Pharmacoeconomics and

Management in Pharmacy VII

2012 [UNIT PH 3340] 1

[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]

2012 [UNIT PH 3340] 2

News review

[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]

J. Vella [PH 3340]

Comparative salaries

3

J. Vella [PH 3340]

Discussion

• Malta has the second lowest tax rate of 18%

• Cyprus is last with 12% (it is now broke)

• An Italian has a higher average gross wage

• €28,230 as opposed to €21,446, but

€12,521 as compared to €3,860

• Highest minimum wage in Luxembourg,

lowest in Bulgaria

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J. Vella [PH 3340]

Discussion

• COL varies from country to country

• Take-home is more important than gross

remuneration

• The figures are skewed due to higher

earning directors and self-employed

owner/directors

• A median figure would have been more

appropriate

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J. Vella [PH 3340]

Countrywide figures

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J. Vella [PH 3340]

More notes

• Average drops when one considers the

public sector

• Worst off are construction sector employees

at €12,665

• Best paid are financial services employees

at €18,159

• Pharmacists seem to be well remunerated at

around €24-25,000

7

J. Vella [PH 3340]

Concierge medicine?!

8

J. Vella [PH 3340]

Perverse resource allocation?

• Is the pool of doctors available to the man in

the street being reduced?

• Or is the number of patients turning to mass

service hospitals thus diminished and

increasing access to less wealthy

individuals?

• An issue in the US where primary care

doctors are at a premium

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J. Vella [PH 3340]

Shortage of GPs

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J. Vella [PH 3340]

Physicians per 100,000 pop.

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J. Vella [PH 3340]

Money is the cause

• Recent studies calculate a shortage of

50,000 primary care physicians in the US in

the next decade

• Specialisation is more lucrative and less

demanding

• Reimbursement is the issue

• 60% of primary care activities are not

reimbursed

12

J. Vella [PH 3340]

Local situation

• Retention rate in Malta has improved with

the renegotiation of doctors’ remuneration

• This has led to improved staffing and patient

access to primary care

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J. Vella [PH 3340]

Morally unacceptable!

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J. Vella [PH 3340]

Unaffordable healthcare

• Initial tests amounted to $ 50,000!

• Adding on preliminary treatment bill went up

to $ 89,000

• Insurance costing almost $ 500 monthly not

sufficient

• Life-saving treatment beyond the average

individual

15

J. Vella [PH 3340]

Local fears

• Could the advent of private healthcare lead

to such a situation?

• Could the farming out of state procedures to

private hospitals eventually entail payment

or an increase in SSC contributions?

• Private insurance premiums are bound to

rise with an increase in the amount of tests

prescribed

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J. Vella [PH 3340]

Demographics US 1900

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J. Vella [PH 3340]

Demographics US 1995

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J. Vella [PH 3340]

Paying for organ donation?

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J. Vella [PH 3340]

Going too far or about time?

• A radical suggestion!

• From a financial aspect, the cost of the

kidney transplant would be balanced out in

18months by a less costly care regimen for

the patient

• Such a step would have to be heavily

regulated and pass through a multitude of

legal, moral and social discussions and

consideration 20

J. Vella [PH 3340]

Theory is only a guideline

• A new book published recently, Models

behaving badly (E. Derman) 1

• It puts forward a thesis that is gaining much

ground recently

• Economics is not an exact science and

cannot accurately predict financial markets

• The main reason for this is that human

nature plays an important role

1 Previously a physicist and financial modeler 21

J. Vella [PH 3340]

Discussion

• This is a principle that we must take forward

into our daily professional practice and

evaluation of economic situations

• It brings us back to the very basic ECHO

model for pharmacoeconomic analyses

• One cannot separate the human element

from the economic and clinical aspects

• After all, the first element is the reason for

the existence of the other two 22

J. Vella [PH 3340]

A different take on the US

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J. Vella [PH 3340]

Life expectancy is not an accurate

indicator

• The US finished at the top of the table, with

Japan in the middle

• Japan leads the life expectancy table

• Thus LE is not always a good surrogate for

healthcare outcomes

• There is a case for measuring outcomes at

the point of intervention

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J. Vella [PH 3340]

Counterfeit Avastin!

25

J. Vella [PH 3340]

Money talks!

• A worrying article in the Economist

• 19 separate instances of a fake oncological

drug in the United States

• Criminals tend to forge copies of costlier

medication, without regard for the fact that

innocent people might die

• Treatment with Avastin costs around $4,400

monthly ($3.5 billion annual sales globally)

26

J. Vella [PH 3340]

But is it really worth it!

