- Email: [email protected]
The cost-benefit approach to pricing new medicines: Doxazosin versus β-blocker treatment in Sweden
March 1990
O'Brien and
Rushby
D. Levy. Can you imagine a scenario in which quality of life takes precedence over life expectancy? B. O'Brien. I can give you an example. McNeil et al. at Harvard University have looked at laryngeal cancer and people's preferences for radiation therapy versus laryngec: tomy. They gave persons the hypothetical choice of having either the surgical option, which has good survival prospects, or radiation therapy, which has poorer survival
American Heart J . . . . al
prospects but avoids voice distortion, a single parameter of quality of life.35 A significant number of people said they would prefer to keep their own voice and opted for radiation therapy at the expense of life expectancy. So people have these values. To what extent these values influence the decisions made by physicians, regulators, and politicians is another question.
The cost-benefit approach to pricing new medicines: Doxazosin versus #-blocker treatment in Sweden The economic evaluation of pharmaceuticals is becoming increasingly important. This article presents an illustrative example of how the cost-benefit approach can be used in the pricing of a new pharmaceutical product. Doxazosln, a new selective ~l-inhibitor used in the treatment of hypertension, is compared with the established #-blocker, atenolol. Cost-effectiveness ratios are calculated for both, and from the analysis it emerges that doxazosin is the more cost-effective agent. This is largely the result of the favorable high-density lipoprotein/total cholesterol changes that doxazosin produces. Even when doxazosin is priced 30% higher than atenolol, doxazosin is more cost-effective. It is concluded that in the future economic evaluations will have significant impacts on research and development within the pharmaceutical industry. However, a number of issues still must be addressed, and economic evaluation should be subject to continuous review. (AM HEART J 1990;119:748-53.)
BjSrn Lindgren, PhD Lund, Sweden
The aim of the cost-benefit approach is to assist decision making. This approach has been developed for situations in which markets either (1) are not supposed to work sufficiently well without some form of government intervention (e.g., because of monopolies, external economies or diseconomies, uncertainty, or other "market failures") or (2) are not allowed to work at all, which is the case with public health care. 1 For the cost-benefit approach to be of any assistance, decision makers must make choices. An analysis with no reference to a particular decision-making context, and without any consideration of who the
From the Swedish Institute for Health Economics. Reprint requests: BjSrn Lindgren, PhD, Director, The Swedish Institute for Health Economics, P. O. Box 1207, S-22105 Lund, Sweden. 4/0/17645
748
decision maker is, has very little practical value. The relevance of any analysis is strictly limited to the specific question that is posed. For a number of reasons, pharmaceuticals are obvious candidates for economic evaluations. The tools of the cost-benefit approach, such as the cost-effectiveness, cost-utility, and cost-benefit analyses, are ways to improve decisions regarding the introduction and use of all types of medical technologies into the health care system. However, the type of information and advice needed depend greatly on the level at which decisions are made. Government agencies issuing therapeutic guidelines may need information that is different from that local therapeutic committees regard as relevant. These situations may also differ from what the individual physician may consider important when treating a specific patient. Economic evaluations of pharmaceutical products can provide the health care system with information
Volume 119 Number 3, Part 2
for decisions on how to use scarce health care resources.2, 3 This article, however, deals with another aspect of decision making and shows how the cost-benefit approach can be used as an instrument in pricing. The pricing of goods and services is usually left to firms and markets to decide, so why should there be a societal interest in pricing new medicines and hence a potential usefulness of the cost-benefit approach? The explanation can be found in market structure and the conditions for pharmaceutical research and development (R & D). The R & D costs of producing a new pharmaceutical product are enormous. According to recent estimates, it now costs $125 million to take a medicine from the laboratory into the market, which is more than twice the cost of only a decade ago. 4 However, after the initial discovery, the production of most