Pharmacoeconomics and policy decisions: The australian health care system

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21, NO.

5,1999

Commentary Pharmacoeconomics and Policy Decisions: The Australian Health Care System* David Henry, MB, ChB,lj2 and Ruth Lopert, BSc, BMed’ ‘Discipline of C linical Pharmacology, Faculty of Medicine and Health Sciences, The University of Newcastle, New South Wales, and 2Chairman, Economic Subcommittee, Pharmaceutical Benefits Advisory Committee, c/o Department of Health and Aged Care, Canberra, Australian Capital Territory, Australia

ABSTRACT This paper provides an overview of the use of pharmacoeconomic analysis in the process that governs drug reimbursement decisions in Australia. It discussesthe methods by which drugs are evaluated, both clinically and economically, and the means by which these 2 facets are amalgamated; the types of pharmacoeconomic data submitted in support of requests for reimbursement; the methods and standards used to assess these data; some of the more commonly encountered flaws in the data submitted; and how the different types of data influence reimbursement decisions. Key words: pharmacoeconomics, cost-effectiveness, drug reimbursement, guidelines.

*This article is based on Dr. Henry’s presentation at the 99th Annual Meeting of the American Society for Clinical Pharmacology and Therapeutics, which was held March 30 to April 1, 1998, in New Orleans, Louisiana. The article has been updated to include subsequent developments. Accepted

for pubkation

Printed in the USA. Reproduction in whole

0149-2918/99/$19.00

April 27, 1999. or part is not permitted.

THE AUSTRALIAN PHARMACEUTICAL SCHEME

BENEFITS

The Australian Pharmaceutical Benefits Scheme (PBS) is a comprehensive, publicly funded insurance program that reimburses pharmacists for the costs of selected prescription drugs. It has been in operation for 5 decades, and more than 600 drugs are listed on the formulary. Australians expect drugs to be both accessible and affordable; in the fiscal year 1997-1998, approximately 125 million prescriptions were written for a population of 18 million, at a cost of A$2.8 billion (US $1.75 billion), or about A$13 per person per month. Annual growth is currently about lo%, and drug costs represent approximately 10% of government health care expenditures in Australia. The list of drugs subsidized through the PBS is not, strictly speaking, a formulary; an additional angiotensin-converting enzyme inhibitor or nonsteroidal antiinflammatory drug cannot be excluded simply because similar drugs are already listed for similar indications. If the manufacturer or sponsor of the drug provides 909

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evidence that a drug is as effective as others in the same class and the cost of the new drug is no higher than that of the drugs already listed, the new drug will be added to the formulary. PLACING

A DRUG ON THE PBS

Pharmaceutical companies attempting to place a drug on the national form&u-y are asked to prepare a submission according to a comprehensive set of guidelines’ that include requirements for various elements of economic analysis. The requirement for pharmacoeconomic analysis has formed part of the PBS guidelines since 1993 and was introduced in response to the burgeoning costs associated with maintaining the scheme. The guidelines set out, in a reasonably prescriptive manner, a format for the compilation of a comprehensive dossier that includes the proposed indication(s) for the drug; the chosen comparator; clinical effectiveness, safety, and adverse event data; and, ultimately, comparative economic analyses. The guidelines require economic as well as clinical data in support of an application for listing, so that comparative costs as well as comparative benefits (usually vis-a-vis the drug or therapy most likely to be substituted) may be taken into consideration. Issues of cost, however, are not considered until the clinical context of a drug has been established; thus economic considerations are always placed within a clinical framework. Once compiled, submissions for new drug listings (or in some casesalterations to existing listings) are submitted to the Department of Health and Aged Care, where they are subject to intensive evaluation. The evaluation includes a review of the literature search to ensure that relevant trials have not been overlooked, trial results are 910

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reanalyzed, and resource costs used in economic analyses are verified. Not infrequently, models may be reworked and extended sensitivity analyses undertaken to determine the robustness of the outcomes presented. The process of compiling a submission is complex and error prone, and the scrutiny applied to the submissions is intended to ensure accuracy and reproducibility. The submission, together with the departmental evaluation, is then considered by an expert economic subcommittee (ESC) comprising epidemiologists, health economists, and biostatisticians, who determine whether the data presented support the claims of efficacy and cost-effectiveness made by the drug’s sponsor. The ESC is particularly interested in making decisions at the margin-that is, in determining the incremental cost of the additional benefit offered by the new product. When the data have been assessed, the ESC’s report is incorporated into the deliberations of the parent committee, the Pharmaceutical Benefits Advisory Committee (PBAC). The PBAC is responsible for advising the federal health minister on the composition of the national formulary, and in doing so is required to take into account the comparative effectiveness and cost of drugs when making its recommendations. Other factors considered by the PBAC include the need for a new drug and the significance and prevalence of the condition being treated. The committee also has a responsibility to consider the total cost of a drug, as well as issues of equity and access. For example, if a drug is not available through the PBS, then as long as it is registered and licensed (a prerequisite for PBS listing), some people will have access to the drug because they can afford it, whereas others will not. This represents an in-

