ie Drug discovery, animal testing to determine potential uses, SE, toxicity, and safe dosage parameters
What is an orphan drug?
Drug that may show therapeutic benefit but not economically promising
What happens in clinical stage 1?
Drug enters IND (Investigation New Drug) status when used in humans
When is first use of the drug in humans to establish the drug's action, safe dosage range, and pharmacokinetics?
Phase 1 of clinical pharmacology
What is pharmacokinetics?
Study of absorption, metabolism, & excretion rates of the drug and its metabolites
Who are the typical subjects in phase 1?
Typically young, healthy, male volunteers
What happens in phase 2?
Drug's first use in patients with the disease of interest.
What happens in phase 3?
Drug is given to patients in a "natural" setting.
Note: not enough patients are used in this stage to see rare SE (1 in 10k)
What happens in phase 4?
Post market monitoring
Not a legal, required phase
How long is the FDA review process suppose to take? And usually how long
does it actually take?
Suppose to be 180 days following its submission but can be up to 7 years
on avg ~ 12 months in 1997
What are the 2 FDA drug classification system?
What are the 2 therapeutic types?
Type P: Priority is for REVIEW not approval
Type S: Standard
What is the fee for submitting an NME?
What are the 3 chemical type?
Type 1: new molecular/Chemical entity NME/MCE
Type 2: New salt, ester, or derivative
Type 3: New formulation
What are some problems with new drug approval in the U.S?
1. Limited Number of subjects
2. Time Consideration
4. Artificial Environment
5. Usually little formal monitoring of drug effect after approval
What is the rule of thumb for the number of test subjects?
3 times the reciprocal of the incidence in order to have a 95% chance of seeing an event
Example: 1:1000 = 3k subjects needed
What are the concerns with time consideration?
Too short - not enough time to observe delayed effects such as DES and uterine cancer in female offspring
Too long - depresses and discourages new drug development, limits # of developers, and keeps new drugs from patients
What is the current estimated cost over 10-15 years to bring a new drug to market?
1.25 billion + dollars
What is so bad about artificial environment?
Clinical studies do not duplicate "real world" use of drug
What is a patent?
A grant of legal monopoly to any person who "invents or discovers a new and useful process / thing"
What is a monopoly?
A market in which there is only one seller and many buyers
What is another mechanism that encourages innovation?
In what sense is the award system not very good?
The governing body chooses the direction of innovation
How long did a patent last? How long does it last now and due to what act?
At first 17 years now 20 years due to Uruguay Agreements Act of 1994
What does the patent essentially do?
Protects intellectual property
What are the rights of a patent?
ONLY TO EXCLUDE all others from making, using, or selling their invention. No right for owner to make, use or sell.
Patent owner's right is a ______right.
What is a trademark?
Any work, name, symbol or device, or any combo thereof adopted and used by a manufacturer or merchant to identify and distinguish his product from the others
What is the purpose of a trademark?
1. Indicates origin or source
2. Used to extend monopoly through identification and loyalty
3. Product differentiation through marketing
Brand names are an example of what?
What did the Drug Price Competition and Patent Term Restoration Act of 1984 do?
Made it easier for generics to be approved while it also allowed Brand company to extend patent and the first to come out with the generic
What is GNP and GDP?
Gross National Product
Gross Domestic Product
What is the difference between GNP and GDP?
GNP is everything the US produces in the world vs GDP is everything the US produces inside the US
Which one is most often used to compare US to other countries?
Which one better shows short term trends in the economy?
What is CPI and its definition?
Consumer Price Index and it measures changes in the prices of goods purchased by the typical urban family of 4
What is MPI and what does it do?
Medical Price Index and its a sub-index of CPI, looking at the medical field
What is PPI and what does it do?
Producer Price Index and it measures changes in the prices for a manufacturer
CPI is the ratio of what?
new price to the original price x 100
What happened to the role of government in the 1960s?
It became the payor due to medicare and medicaid
What are the 4 major factors for health care inflation?
1. Health care expenditures
2. Population increase
3. Increased utilization/intensity of services
4. Inflation/health care inflation
What are the two factors we can do nothing about and the two factors we have control over?