pharmaceuticals is relatively inexpensive. Thus to recoup their costs, pharmaceutical companies have to price their drugs high enough to cover not only production b u t also R & D costs. The most usual way for society to encourage R & D in private companies is to let the companies have a (temporary) monopolistic position protected by patent laws. Prices can then be maintained at levels much higher than the marginal costs of production. Without the patent laws, there would be very little, if any, R & D in pharmaceutical companies. Thus the effective patent lifetime and the expected price of the new product are two important incentives for innovation in the pharmaceutical industry. Society judges appropriate patent life and price according to what is considered the optimal rate of innovation. However, in most countries, additional considerations are taken into account; the most important aspect is the distribution of income; the "optimal" rate of innovation may require profits so high that they would seem unacceptable to society for that reason. Let us assume, however, that effective patent life and distributional aspects can be dealt with suitably. What would be the optimal price of a new medicine to society? What price would encourage the optimal rate of innovation? One answer would be, at least in countries such as Sweden where prices of new medicines are negotiated between the producer and a central government agency, that pricing should be based on cost-benefit principles. The higher the expected net benefit of a new medicine, the higher the optimal price. The next section presents an illustrative example of how the cost-benefit approach could be used in producing information of practical relevance for the decisions involved in pricing new pharmaceutical
Pricing n e w
medicines
749
products. In this example, two antihypertensive drug treatments are compared. THE COST-EFFECTIVENESS OF A NEW ANTIHYPERTENSlVE MEDICINE
In a recent study, 5 the cost-effectiveness was estimated of a new selective al-receptor inhibitor, doxazosin. Doxazosin was compared with atenolol, a /3-blocking agent frequently used in Sweden, and the data, assumptions, and methods are summarized briefly. Data, assumptions, and methods. Cost-effectiveness ratios were developed for doxazosin and atenolol, each in comparison with a nontreatment alternative. Costs included the lifetime costs of antihypertensive therapy (medicines, physician visits, treatment of adverse drug reactions, etc,) minus the expected savings in lifetime treatment costs that would result from the prevention of stroke and coronary heart disease (CHD). Effects were defined as changes in life expectancy. No adjustments were made for changes in quality of life, since these were expected to be roughly the same for both medicines. Thus the costeffectiveness ratios were expressed in Swedish crowns (SEK) per life year gained (in 1983 prices). The influence of risk factors on CHD and stroke was calculated by means of multivariate risk estimates from the Framingham Heart Study. The estimates of life expectancy after primary CHD and stroke events were based on data from the Framingham Heart Study but adjusted so that the relative survival rates in comparison with the general population were the same for Sweden as for Framingham. The calculation of the expected lifetime health care costs from CHD and stroke, as well as lifetime antihypertensive intervention costs, were based on Swedish estimates. The assumptions regarding the effects of antihypertensive treatment on systolic blood pressure (SBP) and serum lipid levels were based on the results of a number of comparative clinical trials. 6-14 For atenolol, a simultaneous reduction of SBP by 10% and a decrease in the high-density lipoprotein (HDL)/total cholesterol ratio by 5% was assumed. For doxazosin, a 10 % reduction in S B P and a 5 % increase in the HDL/total cholesterol ratio was assumed. Full compliance was assumed for both treatment regimens. Certainly, the failure of patients to adhere to a prescribed medical regimen would reduce the effectiveness of treatment, but there was no reason to believe that the two medicines would be different in this respect. The assumption would then have no ef-
750
March 1990 American Heart Journal
Lindgren
100,000
Age 52
Age 52
\
90,000
\ \ \
"O o> r u) o
\ \ \
70,000 60,000
Q.UJ
\
80,000
\
Age 62 Age 52
xx
"\\\\~,
50,000
O
o ~3
\xxx~
,-..
40,000 30,000
Age 52 Age 62 Age 52 Age 62
20,000 10,000
~-Blocker ~-Blocker Doxazosin Doxazosin
r= 5% 140 150 160 170 180 190 200 210 220 Pretreatment SBP (mm Hg)
Fig. 1. Comparison of cost-effectiveness ratios for doxazosin versus a ~-blocking agent in men, 52 and 62 years of age. (From Lindgren B, Persson U. Curr Ther Res 1989;45:738-60.)