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equity, which the PBAC attempts to avoid whenever possible. The final step in the process is price negotiation, which is generally based on the price used in the pharmacoeconomic analysis. Thus the price is linked to the clinical performance of the drug, and not to the cost of manufacture or acquisition of the drug or the maintenance of a profit margin. Once a drug is approved it is placed on the Schedule of Pharmaceutical Benefits. At this point a licensed medical practitioner can prescribe the drug and the government will pay the cost of the drug minus the patient’s copayment. The time frame from submission of a request for listing to availability on the formulary is about 32 weeks, of which the evaluation process takes up approximately 11 weeks. The remainder is used for administrative processing, price negotiations, and preparation of the schedule for publication. In many cases the economic evaluation is done in parallel with the final stages of licensing and registration procedures to avoid delays. TYPES OF DATA SUBMITTED The analysis and interpretation of submissions for PBS listing draw heavily on evidence from clinical trials. The standard of data is considered according to a hierarchy of levels of evidence; head-to-head, randomized clinical trials (in which selection biases and confounding variables have been eliminated) are preferred. When these types of trials have not been conducted or are not available, 2 sets of trials using a common reference (eg, a placebo) may be considered. If no randomized trials are available, nonrandomized studies that use an observational design are considered. The use of expert opinion is given fairly low

priority, because it has on occasion been found to be inaccurate when compared with trial evidence. METHODOLOGIC

PROBLEMS

Most of the methodologic problems encountered when evaluating submissions for listing relate to clinical data. For example, it is not uncommon for supporting evidence to consist of high-quality trials with sound randomization , but with insufficient numbers of subjects to detect (or exclude) a clinically significant difference between treatments. This frequently occurs with antidepressants-for example, when the trial size is barely large enough to distinguish the drug from placebo, and certainly insufficient to distinguish the new drug from an older comparator such as a tricyclic antidepressant. A similar problem is often encountered with antibiotics. However, if larger trials (with hundreds or thousands of participants) were mandated, this would require a large amount of research effort in comparing drugs that we know from prior experience are likely to be similar. This is one of the disadvantages of a heavily evidence-based process-that is, it may divert energy and resources from more innovative research questions. Therapeutic Equivalence Therapeutic equivalence trials are usually designed to show that a new therapy is no worse than its competitors. These are different from bioequivalence studies, which show whether the area under the concentration-time curve or the time to peak concentration is higher or lower with one drug than with another. Determining an acceptable threshold for therapeutic equivalence is difficult. For example, if a drug manufacturer accepts that 911

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a new drug is no better than another drug and the cost of the 2 drugs is the same, how can we ensure that the new drug is not actually worse? In general, if the new drug is more effective and does not cost more, it represents an advantage. New guidelines are being developed to assist this process.* Common Reference Trials Problems can arise when attempting to discern a difference between 2 drugs using a common reference. The table illustrates 1 such problem. In this example, drugs A and B are both designed to prevent a disease,but only placebo-controlled trial data are available. The placebo response rate is different across the 2 studies, whereas the benefit, relative to placebo, is the same for both drugs. As a result, the absolute treatment difference is twice as high with drug B as it is with drug A. The question is then: Is drug B more effective than drug A? Unfortunately, we cannot answer this question with any certainty, and as a result, these data are difficult to translate into a form to which economic analysesmay be applied. In an example such as this, the preferred measure usually would be relative risk reduction, because it is the most stable estimate of effect.3 Table. Example of a problem with common reference trials, using 2 drugs designed to prevent the same disease; only placebo-controlled trial data are available.

Placebo rate (%) Treatment rate (%) Relative risk (%) Treatment difference (%)

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Drug A

Drug B

20 10 0.5 10

40 20 0.5 20

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Surrogate Outcomes Surrogate outcomes (eg, blood pressure, peak expiratory flow rate, score on Hamilton Depression Rating Scale) weigh heavily in the decision-making process. Interpreting surrogate outcomes of trials is problematic, because in cost-effectiveness terms, it is difficult to determine an outcome’s worth. How much, for example, should we pay for a beta-agonist that leads to a 10% improvement in forced expiratory volume in 1 second in an asthmatic patient? What is the value of a night without wheezing? Should we pay for a drug that offers a 10% improvement in moming peak flow that may not be detectable by the patient? There are no simple answers, yet we are forced to rely heavily on surrogate end points to compare drugs. In addition, we cannot compare the costeffectiveness of 2 drugs when the supporting trials use different surrogate outcomes. ECONOMIC

EVIDENCE

In assessing a drug, we first examine therapeutic effect. When a new drug’s performance is equivalent to that of an existing drug, under cost minimization the 2 drugs will attract the same price. If a drug appears to have a therapeutic advantage over another drug, we need to determine the magnitude of that advantage and whether it is worth paying for. The economic aspects of a submission are not considered until the clinical relativities have been established. All relevant direct costs are included in economic analyses; indirect costs are currently viewed with some ambivalence, particularly when they relate to assumed productivity gains. Our preference is to see productivity gains measured rather than merely assumed. In addition, we must

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consider the societal viewpoint; for example, many of the people who receive drugs subsidized through the program are not employed. Therefore, we can only speculate on how a drug effect will translate into a productivity gain.