Can't do anything about: Population increase and general inflation
We can control health care inflation and health care utilization
Compare and contrast price indexes include change over time for selected health care goods and services
In terms of CPI what has increased at a greater rate than all others?
What are the top two contributors to the high costs of CPI?
Hospital service is major
Rx drugs are a close second
What has happened to the burden on household income over time? Burden on business and gov't?
Household: burden not changed much at all
Business and Gov't: Burden increased ALOT
Who are the employers shifting the cost of premiums to?
For personal health care payments the direct out of pocket payment has done what?
It has steadily dropped
Where does the US lie in health spending as a % of GDP vs other countries?
US has the highest health spending of % GDP
For the amount of money the US spends on health care where do we rank in
Infant Mortality Rate and Male Life expectancy?
US and Cuba have nearly the same IMR and we are not the highest for MLE
What two states did Victor Fuchs do his study on?
Nevada and Utah
What is the primary cause of death in young americans, Middle age death, and late middle age death?
Young Americans: Accidents
Middle Age Death: Heart disease
Late Middle Age Death: Heart, cancer, stroke, liver "life style disease"
What are the four hallmarks of a competitive market?
1. Many buyers and sellers in the market
2. Offerings are for a standardized product or service which has an elastic demand
3. Market entry for new firms is free from barriers and resources are easily transferable
4. Consumers have complete info on prices, quality, and other factors
What is elastic demand?
A condition where there is a definite relationship between the price of a product and the quantity which would be purchased
How is health care a nearly universal demand?
Everyone gets sick therefore everyone is a buyer
What are the characteristics that make the health care market unique from purely competitive market?
1. Nearly universal demand
2. Unpredictability of illness
3. Inelastic demand and supply
4. Health care as a "right"
5. Variation in products/services
6. Barriers to market entry
7. Lack of consumer information/interest
8. Physician as agent
9. Third partyism/insurance
Elasticity tends to be more common for what kind of items?
Health care is considered what kind of item?
Elasticity tends to be more common for luxury items while most health care is deemed a necessity
How is the idea of health care as a right related to in elasticity?
Because society deems it as a right they see to it that the goods/services should be paid for by the gov't and thus ignore the price of health care being charged yet still demanding the same level of care
What are the barriers to market entry for health care?
What can explain third-party insurance taking an active role in patient's health care?
Limited information for both price and quality
What are the factors that can affect the demand and/or supply for health care?
Change in per capita income
Change in tastes of preference
Change in relative price
Change in financial system
Supply of manpower/facilities
Describe how change in per capita income affects health care demand and supply
More $ = more demand
If health insurance covers it...why not?
Describe how change in tastes and preference affects health care demand and supply
Individuals decide they want more or less Health care, preference- preventative vs acute MD vs non-MD
Describe how change in relative price affects health care demand and supply
price increase = demand decrease
Describe how change in financing system affects health care demand and supply
Patient increased out of pocket cost
Physicians: HMO can put them at risk
What is the idea about risk in insurance?
To spread risk
What are the 4 basic elements which constitutes an "insurable hazard"?
Probabilistic event over a population
Irregular event on an individual basis
Event must result in substantial loss
Loss must be measurable
To be insurable what must be possible?
The ability to determine the probability of an event or hazard occurring.
For individuals, the insurable event has what 2 things?
What are the 2 basic functions of insurance?
1. Transfer risk
2. Pooling of risk
How do you calculate a premium?
Premium = [(Probability of loss)(amount of loss)(risk factor)]+administrative costs
What are the 4 terms that all relate to patient cost-sharing?
What is a premium?
The periodic payment required to keep a health insurance policy active
What is a copayment?
An amount that must be paid by the insured to the provider for each visit
What is a deductible?
An amount that must be paid by the insured before benefits will kick in. This amount is renewalable over a specific time frame
What is coinsurance
An occurrence where both the insured person and the insurance company share the covered cost in a specific ratio 20:80
What are the advantages of cost sharing?
Makes the patient be aware of the price of health care, decreases the cost of the insurer
What is persons covered?