fect on the comparison between the two medicines. Time lags of 1 year for stroke and 2 years for CHD were introduced to allow for possible delays between the initiation of therapy and the resultant reduction in risk. Since one of the objectives of the study was to consider different prices, atenolol and doxazosin were assumed to give rise to exactly the same antihypertensive treatment costs. Thus the estimates based on this assumption should not be viewed as final but as the starting point for the analysis. Results. Doxazosin and atenolol increase life expectancy and reduce future costs for treating stroke and CHD. However, neither antihypertensive agent saves sufficient health care costs to pay back the cost of antihypertensive treatment. Thus there was a net cost of gaining another life year. Cost-effectiveness ratios for doxazosin and atenolol in men, ages 52 and 62 years, respectively, on initiation of therapy are presented in Fig. 1. A lower ratio indicates a relatively greater cost-effectiveness. For both doxazosin and atenolol, the expected net cost per life year gained decreased as initial SBP level increased. At all SBP levels, doxazosin had lower cost-effectiveness ratios than did atenolol. For example, in a 52-year-old man with a pretreatment SBP of 180 mm Hg the expected cost per life year gained was SEK 46,500 with atenolol and SEK 31,700
with doxazosin, t h a t is, a 30 % lower cost with doxazosin. These results are based on the assumption that both medicines were of equal price. However, the important question is, how much higher can doxazosin be priced without becoming less cost-effective than atenolol? Fig. 2 shows cost-effectiveness ratios for doxazosin treatment at several different prices of the medicine. Prices that were 30 %, 50 %, and 60 % higher for doxazosin than for atenolol are illustrated by consecutive up and rightward shifts in the costeffectiveness ratio curves for doxazosin. According to Fig. 2, doxazosin could be priced 30 % higher and could still be more cost-effective than atenolol at all studied SBP pretreatment levels. For most initial SBP levels, the price could be even higher, without changing the results in favor of atenolol. At very high initial SBP levels, the effects of HDL/total cholesterol changes would be less pronounced and thus cost-effectiveness ratios more similar. DISCUSSION
The economic evaluation of new medicines is not a formal requirement in pricing or registration decisions in Sweden. However, the issue was discussed by the 1983 Government Committee on Pharmaceutical Products, which in their final report, "Pharmaceu-
Volume 119
Pricing n e w
Number 3, Part 2
medicines
751
100,000 90,000 "O > M
80,000 x \\
70,000 60,0oo
\
so,0.. 0 o
G 2o
\\
40,000
30,000
Doxazosin, +60% Doxazosin, +60% Doxazosin, +30% ~-Blocker
20,000
uoxazosln, equal price
r= 5%
10,000 140 140 1(~0 170 180 190 200 210 220 Pretreatment SBP (mm Hg)
Fig. 2. Comparison of cost-effectiveness ratios for a fl-blocking agent versus doxazosin at several different drug prices. Values given are for 52-year-old men. (From Lindgren B, Persson U. Curr Ther Res 1989;45:738-60.) ticals and Health, ''15 devoted an entire chapter to health economics and economic evaluation. The Committee concluded t h a t the methods of economic evaluation needed further development before a formal requirement could be introduced. Nevertheless, the Committee stressed t h a t greater demands should be placed on the pharmaceutical companies to prove economic justification for new medicines; for instance, economic evaluations could be introduced into clinical drug trials. The 1983 Government Committee on Pharmaceutical Products was not the first official enquiry in Sweden to emphasize the importance of the economic evaluation of new medicines. An earlier example is the Government Committee on Industrial Concentration in Sweden. In one of their final reports from 1969, "The Pharmaceutical Industry", 16 the late Guy Arvidsson, formerly Professor of Economics at Lund University, maintained that the cost-benefit approach should be used when pricing new medicines. However, while economists argued at a relatively early stage for the use of economic appraisal techniques as an aid to decision making in the public sector, practical experience was limited in the late 1960s, at least as far as health care was concerned. It is only during the last few years that this situation has been drastically altered. The volume of published articles has increased substantially; at the same time, the
methods have markedly improved, and the use of comparative clinical trials as the source of information for economic evaluations has become more widespread. 17-19 The importance of using economic evaluations to justify the price of a medicine is to determine relative value compared with alternative possible uses of resources in the economy. The alternatives could be as follows: a very similar medicine, medicines with quite different characteristics, and other health care resources and/or goods and services other than health care. In the illustrative example given here, the alternative was assumed to be another existing medicine already used for the same type of treatment. According to comparative clinical studies, the two medicines had approximately the same overall impact, except for their respective effects on the H D L / total cholesterol ratio. A cost-effectiveness analysis was able to show how much higher the new medicine could be priced to justify this additional effect. Had the alternative been a medicine with different characteristics or a different type of health care, a more sophisticated technique would have been necessary. A cost-utility analysis could then have been used. In a cost-utility analysis, states of health are valued relative to one another, and the costs per gained utility or quality-adjusted life year from alternative courses of action are compared. On the
March 1990
752
Lindgren