Trial-Based Versus Modeled Economic Analysis Two forms of economic analysis are requested in the PBS guidelines. Initially, a sponsor presents a preliminary economic analysis that draws on the results of the relevant clinical trials. Trial outcomes are related to the net costs of resources used in delivering the therapies in the trials. Sponsors are expected to estimate confidence intervals and perform sensitivity analyses based on these upper and lower limits of the difference in treatment effect. A sponsor may then choose to perform a modeled economic analysis, which may extrapolate from the relatively short time horizon of the clinical trial to a longer time frame, enabling the simulation of more realistic situations and patterns of resource use and relating these to longer-term health outcomes. The trial-based economic analysis thus provides a benchmark against which the modeled evaluation can be compared; if the cost-effectiveness ratios derived from the model differ significantly from those in the trial-based analysis, we try to determine the reasons for the difference. We consider the data to be more persuasive if the 2 analyses are consistent.

Types of Analyses Received Figure 1 illustrates the proportion of submissions that include economic evaluations. Before 1993, we received submissions without economic analyses; now, however, al-

most all submissions include these analyses. We currently review 70 to 80 major economic analyses each year and have cumulative experience with more than 300 submissions. Figure 2 shows a breakdown of the types of economic analyses submitted. Costeffectiveness analysis is a method for determining the incremental cost per unit of outcome achieved, with outcomes typically measured in natural units such as “hip fractures avoided” or “years of life gained.” By contrast, the cost-utility analysis measures the incremental cost per additional “qualityadjusted life-year” (QALY) achieved. The QALY links the utility of a given health state with life expectancy by assigning a weight to each time period according to the state of health during that period, where 1 = perfect health and 0 = death. In a partial economic analysis, the incremental costs are not properly related to the incremental outcomes.4 TYPES OF ERRORS ENCOUNTERED From 1994 to 1997, we received 326 applications, 182 of which were for new listings; 51 were for major changes in listings. Of the 326 submissions, 127 contained significant flaws. These flaws often are the result of the process-which is inherently complex and iterative and therefore error prone, with small initial errors easily compounded in subsequent stages of the process. The submissions were flawed in several ways. In some cases no trials had been conducted; in others, the presentation of trials was selective-that is, a trial was presented as the basis of an economic analysis, but the results of other trials contradicted those findings. We have also seen problems with analyses of trial data, such as invalid meta-analytic techniques and invalid subgroup analyses. 913

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We sometimes see trials with “trivial” benefits. Some reports of early trials in patients with benign prostatic hypertrophy indicated how much it would cost to increase urine flow rates. Unless drug effects can be translated into tangible benefits, it is difficult to assign a value to them. The choice of comparator is another recurring problem. A natural tendency exists to select the most expensive comparator rather than the most cost-effective drug currently being used in standard practice. IMPACT

ON DECISION-MAKING

Choosing to list a drug is not just a clinical decision, and it is not based solely on cost. It is an incremental decision made at the margin. The question is: Do we get value for money? We have found that drugs that were rejected tended to have higher incremental cost-effectiveness ratios, and drugs that were accepted generally had lower ratios. A review of decisions that were made regarding the subset of drugs for which the additional cost per life-year gained (LYG) has been calculated showed that drugs that cost substantially more than A$70,000 per LYG have rarely been approved. The committee appears to have set an implicit threshold. This is likely to become clearer as the number of submissions grows and our experience with the process matures. CONCLUSIONS We believe that we have developed a sustainable program for examining evidence. This is founded on the principle that drug prices and expenditures should be coupled to some consideration of performance rather than to the cost of production or the

guarantee of a margin based on what the market will bear. Although we believe that the process is credible, we nevertheless believe that there remains scope to improve rigor and reproducibility in several key areas, including the development of common outcome measures, the validation of health benefits of hitherto unproven surrogates, the valuation of health benefits in monetary or utility terms, and the quantification of equity gains.

Address correspondence to: David Henry, MB, ChB, Discipline of Clinical Pharmacology, Faculty of Medicine and Health Sciences, The University of Newcastle, Newcastle Mater Hospital, Waratah, New South Wales 2298. Australia.

REFERENCES Commonwealth Department of Human Services and Health. Guidelines for the Pharmaceutical Industry on Preparation of Submissions to the Pharmaceutical Benefits Advisory Committee. Australian Government Publishing Service; 1995. Ware JH, Antman EM. Equivalence NEJM. 1997;337:1159-1161.

trials.

Schmid CH, Lau J, McIntosh MW, Cappelleri JC. An empirical study of the effect of the control rate as a predictor of treatment efficacy in meta-analysis of clinical trials. Stat Med. 1998;17:1923-1942. Drummond MF, O’Brien B, Stoddart GL, Torrance GW. Methods for the Economic Evaluation of Health Care Programmes. 2nd ed. Oxford, England: Oxford University Press; 19976-26.

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