pharmacoeconomics Cost analysis PBPD.pptx

Phamracoeconomics

1. Cost analysis For PB.Pharm -D Meles T. 4/4/2024 1

2. 2 Cost Estimation: Principles Costs in the economic sense (as opposed to the accounting sense) are not necessarily expenditures An economic cost is incurred whenever a resource is consumed The value of that resource consumption is its opportunity cost , that is, the value of the benefits foregone because that resource is not available for its best alternative use For “ no cost” resources, e.g., volunteer time, space, need to impute an opportunity cost. 4/4/2024

3. Steps in Cost Estimation 1. Identify Resources (inputs or consequences) Relevant to Study Perspective and Boundaries 4/4/2024 3

4. 4 Study Boundaries/Scope This is about making the study do-able Boundaries or limits specified for: Time horizon Groups of affected persons to be considered, e.g., patients + family Types of health and nonhealth outcomes to be included 4/4/2024

5. Types of costs Direct costs Indirect costs Time costs: a b s e n t e e is m, reduced productivity Medical: Hospital, physician, lab, drugs, etc Non-medical: Travel costs for appointments, tutoring child, etc Out of pocket 5 4/4/2024

6. Perspective Society Health system Insurer Individual 6 4/4/2024

7. Costs ...which costs to consider? Variable depending on viewpoint of the analysis (societal , health system, patient) The importance of cost component on decision making Whether the same costs incur in all compared treatments Total costs: Resource consumption Unit cost per resource (price) 4/4/2024 7

8. Cost-of-illness studies Total versus incremental/net/attributable costs Know which one you’re looking at Patients with a Patients without condition a condition Co s t Incremental cost 8 4/4/2024

9. Know which one you’re looking at P r e v alen c e Inci d ence Time Time Measurement Measurement 9 t 1 t 1 t 2 t 2 4/4/2024

10. 10 Resource Measurement: Justifiable Omissions Common costs – costs common to all alternatives, e.g . 1 physician visit to prescribe the drugs being compared So long as they occur at the same rate in both groups Protocol-driven costs – not “real world” e.g. weekly blood tests in a clinical trial Trivial costs e.g. patient cost to purchase OTC products – but be careful about whether this really IS trivial All must be justified by the analyst 4/4/2024

11. 11 2. Measure Resource Consumption Determine Appropriate Level of Accuracy Micro-Costing - detailed inventory, measurement, and valuation of resources consumed (inputs) in the production of a service or product, e.g., dispensing Human resource – technician time, pharmacist time Supplies – container + label, drug info printouts Equipment – computer + software, tablet counting machine Overhead – shared costs 4/4/2024

12. 12 2. Measure Resource Consumption … Gross-Costing - count the number of units of service consumed (outputs) and apply a gross estimate of the service cost, often what is typically charged, e.g., - # Rx dispensed x dispensing fee – MD visits x visit fee Choice of approach depends on the alternatives being studied 4/4/2024

13. 13 Collect Resource Utilization Data Direct measurement , e.g., trial data collectors Archival data – health record, claims data Self-report – diary (prospective); survey or interview (retrospective) Expert estimate of services/treatments/tests provided to the average patient Unit costs Reference/list prices Market prices Ideally unit prices should reflect the true (opportunity cost) of the service ….but market price will often do 4/4/2024

14. 14 Methods for Imputing Values for Nonmarket Resources (usually time) Use market wage rate approach, e.g., for volunteer time – what it would cost to hire a worker to perform that job Use social opportunity cost approach e.g., what the volunteer or informal caregiver could have earned if he/she had chosen to work in their field of training If leisure (vs. work) time has been sacrificed, could be valued at $0 up to “overtime” wage rate (what an employer would pay a worker for the 6 th and 7 th days of work per week) 4/4/2024

15. 15 3. Place a Value on Resources Consumed Select a unit cost for each type of resource consumed A market price appropriate to the perspective of the analysis For studies with a time horizon greater than 1 year, use unit costs from the base year, a concept called constant dollars (controls for price inflation) For nonmarket goods and services (free services, goods , or space) impute an opportunity cost 4/4/2024

16. 16 Unit Cost versus Unit Charge Because of imperfections in health care markets, charges for health care services may not reflect their true costs, e.g. hospital costs, physician fees, prescription dispensing fees For a third-party pay e r perspective, the charges faced by the pay e r are the appropriate unit costs to use In a societal or institutional perspective this is not the case. 4/4/2024

17. 17 Unit Cost versus Unit Charge … Therefore , if the difference between the charge and the cost are known to be large, it may be appropriate to adjust the charge per unit of service to a unit cost that better reflects the opportunity cost, e.g ., by applying a cost-to-charge ratio to the charge. 4/4/2024

18. Duration of cost follow-up The follow-up for cost analysis should match that of the true effect of an intervention on costs Costs immediately after implementation maybe not a great idea. Except if user of analysis wants to understand start-up costs only 4/4/2024 18