basis of a cost-utility analysis, a more expensive treatment that makes people feel better or have less severe side effects might be fully justified. In principle, cost-utility analysis enables comparisons of quite different types of resource use within the health-care sector. A third possibility might have been that the alternative to the use of the new medicine would be to give up some nonhealth care-related goods and services. This would increase expenditures not only for pharmaceuticals but for the whole health care sector at the expense of other goods and services, such as housing, food, and consumer durables. This would correspond to a situation in which a dramatically different new medicine would be introduced. The question would then be, what would people be willing to sacrifice to get this new medicine? Neither costeffectiveness nor the cost-utility analysis could answer that question. Only the most ambitious technique, the Cost-benefit analysis, attempts to express all the costs and all the benefits in monetary units. Since it is extremely difficult to estimate a person's willingness to pay, it is also a very expensivetechnique to use in pract!ce and therefore should be reserved for those cases in which its use is absolutely necessary. Even without any formal requirements, economic evaluation is likely to become more important in the future in determining whether the price of a medicine is "reasonable." The more widespread the use Of economic evaluation becomes, the greater will be the impact on R & D within the pharmaceutical industry. If a pharmaceutical company knows in advance that its new products will be priced according to costbenefit principles, the incentive is to develop medicines that will satisfy not only clinical but also economic criteria. This is one of the most important aspects of using the cost-benefit approach as an instrument in pricing new medicines, and it raises a number of essential issues. The pharmaceutical company would have to know the principles by which its product would be evaluated, for example, 15 to 20 years before market introduction. This would call for a very stable consensus among researchers and policy-makers regarding the methodology and data to be used in economic evaluations. It is certainly evident that an internationally accepted methodology is gradually being established, but there are still areas characterized by substantial disagreement. The most important one is the measurement of the benefits or utility of treatment. There is much promising work going on in the field of health-related quality of life measures, but the research is still in its infancy, 2~ Policies regarding the desired distribution of in-
American Heart Journal
come and wealth, as well as the aspects of optimal risk-bearing in pharmaceutical research, are issues that further complicate the picture when analyzing the potentials of using cost-benefit-based pricing in order to influence R & D in the pharmaceutical industry. 16 Thus there are certainly a number of problems to be solved and standards to be set before economic evaluations can become a formal requirement in pricing negotiations. On the basis of a cost-effectiveness analysis of two antihypertensive medicines, this article shows how cost-benefit principles can be used for the purposes of pricing a new medicine. Once the price has been determined, further cost-effectiveness, cost-utility, or cost-benefit analyses would have to be based on that price (or a projected development of that price over time). This would make a big change in the base case assumptions to be used in an evaluation of the therapeutic strategies available in a specific situation. Thus the interpretation of the results of an economic evaluation cannot be separated from the decision that the evaluation assists. Decision making is about how to allocate and use scarce resources in some specified future. Decisions regarding the future always involve uncertainty, and information must be sought to reduce that uncertainty. Information must be provided in good time before the decision is made, and to fulfil its role as an aid to decision making, economic evaluation must be carried out before the decision. However, this also means that the evaluation itself is always made in a greater or lesser degree of uncertainty. Clinical drug trials are always and inevitably performed with relatively small samples of patients participating in fairly short follow-up studies. Irrespective of the degree of precision with which the tests are carried out, there will always be a likelihood that the drug therapy will have different properties than those established at the time of the clinical trial. The economic evaluation of a drug before its introduction on to the market inevitably relies solely on the data that are available at the time. This limitation applies not only to the benefits of the therapy but also to the profile of possible side effects and complementary epidemiologic and health care data. After the drug is introduced in the market, an increasing amount of information will gradually be assembled on the effects of the therapy. At the same time, however, other conditions may change. The assumptions that were relevant to a specific decision at a given point of time must be continually reassessed. Consequently, economic evaluations should be seen as part of a dynamic process in which decisions are subject to continuous review.
Volume 119
Pricing new
Number 3, Part 2
REFERENCES
1. Bohm P. Social efficiency. A concise introduction to welfare economics. 2nd ed. London: MacMillan Education, 1987. 2. Drummond MF, Teeling Smith G, Wells N. Economic evaluation in the development of medicines. London: Office of Health Economics, 1988. 3. Lindgren B. The cost-benefit approach to the appraisal of pharmaceuticals. J Soc A d m i n P h a r m 1987;4:90-7. 4. Economist. Drug company mergers. Economist 1989;312:43-5. 5. Lindgren B, Persson U. The cost-effectiveness of a new antihypertensive drug, doxazosin. Curt Ther Res 1989;45:738-60. 6. Frick MH, H a l t t u n e n P, Himanen P, et al. A long-term double-blind comparison of doxazosin and atenolol in patients with mild to moderate essential hypertension. Br J Clin Pharmacol 1986;21:55S-62S. 7. Pool J. Plasma lipid lowering effects of doxazosin, a new selective alpha1 adrenergic inhibitor for systemic hypertension. Am J Cardiol 1987;59:46G-50G. 8. Frick MH, Cox D, Himanen P, et al. Serum lipid changes in a one-year, multicenter, double-blind comparison of doxazosin and atenolol for mild to moderate essential hypertension. Am J Cardiol 1987;59:61G-7G. 9. Ott P, Storm T, Krusell L, Jensen H, Badskjaer J, Faergeman 0. Multi-center, double-blind comparison of doxazosin and atenolol in patients with mild to moderate hypertension. Am J Cardiol 1987;59:73G-7G. 10. Nash D, Schonfeld G, Reeves R, Black H, Weidler D. A double-blind parallel trial to assess the efficacy of doxazosin, atenolol and placebo in patients with mild to moderate systemic hypertension. Am J Cardiol 1987;59:87G-90G. 11. Karlsson B, Henning R, Waern U. Doxazosin and atenolol in mild-to-moderate hypertension. A double-blind 20-week trial
12. 13. 14.