• In a case of emotion trumping reality, further

investigation of the evidence shows us that

Avastin only prolongs life by a few months,

and may or may not offer significant

advantages over other therapies

• At the same absolute cost a healthcare

system administrator could launch

promotional campaigns against obesity and

save countless more lives per monetary unit

27

J. Vella [PH 3340]

Difficult situations

• These are the quandaries that individuals

entrusted with the responsibility of controlling

pharmaceutical resources are faced

• In such cases reason and cold numbers

should always hold precedence over

emotional, knee-jerk decisions

• The lack of formal PE evaluation and

transparent procedures is evident locally

28

J. Vella [PH 3340]

Are our beliefs flawed?

29

J. Vella [PH 3340]

Does money or patient welfare

drive healthcare?

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J. Vella [PH 3340]

Editorial

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J. Vella [PH 3340]

Social conscience or cost-based

rationale to spending?

• This editorial makes the point that social

welfare and advancement should be used as

a yardstick for decision-making

• Rather than a set of hard-and-fast cost

effectiveness based algorithms

• What is socially beneficial or not gives rise to

the argument of how to develop indicators to

measure such an impact

32

J. Vella [PH 3340]

The Malta Medicines List (i)

• A useful addition to the e-resources

available

• The only easily accessible compendium of

locally available medicine

• No need for a regular purchase of a physical

drug register

• Free of charge

• Updated by the competent authorities and

thus credible and reliable

33

J. Vella [PH 3340]

The Malta Medicines List (ii)

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J. Vella [PH 3340]

Drawbacks

• No field to reference local distributor

• No hierarchy in the database

• Variants of the same AI are listed as a

separate entry, thus bloating the amount of

items in the initial search field

• Despite the above, an invaluable addition to

the few IT/web-based tools available locally

35

J. Vella [PH 3340]

No public awareness on generics!

36

J. Vella [PH 3340]

The general public is in the dark

• The article states that 85% of people are not

aware of the advantages of generic

medicines

• Yet no news of a nationwide campaign to

educate the public!

• The larger originator companies still wield

considerable, and in some cases, undue

influence, to the detriment of the consumer

37

J. Vella [PH 3340]

Conflicting evidence!?

38

J. Vella [PH 3340]

Flawed conclusions?

39

J. Vella [PH 3340]

No more statins for all?

40

J. Vella [PH 3340]

Points about statins

• The current mantra has been to promote

statins for all adults at a risk of CVS, and

even as a primary care strategy to all adults

of a certain age

• This study discredits this approach, also

citing the fact that studies supporting statin-

led interventions were funded from within the

pharmaceutical industry

41

J. Vella [PH 3340]

The worth of the statin market

42

2012 [UNIT PH 3340] 43

International price variations

[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]

J. Vella [PH 3340]

Expenditure per capita

44

J. Vella [PH 3340]

Cheaper Europe!

45

J. Vella [PH 3340]

Analysis

• Uniformity across the EU

• Great disparity to the United States

• North Americans accuse Europe of rent

seeking or taking advantage of the R&D

funded by higher prices in the US & Canada

• The reimbursement system incentivises

higher prices and price fixing

46

J. Vella [PH 3340]

Point of argument

• One of the greatest sources of debate in any

country

• Consumers always compare to cheaper

countries or regions and accuse retailers or

suppliers of profiteering

• The real picture is not so clear-cut

• The following slide lists the main reasons for

inter-country pharmaceutical price variation

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J. Vella [PH 3340]

Main reasons for price differences

International Price Variation

Cost of living (adjusted by PPPs)

Manufacturer Strategy

Insurance payer or state subsidy

Reference pricing

Presence of generic variants

Fixed price control

Monopoly market situation (distribution or retail)

Market throughput volume (purchasing power)

Geographic or logistical factors

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2012 [UNIT PH 3340] 49

Are innovative medicines

only for the wealthy?

[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]

J. Vella [PH 3340]

The rich live longer!

50

J. Vella [PH 3340]

Discussion

• A higher GDP leads to longer lives

• Are longer lives due to better education and

thus healthier lifestyles and habits

• Or does a wealthier country afford a higher

standard of healthcare and pharmaceutical

expenditure that leads to the prolonging of

its inhabitants existence?

