CHAPTER 1: Introduction to Pharmacoeconomics and the Course

Learning Objectives
After reading this chapter, you should be able to:

1. Describe what pharmacoeconomics is and how it differs from health economics
2. State the main objectives of beginner and advanced pharmacoeconomic modules
3. State the purpose of using pharmacoeconomics in health care
4. Describe what is meant by “value for money”
5. Describe what a health technology assessment is

Introduction
The current cost-sensitive health care environment has resulted in clinicians, government agencies, third party payers and patients to really consider the economic impact of various health care decisions. The steep increase in health care related costs over the last couple decades and the limited resources to fund novel health care innovations have resulted in a surge of interest in the study of health economics. No longer are the primary determinants of a treatment solely focused on safety and efficacy; rather the costs and outcomes of different treatment options now take centre stage in informed evidence based decision-making.

This course orients you to the world of pharmacoeconomics. Armed with this knowledge, you will be able to better understand how decisions are made in common situations between clinicians and patients and also how jurisdictions utilize research and clinical data and total costs when making decisions about listing or not listing a medication on a formulary. You will be better able to have discussions with health care professionals about outcomes of various treatment options and determine if a medication is “cost-effective” for different perspectives.

National Health Expenditures – A Changing Environment
Throughout the world, health care expenditures continue to consume an increasing proportion of the Gross National Product (GNP) of most developed nations.

According to the Canadian Institute for Health Information (CIHI)1:

• Total health care spending in Canada was estimated at $264.0 billion in 2019.
• Total health care expenditure would represent an average of $7068 per person.
• Hospitals (26.6%), drugs (15.3%) and physician services (15.1%) are expected to continue to use the largest share of health dollars.
• The private sector accounted for 30% of total expenditure.

The health care spending to Gross Domestic Product (GDP – the value of all goods and services produced in a given country) ratio is an indicator of the extent to which a nation’s resources are used in health care-related activities. CIHI reported an increase in the GDP to total health expenditure ratio from 9.0% in 1997 to about 11.6% presently. Note however, that the total health expenditure to GDP ratio has actually declined since 2010 by about 0.2% a year. CIHI produces an annual update of those data in a report “National Health Expenditure Trends” available at www.cihi.ca. To get an overview of the Canadian Marketplace we suggest you search the Keywords: CIHI National Health Expenditure Trends and select the most up-to-date report.

¹ Canadian Institute for Health Information. National Health Expenditure Trends, 1975 to 2019. Ottawa, ON: CIHI; 2019.

Based on a growth of about 7% annually between 2000 and 2010, health care expenditures in Canada doubled to surpass $200 billion in 2011 and is at 264 billion presently. Although the current growth trend is showing signs of decelerating, costs are forecasted to continue growing 1 (Figure 1).

Key drivers of health care spending and increased health care costs in Canada include:

• Population growth
• Aging of the population
• Increasing health care workforce costs
• Technological advancement
• Inflation
• Increase in drug expenditures

The increasing trend in healthcare spending over the decades illustrates the importance our society places on health care. Evidently, we have decided to allocate more public and private sector resources into health care. With health expenditures at these current levels it is important to monitor the resource allocation to ensure it is properly invested.

Why Pharmacoeconomics?
It is widely accepted that the shear number of health care treatment options far exceeds the ability of any health care system to afford all of these treatment options. Therefore, health care decision makers must make choices and prioritize competing treatment options through an analysis of costs and benefits. Since these spending data come from both public and private sectors that finance Canada’s health care system, and with these major costs in mind, individuals in both the public and private sectors must use pharmacoeconomic data to aid their decision-making. Pharmacoeconomics is essential in providing evidence to wisely handle health costs. Of the billions of dollars, how much should be allocated for certain drugs, and is their outcomes worth it? With the total health expenditures rising every year, the repercussions of every single decision must be considered.

Health Economics and Pharmacoeconomics
Economics is the science of analyzing the production, distribution, and consumption of services and goods. Put more simply, economics is the science of scarcity and value for money. Economics analyzes how choices are structured and prioritized to maximize outcomes given constrained resources. We use the principles of economics on a regular basis when making decisions about purchases. For example, when purchasing a new computer, do you buy the cheaper one or pay more for one that has more functionality? From a cost or resource preservation perspective alone, the cheaper computer may be the right choice. However, not considering only the cost, you may desire the computer with more capabilities. By comparing the costs and benefits of the competing computer options, you can optimize and structure your decision making process and achieve the optimal ‘value for money.’

Health economics is the study of achieving maximum value for money by ensuring healthcare provision is both clinically effective and cost-effective. Pharmacoeconomics is an essential component of health economics and, given the large volume of pharmaceuticals used in Canada, health care-decision making. For many health care professionals, most attention and training is focused on the therapeutic and clinical implications of drugs. However, pharmacoeconomics governs the entire system’s decision making and incorporates the important cost and outcome considerations. Pharmacoeconomics helps rationalize decision-making and offers tools such as health technology assessments to make decisions regarding value for money spent on pharmaceuticals.³

Achieving ‘value for money’ in the context of pharmacoeconomics implies a need to attain a predetermined objective for the least cost or to maximize the benefit to the population of patients served from a limited amount of resources. In other words, this concept requires outcomes and costs of pharmaceuticals to be evaluated for ‘cost-effectiveness’.³

The need for learning the concepts of pharmacoeconomics is important for you to gain a better understanding the costs and outcomes of using medications in health care. What makes a government believe a particular medication is worthwhile to bring into the country, and subsequently pay for one medication and not another? What makes patients comfortable paying for medications to achieve a particular health outcome rather than spending that money on something else?

