The study of the economics of health care, or more specifically the economics of drugs or to give it its official title; Pharmacoeconomics is a relatively new field and it is growing rapidly. The aim of the field is to take a look at the benefits of a drug, the side effects and the cost and turn them into one nice neat number.
It is used by the company who are involved in the development of drugs as a way of making cost/benefit decisions. These in turn will have an effect on any R&D spending that takes place and ultimately help them come to a decision on the most appropriate price for any new drugs following approval.
When it comes to making these decisions, there are two pharmacoeconomic measures that are very important to help make the right decisions. The first of these is the Quality Adjusted Life Year and the second is Incremental Cost Effectiveness Ratio.
What is ICER?
Incremental Cost Effectiveness Ratio or ICER, which is pronounced like the icer in de-icer, is quite closely linked to QALY, but it is not the same. ICER is used when you are looking at comparing drugs. In order to fully understand what ICER is, you need a good definition; “The incremental cost-effectiveness ratio, ICER, is the ratio between the difference in costs and the difference in benefits of two interventions.”
In other words it represents the economic value that is given to an intervention in comparison to any available alternatives. To calculate an ICER the difference of the total costs, incremental costs, is divided by the differences in whatever method of health outcome, or effect, has been chosen, incremental effect. This sum produces a ratio that is equal to the “extra cost per extra unit of health effect” These ICER’s are used in decision making, they help to assess whether new healthcare solutions are more, or less, cost effective than those solutions that are already in place. It also looks at whether there are better health benefits from the new interventions compared to the existing ones. It is important to use these ICER’s to put thresholds in place that can be used to determine the most effective use of resources.
What is QALY?
Quality Adjusted Life Year or QALY, which is pronounced qually to rhyme with Wally, is where maths is used to take a look at, and quantify, the benefit I drug might have to a patient over their lifetime. This is used to set prices and conduct analysis that is competitive across the entire pharma industry. In the UK where QALY metrics are used to help make decisions on which drugs should be covered on the NHS it is possibly best known.
QALY is defined as; A quality-adjusted life-year (QALY) takes into account both the quantity and the quality of an individual’s life as generated by any health care intervention. It is a mathematical equation that gives us the product of a life expectancy in comparison to the quality of the remaining life-years.
QALY is used to take a good look at the benefits given by a drug over the lifetime of all patients, not just the benefits that it might have to just a single patient. It takes into account that one person on a drug might live just 3 months whilst another might live for several years.
If you work with reimbursement of products and pricing and need to make important decisions such as the best price for your product, as well as making sure that you have the most appropriate evidence to support your pricing decisions then you may benefit from Health economics training from a consulting company who are specialists within their field.