51

J. Vella [PH 3340]

More money, bigger budgets

52

J. Vella [PH 3340]

More money, more drugs

53

J. Vella [PH 3340]

Global inequality

• The majority of pharmaceutical sales are

concentrated in North America, Europe and

Japan

• Less developed regions are ignored as they

do not offer the potential for huge profits

• Most R&D is targeted at diseases of the

Western world and Japan, to the detriment

of the rest

54

J. Vella [PH 3340]

Levelling the playing field

• Legislation for orphan drugs and neglected

diseases has been introduced, with drug

companies given fast-track approval and tax

credits for investing in such areas

• Deals have been struck, such as forward

purchasing agreements, by GAVI, which

enable 3rd world countries to purchase

vaccines at marginal cost

55

J. Vella [PH 3340]

Source: IMS

Worldwide distribution of pharmaceutical

sales 2003

J. Vella [PH 3340]

Source: IMS MIDAS, MAT February 2006 (totals do not add due to rounding)

47,0%

30,0%

10,7%

8,2%4,2%

North America (USA,

Canada)

Europe

Japan

Africa, Asia

(excl.Japan) & Austr.

Latin America

Worldwide distribution of pharmaceutical

sales 2005

J. Vella [PH 3340]

Source: IMS Health (totals do not add due to rounding)

Worldwide distribution of pharmaceutical

sales 2010

J. Vella [PH 3340]

Patented/generic market shares

J. Vella [PH 3340] 60

Patented/generic market shares

J. Vella [PH 3340]

Pricing of an innovative pharmaceutical

product

• Typical pricing strategies for new

innovations:

• Market skimming strategy (high initial

prices)Signals market that innovation is

significant and can recoup development

expenses (assuming there’s demand)

• Attracts competitors, may slow adoption

J. Vella [PH 3340]

Pricing of a generic pharmaceutical

product

• Generics adopt Penetration Pricing (very

low price or free to gain market share)

• Accelerates adoption, driving up volume

• Requires large production capacity be

established early

• Manufacturing must be efficient as it the

resale price is much closer to the marginal

cost of production

J. Vella [PH 3340]

Average wholesale margins in Europe

J. Vella [PH 3340]

Average retail margins in Europe

J. Vella [PH 3340]

VAT Rates on medicine

J. Vella [PH 3340]

Generic penetration 24-months post expiry

2012 [UNIT PH 3340] 67

Value Based Healthcare

[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]

J. Vella [PH 3340]

Value Based Healthcare

• This is a conceptual framework of thought

That has been dealt with in depth by Dr.

Michael Porter of Harvard Business School

• His initial work was on competition, clusters

and the competitive advantages of nations

• His latest labors have been devoted to the

insoluble quandary that is the United States

healthcare system

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J. Vella [PH 3340]

Why bother?

• The perversity of the situations that what I

am teaching today is the past not the future

• Presently we are adopting a silo mentality to

treatment budgeting and costing

• The cost of a treatment intervention or a

pharmaceutical cycle is based on a narrow

Cost Effectiveness Evaluation or a Cost

Minimisation Analysis

69

J. Vella [PH 3340]

Inverse incentives

• Economics is all about incentives

• Individuals or organisations tend to act in the

manner that profits them the most

• Rewards are directed towards providers or

administrators that supply treatment at a

lower cost

• This has led to a situation ideal for zero sum

competition

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J. Vella [PH 3340]

Zero sum competition

• In zero sum competition, service providers

compete on a narrow range of determinants

and erode each other's positions by abrasive

competition on price and service levels

• The end consumer, in this case the patient,

is not better off, the quality of the care

provided is the same, at best, if not

decreased

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J. Vella [PH 3340]

Positive sum competition

• In positive sum competition, various service

providers compete on the quality weighted

outcomes of their product, with better health

outcomes for patients being incentivised

• Instead of prizing the provision of cheaper

health services, we must reward healthcare

plans providers that produce healthier

patients and citizens

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J. Vella [PH 3340]

Refocus

• In an effort to more efficient in the economic

sense, we have lost track of the aim!

• The centre of all healthcare is the patient,

and yet he/she does not figure in the

evaluation of treatment interventions

• The key of value driven care is to crystallise

the concept of a better outcome as opposed

to a cheaper one

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J. Vella [PH 3340]

Simple!

