Kersee Gail O.

Bandilao BSN 2B “HEALTH ECONOMICS”

• Cost-minimization analysis
Cost-minimization (CMA)
 is the simplest of the pharmacoeconomics tools and is applied
when comparing two drugs of equal efficacy and equal
tolerability.

Therapeutic equivalence must be referenced by the author conducting

the study and should have been done prior to the cost-minimization work.
Since equal efficacy and equal tolerability is already demonstrated, there is
no requirement to find a common efficacy denominator as would be the case
when conducting a cost-effectiveness study. The author is not precluded
from doing so through the use of "cost/cure" or "cost/year of life gained".
If efficacy and tolerability is demonstrated, however, then a simple
comparison of "cost/course of treatment" can suffice for the purpose of
comparing two or more therapeutically equivalent treatment alternatives.

When conducting a cost-minimization study, the author needs to

measure all costs (resource expenditures) inherent to the delivery of the
therapeutic intervention and that are relevant to the pharmacoeconomic
perspective.

• Cost-effectiveness analysis

Cost-effectiveness analysis (CEA)

 is a form of economic analysis that compares the relative
expenditure (costs) and outcomes (effects) of two or more
courses of action. Cost-effectiveness analysis is often used
where a full cost-benefit analysis is inappropriate e.g. the
problem is to determine how best to comply with a legal
requirement. Typically the CEA is expressed in terms of a ratio
where the denominator is a gain in health from a measure (years
of life, premature births averted, sight-years gained) and the
numerator is the cost of the health gain. The most commonly
 used outcome measure is quality-adjusted life years (QALY).
Cost-utility analysis is similar to cost-effectiveness analysis.
 Cost-effectiveness analysis is generally not equivalent to cost-
benefit analysis (CBA).
 is an analysis that assesses both the costs and the effects of a
health intervention or strategy. Effects can be measured in
units of outcomes experienced such as life year gained (LYG) or
cases of disease prevented. Costs are measured in monetary
units. Whether the outcome of an analysis is cost-effective
depends on the cost-effectiveness threshold value.
 CEA relates costs to a single clinical or natural measure of
effectiveness; i.e., a unidimensional outcome, e.g., pain
reduction, activities of daily living.
 CEA is best suited to measuring technical efficiency as it is
difficult to compare treatments with different outcomes.
 CEA can sometimes be used to provide limited information on
allocative efficiency through a ratio of extra cost to extra
benefit produced (incremental cost-efficiency analysis).

• Cost benefit analysis

Cost benefit analysis (CBA)

 CBA relates costs to a valuation of benefits in commensurate
(having a common or equal unit of measure), usually monetary,
terms.
 CBA can be used to measure both technical and allocative
efficiency questions. It can be measured either within the
health care sector or across other sectors of the economy.
 a formal discipline used to help appraise, or assess, the case for
a project or proposal, which itself is a process known as project
appraisal; and an informal approach to making decisions of any
kind.

Cost–benefit analysis is typically used by governments to evaluate the

desirability of a given intervention. It is an analysis of the cost
effectiveness of different alternatives in order to see whether the benefits
outweigh the costs. The aim is to gauge the efficiency of the intervention
relative to the status quo. The costs and benefits of the impacts of an
intervention are evaluated in terms of the public's willingness to pay for
them (benefits) or willingness to pay to avoid them (costs). Inputs are
typically measured in terms of opportunity costs - the value in their best
alternative use. The guiding principle is to list all parties affected by an
intervention and place a monetary value of the effect it has on their welfare
as it would be valued by them.

• Cost utility analysis

Cost-utility analysis (CUA)

 relates costs to a multidimensional measure of effectiveness
which takes into account the valuation of benefits; i.e., a
measure of utility.
 CUA can be used to measure technical efficiency.
 CUA can be used for allocative efficiency but only within the
health care sector where health care costs only are included.
 is a form of economic analysis used to guide procurement
decisions. The most common and well-known application of this
analysis is in pharmacoeconomics, especially health technology
assessment (HTA).
In health economics, the purpose of CUA is to estimate the ratio
between the cost of a health-related intervention and the benefit it
produces in terms of the number of years lived in full health by the
beneficiaries. Hence it can be considered a special case of cost-
effectiveness analysis, and the two terms are often used interchangeably.

Advantages and Disadvantages of CUA

On the plus side, CUA allows comparison across different health programs
and policies by using a common unit of measure (money/QALYs gained). CUA
provides a more complete analysis of total benefits than simple cost-benefit
analysis does. This is because CUA takes into account the quality of life that
an individual has, while CBA does not.

However, in CUA societal benefits and costs are often not taken into
account. Furthermore, some economists believe that measuring QALYs is
more difficult than measuring the monetary value of life through through
health improvements, as is done with CBA. This is because in CUA you need
to measure the health improvement effects for every remaining year of life
after the program is initiated. While for CBA we have an approximate value
of life ($2 million is one of the estimates), we do not have a QALY estimate
for nearly every medical treatment or disease.

In addition, some people believe that life is priceless and there are ethical
problems with placing a value on human life.

Also, the weighting of QALYs through time-trade-off, standard gamble, or

visual analogue scale is highly subjective.

There are four main types of (full) economic evaluations:

 Cost-minimization analysis (CMA) - compares alternative programs
where all relevant outcome measures are equal (i.e., equal
effectiveness or equal patient quality of life).
 Cost effectiveness analysis (CEA) - compares alternatives and
measures (in natural units) the primary objective(s) of the program
(i.e., morbidity reduction, life years saved, functional ability on a
scale).
 Cost benefit analysis (CBA) - compares alternatives by using a
generic monetary outcome (i.e., dollars). The indications for using CBA
are similar as for CUA (i.e., when there are multiple objectives of a
program), the main difference being that the subjective judgements
regarding the value of health outcomes are made by techniques like
willingness-to-pay (WTP) rather than by utilities (QALYs, HYEs). With
this technique, patients (or sometimes family members, service
providers or even policy makers) are asked to express the maximum
amount of money they would be willing to pay to guarantee the
outcome of a program. This amount is interpreted as the “value” of
outcomes of the program. Since all costs and benefits are measured
and valued in commensurate units (dollars), the primary advantage of a
CBA is that the desirability of the program can be determined.
Provided the outcomes can be measured and valued appropriately, only
a CBA can judge whether a program is worthwhile.
 Cost utility analysis (CUA) - compares alternatives similar as in a
CEA, but uses a more generic outcome measured directly on patients
(i.e., quality adjusted life years-QALYs, healthy years equivalent-
HYEs). This type of analysis is preferred when there are multiple
objectives of a program, when quality of life is an important outcome,
and when quality of life and quantity of life are both important
outcomes. The primary advantage of a CUA is that the outcome
measure is more generic, and this is helpful when comparing the
relative merit of many different types of health care programs.

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