Individual(s) covered on the insurance policy
What is defining the peril?
Seeing what is covered, what kind of events you are being insured against
What are exclusions on an insurance policy?
Things and events that your insurance will not cover
What are covered expenses?
The conditions and services that your insurance police will cover. Lots of stipulations like generics only or step therapy
What is waiting period?
Also known as elimination period, refers to the time between the date on which you apply for insurance and when the insurance is effective
What is cancellation and renewability?
Cancellation is when the insurance company voids your policy and Renewability refers to whether insured has the right to continue coverage
What is the ideal policy called?
Non cancelable guaranteed renewable
What is incontestability?
Refers to a clause that states that after a certain period of time no misstatements on your application will void the policy, unless they can prove you did it on purpose
What are coordination of benefits?
Refers to the fact that a claim will not be double paid if there are two insurance
What is indemnity?
Refers to situations in which benefits are paid, often to the patient, predetermined amount to cover the loss.
What is hospitalization insurance?
Covers specifically services which patients receive while hospitalized. (lab work) Excludes physician care
What is physician/medical insurance?
Covers physician care
What is major medical insurance?
Sometimes referred to as catastrophic insurance Idea that covers very expensive illness
What are the 2 basic types of major medical plans?
1. Supplement to a "basic" hospital-physician-surgeon expense policy
2. Combination of "basic" and "supplemental" policies into one which provides comprehensive protection, esp. for large, unpredictable medical expenses.
What is medicare supplement "medigap" insurance?
Policies designed specifically for the elderly/ for medicare
What is long term care insurance?
Designed to provide a range of maintenance and health services for the chronically ill, disabled, or mentally retarded
What are the 3 major problems with the traditional health insurance system?
1. Ineffective at cost control
2. Often results in overutilization of health care
3. Some remain uninsured or underinsured
What are possible solutions to ineffective cost control?
1. Increase cost sharing to decrease utilization and make consumers more cost conscious
2. Standardize payment schedules, rather than basing payments on historic provider changes
3. Place health care providers at financial risk
What are the possible solutions to overutilization?
1. Increase cost sharing
2. Institute prior approval mechanism
3. Encourage substitution of outpatient for inpatient care when appropriate
What are some possible solutions to those who are uninsured or underinsured?
1. Encourage use of comprehensive HMOs
2. Set "higher" minimum standards of health ins.
3. Expand government programs/NHI
What is the approx % of American who don't have health insurance?
Approx 16% or 45-58 million people
What are the 4 particular characteristics of the uninsured American?
1. Young - many uninsured are children
2. Not terribly poor
4. Work for small companies
What are the two segments of the health industry?
Where is most of the money spend in the public sector?
Medicare and Medicaid
What are the 3 basic forms of private ins?
Blue Cross/Blue Shield
What is adverse selection?
Refers to situations where an insurer has a group of very ill patient ie expensive patients
What are the 3 cost advantages of group contracts over individual contracts for health insurance?
1. Decrease chance of adverse selection
2. Lower administrative costs
3. Tax advantage for employees
What are the 2 reasons why there is lower administrative costs for a group contract?
1. 1 salesman for a group contract of 1000 vs 20 or 30 sales for 1000 individual contracts
2. Less paperwork / individual check up to determine premium ie less work overall
What type of coverage has the most expensive administrative costs?
What is title 18 and 19 known as?
Medicare and Medicaid respectively
Medicare is based on what philosophy?
Insurance philosophy that people have paid taxes into Social Security, so now they're receiving the benefits they paid for previously
Medicaid is based on what philosophy?
Welfare philosophy, designed to redistribute the wealth from the have to the have nots
Medicare is administered by whom?
Entirely the federal government
Medicaid is administered by whom?
funded jointly by the state and the federal govt.
In this joint force to regulate medicaid what does the feds do and what does the state do?
Fed - establishes the regulations and guidelines
State - responsible for the actual direction and day-to-day operations
What are the key points in defining the term managed care?
integration of financing and provision of care
What are the 4 primary types of managed health care plans?
