockers
Complex: medication plus cardiac catheterization, angioplasty, stents, and bypass
CEA very sensitive or insensitive to strategies chosen
Because CEA involves marginal cost and benefits, the choice of which strategies to compare can drive the calculation and the conclusion of a CEA. Consider the effect of repeating the above analysis without the simple strategy.
Thus, CEA is very sensitive to the choice of strategies being compared.
Cost effectiveness grid
Cost effectiveness plane
Cost effectiveness frontier
Problems with ICER: INB Instead
Negative result hard to interpret
Relative size matters
Need a way to handle the magnitude issue
Incremental net benefit helps solve this issue
Based on "willingness to pay" or lambda λ
INB = (λ * Δ effects) - Δ Costs
Positive INB = "worth the cost"
Drawback is need to assign monetary value
Requires sensitivity analysis
Tests the power of your assumptions on the result of your comparison or study
Often done with spreadsheets
One-way and two-way datatables
Crystal Ball Monte Carlo modeling
Earliest systematic evaluations related to large public (health) investment projects such as irrigation and sanitary sewers
1961: CBA used to evaluation vaccination program
Benefits and costs (outcomes) all converted to dollar values
Widely used in many different settings today
An advantage of .... study
Can compare many different outcomes by assigning dollar value
Disadvantage of CBA
No set method, heavily sensitive to initial assumptions
Simplest form of a CBA method
Identify all costs and benefits
Assign dollar values
Carefully adjust costs and benefits to present day values
Compute benefit / cost ratio; > 1 = positive value
Higher BCR is better
More detailed CBA methods
Identify program or intervention
Identify alternatives (including, perhaps, do nothing
Measure costs and benefits in dollars
Calculate net benefit (Total benefits - total costs)
Calculate benefit-cost ratio
(Total benefits / Total costs)
Indirect or Intangible Benefits
Human Capital Approach
Measure wages and productivity lost due to illness, disability or death
Benefits value measured in productivity gained
Yearly wage: death or disability
Daily wage: chronic, periodic illness, e.g. asthma
Missed time in days or years
Willingness to Pay Approach
Contingent Valuation (Hypothetical)
Internal Rate of Return or IRR
Rate at which PV benefits = PV costs
Compare to some hurdle or target rate
Often WACC in finance terms
USE Excel function or calculate using formula