15. 16. 17. 18. 19. 20.
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with special regard to blood pressure lowering and effects on serum lipoproteins. Curr Ther Res Clin Exp 1988;44: 1003-9. Giorgi G, Legramante J, Fioravanti G, Paies G, Legramente A. A comparative study of doxazosin versus atenolol in mild-tomoderate hypertension. Am J Cardiol 1988;116:1801-5. Mazzola C, Guerrasio E. Doxazosin versus atenolol. A randomized comparison of calculated coronary heart disease risk reduction. Am J Cardiol 1988;116:1797-801. Talseth T. Westlie L. Daae L, Vatle S. Comparison of the effects of doxazosin and atenolol on blood pressure and blood lipids: a one year. double-blind study in 228 hypertensive patients. Am J Cardiol 1988;116:1790-6. Statens Offentliga Utredningar (Government Official Reports) 1987:20. Pharmaceuticals and Health. Stockholm: Liber. 1987. Statens Offentliga Utredningar (Government Official Reports) 1969:36. The Pharmaceutical Industry. Stockholm: Liber, 1969. Drummond MF. Ludbrook A, Lowson K, Steel A. Studies in economic appraisal in health care. Vol 2. Oxford: Oxford University Press. 1986. Drummond MF, Stoddart GL, Torrance GW. Methods in economic evaluation of health care programmes. Oxford: Oxford University Press, 1987. Hertzman P. Clinical drug trials and economic evaluation. IHE Report. 1984, vol 2. Lund: The Swedish Institute for Health Economics, 1984. Brooks RG. The development and construction of health status measures. An overview of the literature. IHE Report 1986, Vol 4. Lund: The Swedish Institute for Health Economics, 1986.
O'Brien and
Rushby
D. Levy. Can you imagine a scenario in which quality of life takes precedence over life expectancy? B. O'Brien. I can give you an example. McNeil et al. at Harvard University have looked at laryngeal cancer and people's preferences for radiation therapy versus laryngec: tomy. They gave persons the hypothetical choice of having either the surgical option, which has good survival prospects, or radiation therapy, which has poorer survival
American Heart J . . . . al
prospects but avoids voice distortion, a single parameter of quality of life.35 A significant number of people said they would prefer to keep their own voice and opted for radiation therapy at the expense of life expectancy. So people have these values. To what extent these values influence the decisions made by physicians, regulators, and politicians is another question.
The cost-benefit approach to pricing new medicines: Doxazosin versus #-blocker treatment in Sweden The economic evaluation of pharmaceuticals is becoming increasingly important. This article presents an illustrative example of how the cost-benefit approach can be used in the pricing of a new pharmaceutical product. Doxazosln, a new selective ~l-inhibitor used in the treatment of hypertension, is compared with the established #-blocker, atenolol. Cost-effectiveness ratios are calculated for both, and from the analysis it emerges that doxazosin is the more cost-effective agent. This is largely the result of the favorable high-density lipoprotein/total cholesterol changes that doxazosin produces. Even when doxazosin is priced 30% higher than atenolol, doxazosin is more cost-effective. It is concluded that in the future economic evaluations will have significant impacts on research and development within the pharmaceutical industry. However, a number of issues still must be addressed, and economic evaluation should be subject to continuous review. (AM HEART J 1990;119:748-53.)
