Pharmacoeconomics refers to the scientific discipline that compares the value of one pharmaceutical drug or drug therapy to another. It is a sub-discipline of

health economics Health economics is a branch of economics concerned with issues related to efficiency, effectiveness, value and behavior in the production and consumption of health and healthcare. Health economics is important in determining how to improv ...

. A pharmacoeconomic study evaluates the cost (expressed in monetary terms) and effects (expressed in terms of monetary value, efficacy or enhanced

quality of life Quality of life (QOL) is defined by the World Health Organization as "an individual's perception of their position in life in the context of the culture and value systems in which they live and in relation to their goals, expectations, standards ...

) of a pharmaceutical product. Pharmacoeconomic studies serve to guide optimal healthcare resource allocation, in a standardized and scientifically grounded manner.

Economic evaluation

Pharmacoeconomics centers on the

economic evaluation Economic evaluation is the process of systematic identification, measurement and valuation of the inputs and outcomes of two alternative activities, and the subsequent comparative analysis of these. The purpose of economic evaluation is to identify ...

pharmaceuticals A medication (also called medicament, medicine, pharmaceutical drug, medicinal drug or simply drug) is a drug used to diagnose, cure, treat, or prevent disease. Drug therapy (pharmacotherapy) is an important part of the medical field and rel ...

, and can use

cost-minimization analysis Cost-minimization is a tool used in pharmacoeconomics Pharmacoeconomics refers to the scientific discipline that compares the value of one pharmaceutical drug or drug therapy to another. It is a sub-discipline of health economics. A pharmacoec ...

, cost-benefit analysis,

cost-effectiveness analysis Cost-effectiveness analysis (CEA) is a form of economic analysis that compares the relative costs and outcomes (effects) of different courses of action. Cost-effectiveness analysis is distinct from cost–benefit analysis, which assigns a monetar ...

or cost-utility analysis.

Quality-adjusted life year The quality-adjusted life year (QALY) is a generic measure of disease burden, including both the quality and the quantity of life lived. It is used in economic evaluation to assess the value of medical interventions. One QALY equates to one year i ...

s have become the dominant outcome of interest in pharmacoeconomic evaluations, and many studies employ a cost-per-QALY analysis. Economic evaluations are carried out alongside

randomized controlled trial A randomized controlled trial (or randomized control trial; RCT) is a form of scientific experiment used to control factors not under direct experimental control. Examples of RCTs are clinical trials that compare the effects of drugs, surgical te ...

s and using methods of decision-analytic modeling. Pharmacoeconomics is a useful method of economic evaluation of various treatment options. As more expensive drugs are being developed and licensed it has become imperative especially in context of developing countries where resources are scarce to apply the principles of pharmacoeconomics for various drugs and treatment options so that maximum improvement in quality of life can be achieved in minimum cost.

In policy

In 1993,

Australia Australia, officially the Commonwealth of Australia, is a Sovereign state, sovereign country comprising the mainland of the Australia (continent), Australian continent, the island of Tasmania, and numerous List of islands of Australia, sma ...

became the first nation to use pharmacoeconomic analysis as part of the process for deciding whether new drugs should be subsidized by the

Federal Government A federation (also known as a federal state) is a political entity characterized by a union of partially self-governing provinces, states, or other regions under a central federal government (federalism). In a federation, the self-governin ...

. The

Pharmaceutical Benefits Advisory Committee The Pharmaceutical Benefits Scheme (PBS) is a program of the Australian Government that subsidises prescription medication for Australian citizens and permanent residents, as well as international visitors covered by a reciprocal health care ag ...

(PBAC) advises Federal Government ministers on whether new drugs should be placed on a list for of drugs that consumers can then purchase from pharmacies at a subsidized price. Since 1993, this approach to evaluating costs and benefits is used in Canada, Finland, New Zealand, Norway, Sweden, and the UK.

Impact of pharmaceutical innovations

Spending on new pharmaceuticals and R&D, although expensive, is considered to bring net benefits, as it decreases overall health care costs. A study of 30 countries estimated that 73% of the increase in life expectancy in recent decades is due to new pharmaceuticals alone. Another study found that new drugs have reduced hospital usage by 25% per decade by replacing more expensive forms of care like surgery. It has been estimated that the cost per additional life-year gained thanks to pharmaceutical innovation was US$2,730, compared with US$61,000 for dialysis, a commonly used benchmark.

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