• A healthy patient is an inherently cheaper

one

• Simple thoughts, but very difficult to

breakdown into policy and process

frameworks

• This is the next challenge for health and

pharmacoeconomics

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J. Vella [PH 3340]

A pervasive mentality

• This type of radical paradigm shift can only

take place if various conditions are in place

• Opposition to change is always encountered,

with fear and vested interests the main

contrary factors

• Unless the health professionals entrusted

introduce a sense of change and a ‘can do’

approach, then the status quo will persist

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J. Vella [PH 3340]

Requirements for change

Factors required

Political will and consensus on all sides, to enable legislation to be approved and

stable

Public backing, obtained by the right educational approach and sub-population

targeting

Well mapped process implementation and modelling, followed by the appropriate

dry-runs and pilot systems

Full scale involvement for the health professionals running the day-to-day

processes, to enable practicality and ease of use

Intensive training for all health professionals involved

Wholesale utilisation of IT systems available to eliminate or reduce fragmentation

of data and the time required to enter, process and retrieve it 76

J. Vella [PH 3340]

Variations on PE

• •The US and the UK have been working on

adaptions of their current systems of

apportioning healthcare resources

• •In the US the PCORI1 has been set up to

supersede traditional methods of distribution,

and the UK VBP2 is being discussed, prior to

introduction in 2013

1Patient-Centred Outcomes Research Institute

2 Value Based Pricing

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J. Vella [PH 3340]

PCORI

• The establishment of PCORI limits formal

measures such as the cost per QALY metric

• •A broad set of criteria, including ‘impact on

national expenditures’

• •The NCCN1 is piloting a CTI2 categorising

products as preferred, appropriate or

acceptable

1National Comprehensive Cancer Network

2Comparative Therapeutic Index

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J. Vella [PH 3340]

Reaction

• The private sector is moving in response

• •HMO’s are reacting by re-arranging their

tiered formularies to reflect the effectiveness

and impact of a pharmaceutical

• •This behaviour, in the long term, could lead

to a better correlation between the cost and

effect of a medicine

79

J. Vella [PH 3340]

UK – Value Based Pricing

• The UK has utilised as system of price

control for branded medicines known as the

PPRS1 since 1957

• This is to be replaced by a system called

VBP

• Concerns are being voiced that if pricing is

linked to a system of indexing, R&D will be

curtailed – 1 Pharmaceutical Price Regulation Scheme

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J. Vella [PH 3340]

Not all agree!

81

J. Vella [PH 3340]

VBP (ii)

• The government, on the other hand wants to

ensure that new and innovative drugs are

accessible to all, and not just the wealthy or

the ones selected through a healthcare

lottery

• Such as system would reward breakthrough

drugs and put less emphasis on product-line

extensions and me-too drugs

82

J. Vella [PH 3340]

The QALY again!

• The QALY is being mooted as a measure for

the establishment of the relative efficacy and

pricing of a pharmaceutical intervention

• The QALY is utilised in PE evaluations

world-wide

• Its present application is limited in scope,

and subject to the criticism that it is not

flexible enough to accommodate all illnesses

83

J. Vella [PH 3340]

A compromise?

• The British proposition is to create

thresholds for different ranges of diseases

and provide for flexibility and societal

relevancies

• With greater weighting given to medicines

with a higher social benefit it is anticipated

that R&D in the UK will move to increase

investment in the same areas1

1 4 billion sterling at last estimation

84

J. Vella [PH 3340]

Time for action!

• More investment is required locally to

establish a unit specifically entrusted with

collecting, collating and analysing data

regarding pharmaceutical healthcare

expenditure

• Only when this is up and running can we

take stock of the current situation and create

solutions and alternatives to the status quo

85

2012 [UNIT PH 3340] 86

Discussion time

[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]

J. Vella [PH 3340]

Discussion points

• Why did you become a pharmacist?

• What would you consider the role of a

pharmacist

• What would you consider the best segment

of pharmacy that you would practice so far?

• Would you choose the same course again?

• Do you think that pharmaco/health

economics is relevant to the profession?

87

J. Vella [PH 3340]

Discussion points

• Should wealthy people pay more SSC and

tax to fund care for poorer citizens?

• Or should bigger contributors obtain better

care in view of their investment?

• Are SSC and taxes a social equaliser or

simply a means of investing for the future?

• Should social and healthcare equity be a

primary aim in healthcare system

administration?

88

J. Vella [PH 3340]

Practice morals?

• Where does a pharmacist’s loyalty lie?

• Is the well-being of the patient the prime

factor or does the advancement of financial

aims (self-employed or not) take

precedence?

• Walking a tightrope

• One can make a living and at the same time

be morally justified and correct

89