1. HMOs (health maintenance organizations)
2. PPOs (preferred provider organizations)
3. Managed fee-for-service
4. Point of service
What are the characteristics that an be used to define an HMO?
1. Serves a voluntarily enrolled population
2. Assumes responsibility for assuring delivery of a stated range of comprehensive health care services
3. Receives fixed payments from enrollees which are relatively independent of use of services
4. Assumes much of the financial risk or gain in the provision of health care services
What is the key to the second characteristic of HMOs?
The responsibility for delivery of services
The comprehensive nature of those health care services
How are HMOs different than traditional health care in the sense of receiving payments?
HMOs only require a minimum cost-sharing
What happens when HMOs assume much of the financial risk?
HMOs demand for a higher quality of care and better utilization because their money is at risk. Prevention vs treatment
Name the 4 HMO models
Independent practice association
What is the staff model?
HMO employs the physicians
Physicians paid a flat rate and fixed hours
What is the group model?
HMO contracts with existing medical groups to serve the HMO's membership.
Medical groups are paid usually on capitation
What is the IPA model?
HMOs contract with individual physicians
Physicians may be paid on a fee-for-basis or a capitation basis
What is the network model?
Groups models with contract with more than one group practice and groups models with contract with independent practitioners
What is to be said about HMOs statistically?
Over the years the number of HMOs has decreased due to mergers but the amount of people covered has increased
What are the advantages to IPA model?
More acceptable to physicians
Lower capital investment
easier to cover a large geographic area
What are the disadvantages to IPA?
Less physician loyalty to HMO
Uncertainty about ability of IPA to control cost
What are the 3 basic HMO pharmacy services?
1. In house pharmacies
2. Closed network
3. Open network
What is the distinguishing feature of an in-house pharmacy? And what model is associated with it?
Distinguishing feature is that the pharmacy is owned by the HMO and it is most commonly affiliated with staff model HMOs
What is said about closed network pharmacies?
HMO is only contracted to a limited number of community pharmacies
How do HMOs lower health care costs?
1. Promoting health
2. Reduce Utilization
3. Putting providers at risk
4. Quality Incentives
What are some things that HMOs usually do to promote health?
ie preventive care, prevention programs
HMO members tend to be more satisfied with what aspect of care?
The technical aspect of care such as coverage of preventive care, lower out-of-pocket costs, less paper, etc
Based on mortality rates and disability days what is the general finding of quality of care from HMOs?
Just as good and very often better than traditional , fee-for-service plans
What are the 5 distinguishing characteristics of PPOs?
1. Discounted services
2. Patient freedom-of-choice
3. Provider risk
4. Utilization review
5. Provider benefits
Describe the freedom-of-choice in PPOs
Patients can seek physicians for health care at their own choice. Will have coverage regardless of the doc. but if out of network they will pay more
What are the 2 benefits providers get for enrolling in PPOs?
1. Allows for the potential for what could be a substantial increase in provider's patient base
2. PPOs guarantee rapid payment of claims
What are the benefits of PPO for consumers?
out-of-pocket cost savings
increased access to care
What are the benefits of PPO for insurers?
Reduced health care expenses
Counters cost shifting
utilization is monitored
What are the benefits of PPO for pharmacies?
Maintain or expand patient base
Relatively quick claims payment
Still paid on a fee-for-service basis
What did the 1935 Flood Control Act state?
Projects should only be pursued if the benefits outweigh the costs
What is the medical model?
That it is assumed that if an intervention is available to help the patient it will be applied no matter what the cost
What is the great failure to the medical model?
By logic all of a society's resources would go to health care (not possible)
What is the ECHO model refer to?
Refers to Economics, Humanistic, and Clinical Outcomes
What is the H to the ECHO model?
Refers to humanistic ie the quality of life of the patient.
What is the goal of the ECHO model?
To give the best possible outcome achievable within the economic constraints
What are the 4 key concepts of economics?
1. Resources are limited
2. There must be competing alternatives
3. The costs of inputs must be available
4. The consequences of inputs must be known
What are the 4 E's of Economic evaluation?
What are the parameters to effectiveness?
How well the drug does in the real world
ie patient non compliance, SE, multiple disease
What are the parameters to efficacy?