BjSrn Lindgren, PhD Lund, Sweden
The aim of the cost-benefit approach is to assist decision making. This approach has been developed for situations in which markets either (1) are not supposed to work sufficiently well without some form of government intervention (e.g., because of monopolies, external economies or diseconomies, uncertainty, or other "market failures") or (2) are not allowed to work at all, which is the case with public health care. 1 For the cost-benefit approach to be of any assistance, decision makers must make choices. An analysis with no reference to a particular decision-making context, and without any consideration of who the
From the Swedish Institute for Health Economics. Reprint requests: BjSrn Lindgren, PhD, Director, The Swedish Institute for Health Economics, P. O. Box 1207, S-22105 Lund, Sweden. 4/0/17645
748
decision maker is, has very little practical value. The relevance of any analysis is strictly limited to the specific question that is posed. For a number of reasons, pharmaceuticals are obvious candidates for economic evaluations. The tools of the cost-benefit approach, such as the cost-effectiveness, cost-utility, and cost-benefit analyses, are ways to improve decisions regarding the introduction and use of all types of medical technologies into the health care system. However, the type of information and advice needed depend greatly on the level at which decisions are made. Government agencies issuing therapeutic guidelines may need information that is different from that local therapeutic committees regard as relevant. These situations may also differ from what the individual physician may consider important when treating a specific patient. Economic evaluations of pharmaceutical products can provide the health care system with information
Volume 119 Number 3, Part 2
for decisions on how to use scarce health care resources.2, 3 This article, however, deals with another aspect of decision making and shows how the cost-benefit approach can be used as an instrument in pricing. The pricing of goods and services is usually left to firms and markets to decide, so why should there be a societal interest in pricing new medicines and hence a potential usefulness of the cost-benefit approach? The explanation can be found in market structure and the conditions for pharmaceutical research and development (R & D). The R & D costs of producing a new pharmaceutical product are enormous. According to recent estimates, it now costs $125 million to take a medicine from the laboratory into the market, which is more than twice the cost of only a decade ago. 4 However, after the initial discovery, the production of most pharmaceuticals is relatively inexpensive. Thus to recoup their costs, pharmaceutical companies have to price their drugs high enough to cover not only production b u t also R & D costs. The most usual way for society to encourage R & D in private companies is to let the companies have a (temporary) monopolistic position protected by patent laws. Prices can then be maintained at levels much higher than the marginal costs of production. Without the patent laws, there would be very little, if any, R & D in pharmaceutical companies. Thus the effective patent lifetime and the expected price of the new product are two important incentives for innovation in the pharmaceutical industry. Society judges appropriate patent life and price according to what is considered the optimal rate of innovation. However, in most countries, additional considerations are taken into account; the most important aspect is the distribution of income; the "optimal" rate of innovation may require profits so high that they would seem unacceptable to society for that reason. Let us assume, however, that effective patent life and distributional aspects can be dealt with suitably. What would be the optimal price of a new medicine to society? What price would encourage the optimal rate of innovation? One answer would be, at least in countries such as Sweden where prices of new medicines are negotiated between the producer and a central government agency, that pricing should be based on cost-benefit principles. The higher the expected net benefit of a new medicine, the higher the optimal price. The next section presents an illustrative example of how the cost-benefit approach could be used in producing information of practical relevance for the decisions involved in pricing new pharmaceutical
Pricing n e w
medicines
749
products. In this example, two antihypertensive drug treatments are compared. THE COST-EFFECTIVENESS OF A NEW ANTIHYPERTENSlVE MEDICINE
In a recent study, 5 the cost-effectiveness was estimated of a new selective al-receptor inhibitor, doxazosin. Doxazosin was compared with atenolol, a /3-blocking agent frequently used in Sweden, and the data, assumptions, and methods are summarized briefly. Data, assumptions, and methods. Cost-effectiveness ratios were developed for doxazosin and atenolol, each in comparison with a nontreatment alternative. Costs included the lifetime costs of antihypertensive therapy (medicines, physician visits, treatment of adverse drug reactions, etc,) minus the expected savings in lifetime treatment costs that would result from the prevention of stroke and coronary heart disease (CHD). Effects were defined as changes in life expectancy. No adjustments were made for changes in quality of life, since these were expected to be roughly the same for both medicines. Thus the costeffectiveness ratios were expressed in Swedish crowns (SEK) per life year gained (in 1983 prices). The influence of risk factors on CHD and stroke was calculated by means of multivariate risk estimates from the Framingham Heart Study. The estimates of life expectancy after primary CHD and stroke events were based on data from the Framingham Heart Study but adjusted so that the relative survival rates in comparison with the general population were the same for Sweden as for Framingham. The calculation of the expected lifetime health care costs from CHD and stroke, as well as lifetime antihypertensive intervention costs, were based on Swedish estimates. The assumptions regarding the effects of antihypertensive treatment on systolic blood pressure (SBP) and serum lipid levels were based on the results of a number of comparative clinical trials. 6-14 For atenolol, a simultaneous reduction of SBP by 10% and a decrease in the high-density lipoprotein (HDL)/total cholesterol ratio by 5% was assumed. For doxazosin, a 10 % reduction in S B P and a 5 % increase in the HDL/total cholesterol ratio was assumed. Full compliance was assumed for both treatment regimens. Certainly, the failure of patients to adhere to a prescribed medical regimen would reduce the effectiveness of treatment, but there was no reason to believe that the two medicines would be different in this respect. The assumption would then have no ef-
750
March 1990 American Heart Journal
Lindgren
100,000
Age 52
Age 52
\
90,000
\ \ \
"O o> r u) o
\ \ \
70,000 60,000
Q.UJ
\
80,000
\
Age 62 Age 52
xx
"\\\\~,
50,000
O
o ~3
\xxx~
,-..
