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Learning Objectives

After completing this chapter, the reader will be able to:

  • Describe the four types of pharmacoeconomic analysis: cost-minimization analysis (CMA), cost-benefit analysis (CBA), cost-effectiveness analysis (CEA), and cost-utility analysis (CUA).

  • Describe the advantages and disadvantages of the different types of pharmacoeconomic analyses.

  • List and explain the 10 steps that should be found in a well-conducted pharmacoeconomic study.

  • List the six steps in a decision analysis.

  • Give examples of the application of the pharmacoeconomic evaluation techniques to the formulary decision process, including decision analysis.

  • Apply a systematic approach to the evaluation of the pharmacoeconomic literature.


Key Concepts

  • image Pharmacoeconomics identifies, measures, and compares the costs and consequences of pharmaceutical products and services.

  • image Pharmacoeconomic studies categorize costs into four types: direct medical, direct nonmedical, indirect, and intangible.

  • image Perspective is a pharmacoeconomic term that describes whose costs are relevant based on the purpose of the study.

  • image There are four ways to measure outcomes, and each type of outcome measurement is associated with a different type of pharmacoeconomic analysis: cost-minimization analysis (CMA), cost-benefit analysis (CBA), cost-effectiveness analysis (CEA), and cost-utility analysis (CUA).

  • image There are two common methods that economists use to estimate a value for health-related consequences, the human capital approach and the willingness-to-pay approach.

  • image A CUA takes patient preferences, also referred to as utilities, into account when measuring health consequences.

  • image All four types of analyses described (CMA, CBA, CEA, and CUA) should follow 10 general steps.

  • image A sensitivity analysis allows one to determine how the results of an analysis would change when these best guesses or assumptions are varied over a relevant range of values.

  • image Decision analysis is the application of an analytical method for systematically comparing different decision options. Decision analysis graphically displays choices and performs the calculations needed to compare these options.


The introduction of new, high cost, technologies, including new drugs, has received increased attention. During 2019, 48 novel drugs were approved by the Food and Drug Administration (FDA).1 Media has brought the high costs of medication to the attention to the general public. For example, Luxturna (for blindness) is priced at $850,000 and Zolgensma (for spinal muscular atrophy) is priced at $2.1 million.2,3

The increase in the number of new drugs combined with the increase in costs of established drugs provides a great challenge for all health care. The new organizations created by the Affordable Care Act (ACA) to provide access to health care insurance for Americans, in addition to existing managed care organizations (MCOs), all desire to deliver quality care while minimizing costs.4,5

Pharmacy and therapeutics (P&T) committees are responsible for evaluating these new drugs and determining their potential value to organizations. Evaluating drugs for formulary inclusion can often be an overwhelming task. The application of pharmacoeconomic methods to the evaluation process may help streamline formulary decisions.


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