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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

  1. Pharmacoeconomics has been defined as the description and analysis of the costs of drug therapy to health care systems and society—it identifies, measures, and compares the costs and consequences of pharmaceutical products and services.

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

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

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

  5. 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.

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

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

  8. 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.

  9. 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.


Many changes have recently taken place in health care. The continued introduction of new technologies, including many new drugs, has been among these changes. During 2012, over 150 new drugs formulations were approved by the Food and Drug Administration (FDA).1 New biotechnology drugs can cost over $10,000 per course of therapy. The increase in the number of new drugs combined with the increase in costs of drugs provides a great challenge for all health care. The new organizations created by the Affordable Care Act 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.2

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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