40,000 30,000
Age 52 Age 62 Age 52 Age 62
20,000 10,000
~-Blocker ~-Blocker Doxazosin Doxazosin
r= 5% 140 150 160 170 180 190 200 210 220 Pretreatment SBP (mm Hg)
Fig. 1. Comparison of cost-effectiveness ratios for doxazosin versus a ~-blocking agent in men, 52 and 62 years of age. (From Lindgren B, Persson U. Curr Ther Res 1989;45:738-60.)
fect on the comparison between the two medicines. Time lags of 1 year for stroke and 2 years for CHD were introduced to allow for possible delays between the initiation of therapy and the resultant reduction in risk. Since one of the objectives of the study was to consider different prices, atenolol and doxazosin were assumed to give rise to exactly the same antihypertensive treatment costs. Thus the estimates based on this assumption should not be viewed as final but as the starting point for the analysis. Results. Doxazosin and atenolol increase life expectancy and reduce future costs for treating stroke and CHD. However, neither antihypertensive agent saves sufficient health care costs to pay back the cost of antihypertensive treatment. Thus there was a net cost of gaining another life year. Cost-effectiveness ratios for doxazosin and atenolol in men, ages 52 and 62 years, respectively, on initiation of therapy are presented in Fig. 1. A lower ratio indicates a relatively greater cost-effectiveness. For both doxazosin and atenolol, the expected net cost per life year gained decreased as initial SBP level increased. At all SBP levels, doxazosin had lower cost-effectiveness ratios than did atenolol. For example, in a 52-year-old man with a pretreatment SBP of 180 mm Hg the expected cost per life year gained was SEK 46,500 with atenolol and SEK 31,700
with doxazosin, t h a t is, a 30 % lower cost with doxazosin. These results are based on the assumption that both medicines were of equal price. However, the important question is, how much higher can doxazosin be priced without becoming less cost-effective than atenolol? Fig. 2 shows cost-effectiveness ratios for doxazosin treatment at several different prices of the medicine. Prices that were 30 %, 50 %, and 60 % higher for doxazosin than for atenolol are illustrated by consecutive up and rightward shifts in the costeffectiveness ratio curves for doxazosin. According to Fig. 2, doxazosin could be priced 30 % higher and could still be more cost-effective than atenolol at all studied SBP pretreatment levels. For most initial SBP levels, the price could be even higher, without changing the results in favor of atenolol. At very high initial SBP levels, the effects of HDL/total cholesterol changes would be less pronounced and thus cost-effectiveness ratios more similar. DISCUSSION
The economic evaluation of new medicines is not a formal requirement in pricing or registration decisions in Sweden. However, the issue was discussed by the 1983 Government Committee on Pharmaceutical Products, which in their final report, "Pharmaceu-
Volume 119
Pricing n e w
Number 3, Part 2
medicines
751
100,000 90,000 "O > M
80,000 x \\
70,000 60,0oo
\
so,0.. 0 o
G 2o
\\
40,000
30,000
Doxazosin, +60% Doxazosin, +60% Doxazosin, +30% ~-Blocker
20,000
uoxazosln, equal price
r= 5%
10,000 140 140 1(~0 170 180 190 200 210 220 Pretreatment SBP (mm Hg)
Fig. 2. Comparison of cost-effectiveness ratios for a fl-blocking agent versus doxazosin at several different drug prices. Values given are for 52-year-old men. (From Lindgren B, Persson U. Curr Ther Res 1989;45:738-60.) ticals and Health, ''15 devoted an entire chapter to health economics and economic evaluation. The Committee concluded t h a t the methods of economic evaluation needed further development before a formal requirement could be introduced. Nevertheless, the Committee stressed t h a t greater demands should be placed on the pharmaceutical companies to prove economic justification for new medicines; for instance, economic evaluations could be introduced into clinical drug trials. The 1983 Government Committee on Pharmaceutical Products was not the first official enquiry in Sweden to emphasize the importance of the economic evaluation of new medicines. An earlier example is the Government Committee on Industrial Concentration in Sweden. In one of their final reports from 1969, "The Pharmaceutical Industry", 16 the late Guy Arvidsson, formerly Professor of Economics at Lund University, maintained that the cost-benefit approach should be used when pricing new medicines. However, while economists argued at a relatively early stage for the use of economic appraisal techniques as an aid to decision making in the public sector, practical experience was limited in the late 1960s, at least as far as health care was concerned. It is only during the last few years that this situation has been drastically altered. The volume of published articles has increased substantially; at the same time, the
methods have markedly improved, and the use of comparative clinical trials as the source of information for economic evaluations has become more widespread. 17-19 The importance of using economic evaluations to justify the price of a medicine is to determine relative value compared with alternative possible uses of resources in the economy. The alternatives could be as follows: a very similar medicine, medicines with quite different characteristics, and other health care resources and/or goods and services other than health care. In the illustrative example given here, the alternative was assumed to be another existing medicine already used for the same type of treatment. According to comparative clinical studies, the two medicines had approximately the same overall impact, except for their respective effects on the H D L / total cholesterol ratio. A cost-effectiveness analysis was able to show how much higher the new medicine could be priced to justify this additional effect. Had the alternative been a medicine with different characteristics or a different type of health care, a more sophisticated technique would have been necessary. A cost-utility analysis could then have been used. In a cost-utility analysis, states of health are valued relative to one another, and the costs per gained utility or quality-adjusted life year from alternative courses of action are compared. On the