19. Should costs in later life be included? Imagine patient reduced risk of stroke due to antihypertensive Longer life = higher risk of cancer=higher costs Should that be taken into account? Yes and no Yes: we don’t distinguish between QALYs No: It is unfair towards life prolonging interventions. Before you include think: Is there life prolonging? Is there a true solution with data? Is there discounting? 4/4/2024 19

20. 20 Special Case of Capital Costs Investments at a single point in time to purchase assets ( land, buildings , equipment) which are used over time Compare to operating costs, which are recurring costs What is important is that buildings and equipment wear out over time and thus depreciate in value 4/4/2024

21. 21 Special Case of Capital Costs … Use accounting methods to deal with depreciation (lost value) over the useful life of the equipment or buildings Simplest approach is straight line depreciation, i.e., dividing the total lost value into equal amounts in each year of the useful life . Must also account for the opportunity cost of having funds tied up in these resources – Approximated by estimating the return on the un-depreciated balance in each year of the useful life (discount rate used to estimate this return ) 4/4/2024

22. 22 Special Case of Overhead ( shared resources ) Resources such as utilities (electricity, water, heating), housecleaning, insurance, equipment, etc. shared by different departments or programs or services To allocate shared costs to each service must select: A unit of output for the program/service onto which the shared costs will be allocated, e.g ., patient day in hospital, prescription dispensed by community pharmacy 4/4/2024

23. 23 Special Case of Overhead ( shared resources ) A basis for the allocation (e.g., floor space for housekeeping costs) that determines the proportion of the total resource cost to allocate to a given program or service A method to allocate these shared costs across programs / services. The more important the cost the more precise the method that should be used . 4/4/2024

24. How accurate is accurate Often not possible to get optimal data. – Do the best you can and describe the limits of your work Quality of resource use dependent on quality of unit costs (and vice versa) 4/4/2024 24

25. 25 Inclusion of Indirect Costs Relevant in societal and employer perspectives Inclusion is controversial ( see section 4.4 textbook ) because: Human capital approach assumes that, when the patient dies or becomes unemployed due to illness, the job is not filled by a new worker, i.e., productivity is lost forever biased against patients who were never employable, e.g., in programs for the mentally disabled If taking patient perspective then highly relevant 4/4/2024

26. 26 Recommended Approach for Handling Productivity Costs Include productivity costs but report separately from direct medical costs Report lost days of work or normal activity separately from costs of those days Use sensitivity analysis to explore the uncertainly in including productivity changes and in valuing them 4/4/2024

27. 27 Valuing Resources cont’d 1. Calculate the total cost of each resource consumed in a given year = price per unit in constant dollars x units consumed Special case of capital costs – spread over time 2. Calculate total annual costs by summing costs across all resources consumed 3. Discount costs incurred in each future year to their present value 4. Sum the stream of discounted costs over the time horizon of the study 4/4/2024

28. Costs and discounting A bird in the hand worth two in the bush Positive Time Preference: Any cost is preferred later than earlier Human beings prefer to put off payment of costs into the future. Reasons are psychological and financial: frees up $$$ for present consumption or investment It exists in theory because : Short term view of life Uncertainty of the future Expectation that the future will be better 4/4/2024 28

29. Costs and discounting … a cost incurred in the future seems/is of less importance than the same cost incurred in the present In order to reflect this lesser value of a deferred or future cost, we discount the future cost to a “present value”, e.g ., $1000 becomes $950 when viewed from the present 4/4/2024 29

30. Discounting example Year Cost of A ($s) Present value 1 1000 2 1000 3 1000 25 1000 Crude total costs: 4000 What happens after discounting? (assume annual discount rate 5%) 4/4/2024 30

31. Discounting example Year Cost of A ($s) Cost of B ($s) 1 5 15 2 10 10 3 15 4 Crude total costs: A: $30 B:$29 What happens after discounting? (assume annual discount rate 6%) 4/4/2024 31

32. 32 Calculating the Discounted Cost Assumption Regarding Timing of Costs End of year – discount costs in every year Beginning of year – do not discount costs in year 1 4/4/2024

33. 33 Discounting Health Benefits To be consistent must discount health benefits incurring in the future as well Should be at the same rate as for costs: – otherwise may become desirable to delay implementation indefinitely so that more income is earned, which would buy more lives saved 4/4/2024

34. What is the right discount rate? Most common method: Time preference rate Society’s willingness to forego consumption today in order to have greater consumption tomorrow Extracted through questionnaires or assumptions on risk less investments Difficulties (individual vs society, form of asking the question) In practice use what is in the guidelines. If no guidelines then sensitivity analysis 4/4/2024 34

35. Discounting and inflation If inflation the same across cost components then : Inflate future costs with predicted inflation rate and use larger discount rate OR Do not inflate future costs and use a smaller discount rate If inflation varies Inflate costs components separately and a larger discount at the end 4/4/2024 35

36. 33 Study Question on Costing How would you estimate the cost of a medication review service provided by a community pharmacist using: microcosting? gross costing? 4/4/2024 36

37. Thank you! 4/4/2024 37