How the drug performs under ideal conditions, defines the upper limits of the drug's ability to treat the drug ie perfectly used
What are the parameters of equity?
Can patient get access to it
ie Barriers such as cost, geographical, knowledge or cultural restrictions
What are the parameters of efficiency?
In the end is this drug worth doing.
Are all the resources put into this drug worth it
What is the primary reason of utilizing pharmacoeconomic analysis?
What is pharmaceutical economics?
A sub-specialty of micro economics
Used to analyze pharmaceutical industry with micro econ tools
What are macro and micro economics?
The examination of the allocation of resources every. Macro is applied to large economies such as nations which micro is applied to ideal competitive markets to predict behavior
What is health economics?
Analysis of the market in the health sector since it is is different than normal competitive markets
What is pharmacoeconomics?
Looks at the very special case of pharmaceutical products
What 2 things does pharmacoeconomics allow us to do?
1. Allows us to see if an action is worth doing
2. Allows us to determine which purchase or policy or action gives us the most value.
What is the 6 general steps to the pharmacoeconomic process?
1. Define problem
2. Select the perspective
3. Identify relevant alternatives
4. Establish framework and scope of analysis
5. Identify, Measure and Value Cost and Consequences
6. Analyze, interpret and derive conclusions
To define a problem it must be what?
It must be in an answerable form
It must be measurable
The key is to be very specific and define a narrow problem
What are the common perspectives to chose from during the process?
Payer - direct cost that must be paid
Provider -Direct cost that impact budget
Public (society)- All direct and indirect cost regardless of who pays them
Patient - direct cost (out of pocket) and indirect cost (loss of work or travel expenses)
What is the goal to establish framework and scope of analysis?
To make the alternative courses of action/treatments and the consequences of each explicit
By establishing framework and scope of analysis what should be defined?
The when and how of data collection
What is our best estimate of the cost of the resource?
The lost opportunity cost
What is the economic definition of cost?
The consumption of a resource that could otherwise have been used for something else
What are factors that influence cost?
1. influenced by the perspective that is adopted
2. Common costs that are dropped
3. The magnitude of costs (too small not considered, too big will dominate analysis)
The most important costs should be subject to what?
To sensitivity analysis
What are the cost classifications?
Define direct medical costs
Those resources consumed due to illness or intervention.
Can be clinical or therapeutic
Define direct non-medical costs
non-clinical resources consumed in response to illness or treatment
Best example: costs to travel to get treatment
Define indirect medical costs
Things such as lost earnings or lower productivity of the patient
Define indirect non-medical costs
Costs like pain and suffering of patient
How do we know know if indirect is more important that direct and vice versa?
Depends on the perspective we take at the beginning of the process
What is capital cost?
Costs involving the financing of buildings, land, and equipment etc.
What are operating costs?
Costs involved in the resources being used during care or service
What are fixed costs?
Costs that are consumed regardless of whether a product or service will be provided ie mortgage on building, electric
What are variable costs?
Costs that are related to the amount of production or services provided
What are total costs?
Sum of all resources consumed
What is average costs?
Cost of the resources used per unit of production
What is marginal cost aka incremental cost?
Incremental increase in resources consumed to produce one more unit of product
In economics what is considered the most efficient level of production?
The lowest marginal cost
What is most important in cost effective analysis?
What is cost description?
The simple determination or measurement of the cost of a single alternative
What is COI?
It is the Cost of illness also known when an entire disease state is examined
What do COI's assess?
How and where resources are being used
What is cost analysis?
When two or more alternatives are compared only on cost
What is CMA?
Cost Minimization Analysis, it compares 2 or more alternatives when the effect has been proven to be equal
What is CBA?
The first and most formal economic analysis where everything is converted to monetary value
What are some CBA limitations?
Since everything is converted to a monetary value it is difficult to accurately assess direct benefits like improved standard of living
What is CEA?
Cost Effectiveness Analysis, intent is to determine which alternative produces units of change at the lowest cost per unite of change
What is CUA?
Cost utility analysis, a variant of CEA, it expresses the consequence in terms of utility