If you would like to gain a better understanding to these questions and many others related to pharmacoeconomics, you’ve come to the right place! A sound knowledge of pharmacoeconomic principles is critical when communicating with physicians, pharmacists, and other health care decision makers about the overall value of various pharmaceuticals in health care.

What is a Health Technology Assessment?
A health technology assessment (HTA) is essentially a pharmacoeconomic document that compiles data on the economic implications of medications and other health innovations. It allows for economists, pharmaceutical companies, government bodies, health care professionals, and patients, to make sense out of drug-related decisions.

The Basic and Advanced Pharmacoeconomics Courses
The objective of this Basic Pharmacoeconomics course is to introduce the fundamentals of pharmacoeconomics and discuss the significance of applying pharmacoeconomic principles to health care decision-making. You will also learn about how local and national health care providers and administrators use pharmacoeconomic principles in their decision-making.

The topics covered in Basic Pharmacoeconomics will be:

1. Fundamentals of Pharmacoeconomics
2. Evaluating health care costs
3. Evaluating health care outcomes
4. Overview of pharmacoeconomic methods
5. How to use pharmacoeconomic data from clinical trials
6. Review the practical application and future trends of pharmacoeconomics

Upon completion of the Basic Pharmacoeconomics course, you are encouraged to register for CCPE’s Advanced Pharmacoeconomics course. It will explain the concepts of pharmacoeconomics in more detail as well as discuss how to conduct a pharmacoeconomic review or health technology assessment. Advanced Pharmacoeconomics will also cover the methods used to critique a pharmacoeconomic study.

The general topics covered in the Advanced Pharmacoeconomics course include:

1. Additional Concepts in Cost-Effectiveness and Cost-Utility Analyses
2. Decision Analysis and Markov Modeling
3. Drug Approval Process in Canada
4. Critical assessment of pharmacoeconomic studies
5. How pharmacoeconomics guides clinical practice decision-making
6. Creating a pharmacoeconomic study
7. Policy, guidelines, clinical practice

Each chapter of both courses are structured with learning objectives, introduction, chapter content, summary of key concepts, chapter questions, and selected references. The learning objectives and content found in each of the chapters will prove useful in answering the questions at the end of each chapter. A glossary is also available to provide some definitions to common pharmacoeconomic terms, many of which are bolded throughout the chapters.

CHAPTER 1 Summary
Economic constraints on the health care system in Canada and elsewhere have led to the need to judge health interventions on the basis of their safety, overall efficacy and costs. The study of achieving maximum value for money by ensuring healthcare provision is both clinically and cost-effective is known as health economics. Pharmacoeconomics is an important component of health economics that helps articulate if particular pharmaceuticals provide good value for the money compared to other available interventions. Health technology assessment is a method of assessment to communicate pharmacoeconomic data and aid decision-making. Gaining a sound knowledge of pharmacoeconomics is possible through the completion of the Basic and Advanced courses, which will enhance your communication with healthcare professionals.

References

1. Canadian Institute for Health Information. National Health Expenditure Trends, 1975 to 2015. Ottawa, ON: CIHI; 2015.
2. Canadian Institute for Health Information. National Health Expenditure Trends, 1975 to 2014. Ottawa, ON: CIHI; 2014.
3. Rascati KL. Essentials of Pharmacoeconomics. Baltimore: Wolters Kluwer; 2009.

CHAPTER 1 Questions
1. Name the reasons why there is a recent surge in the interest in the study of health economics?
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2. Describe how this course will introduce you to the world of pharmacoeconomics.
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3. Name 3 examples of key drivers of health care spending and increased health care costs in Canada.
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4. Based on a CIHI report, list the top 5 uses of funds in health expenditures in Canada?
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5. What is health economics?
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6. Fill in the blank: Achieving ‘value for money’ in the context of pharmacoeconomics requires outcomes and costs of pharmaceuticals to be evaluated for ____________________________________.
7. List 2 of the topics the Advanced Pharmacoeconomics course includes that the Basic Pharmacoeconomic course does not.
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CHAPTER 1 Answers
1. Name the reasons why there is a recent surge in the interest in the study of health economics?

• steep increase in health care related costs over the last few decades
• limited resources to fund novel health care innovations

2. Describe how this course will introduce you to the world of pharmacoeconomics.
Either 2 or more of:

• better understand how decisions are made in common situations between clinicians and patients
• how jurisdictions utilize research and clinical data and total costs when making decisions
• able to have discussions with health care professionals about outcomes of various treatment options and determine if a medication is “cost-effective”

3. Name 3 examples of key drivers of health care spending and increased health care costs in Canada.
Either 3 of:

• aging and increasing population
• increasing health care workforce costs
• technological development
• inflation
• increase in drug expenditures

4. Based on a CIHI report, list the top 5 uses of funds in health expenditures in Canada?

• Hospitals
• Drugs
• Physicians
• Other Professionals
• Other Institutions

5. What is health economics?
Health economics is the study of achieving maximum value for money by ensuring healthcare provision is both clinically and cost-effective.

6. Fill in the blank:
Achieving ‘value for money’ in the context of pharmacoeconomics requires outcomes and costs of pharmaceuticals to be evaluated for “Cost-effectiveness”.

7. Name one of the topics the Advanced Pharmacoeconomics module includes that the Beginner Pharmacoeconomic module does not?
Either one of:

• Detailed description of Cost-Minimization Analysis (CMA), Cost-Effective Analysis (CEA), Cost-Utility Analysis (CUA), Cost-Benefit Analysis (CBA) and Markov Modeling
• How to conduct a pharmacoeconomic study
• Critical assessment of pharmacoeconomic studies
• How pharmacoeconomics guides clinical practice decision-making