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basis of a cost-utility analysis, a more expensive treatment that makes people feel better or have less severe side effects might be fully justified. In principle, cost-utility analysis enables comparisons of quite different types of resource use within the health-care sector. A third possibility might have been that the alternative to the use of the new medicine would be to give up some nonhealth care-related goods and services. This would increase expenditures not only for pharmaceuticals but for the whole health care sector at the expense of other goods and services, such as housing, food, and consumer durables. This would correspond to a situation in which a dramatically different new medicine would be introduced. The question would then be, what would people be willing to sacrifice to get this new medicine? Neither costeffectiveness nor the cost-utility analysis could answer that question. Only the most ambitious technique, the Cost-benefit analysis, attempts to express all the costs and all the benefits in monetary units. Since it is extremely difficult to estimate a person's willingness to pay, it is also a very expensivetechnique to use in pract!ce and therefore should be reserved for those cases in which its use is absolutely necessary. Even without any formal requirements, economic evaluation is likely to become more important in the future in determining whether the price of a medicine is "reasonable." The more widespread the use Of economic evaluation becomes, the greater will be the impact on R & D within the pharmaceutical industry. If a pharmaceutical company knows in advance that its new products will be priced according to costbenefit principles, the incentive is to develop medicines that will satisfy not only clinical but also economic criteria. This is one of the most important aspects of using the cost-benefit approach as an instrument in pricing new medicines, and it raises a number of essential issues. The pharmaceutical company would have to know the principles by which its product would be evaluated, for example, 15 to 20 years before market introduction. This would call for a very stable consensus among researchers and policy-makers regarding the methodology and data to be used in economic evaluations. It is certainly evident that an internationally accepted methodology is gradually being established, but there are still areas characterized by substantial disagreement. The most important one is the measurement of the benefits or utility of treatment. There is much promising work going on in the field of health-related quality of life measures, but the research is still in its infancy, 2~ Policies regarding the desired distribution of in-
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come and wealth, as well as the aspects of optimal risk-bearing in pharmaceutical research, are issues that further complicate the picture when analyzing the potentials of using cost-benefit-based pricing in order to influence R & D in the pharmaceutical industry. 16 Thus there are certainly a number of problems to be solved and standards to be set before economic evaluations can become a formal requirement in pricing negotiations. On the basis of a cost-effectiveness analysis of two antihypertensive medicines, this article shows how cost-benefit principles can be used for the purposes of pricing a new medicine. Once the price has been determined, further cost-effectiveness, cost-utility, or cost-benefit analyses would have to be based on that price (or a projected development of that price over time). This would make a big change in the base case assumptions to be used in an evaluation of the therapeutic strategies available in a specific situation. Thus the interpretation of the results of an economic evaluation cannot be separated from the decision that the evaluation assists. Decision making is about how to allocate and use scarce resources in some specified future. Decisions regarding the future always involve uncertainty, and information must be sought to reduce that uncertainty. Information must be provided in good time before the decision is made, and to fulfil its role as an aid to decision making, economic evaluation must be carried out before the decision. However, this also means that the evaluation itself is always made in a greater or lesser degree of uncertainty. Clinical drug trials are always and inevitably performed with relatively small samples of patients participating in fairly short follow-up studies. Irrespective of the degree of precision with which the tests are carried out, there will always be a likelihood that the drug therapy will have different properties than those established at the time of the clinical trial. The economic evaluation of a drug before its introduction on to the market inevitably relies solely on the data that are available at the time. This limitation applies not only to the benefits of the therapy but also to the profile of possible side effects and complementary epidemiologic and health care data. After the drug is introduced in the market, an increasing amount of information will gradually be assembled on the effects of the therapy. At the same time, however, other conditions may change. The assumptions that were relevant to a specific decision at a given point of time must be continually reassessed. Consequently, economic evaluations should be seen as part of a dynamic process in which decisions are subject to continuous review.
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Number 3, Part 2
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