Perspective in pharmacoeconomics refers to the economic vantage point of a pharmacoeconomic analysis, such as a cost-effectiveness analysis or cost-utility analysis. This affects the types of costs (resource expenditures) and benefits that are relevant to the analysis.
Five general perspectives are often cited in pharmacoeconomics, including institutional, third party, patient, governmental and societal. The author must state the perspective and then ensure that costs and valuations remain consistent with it throughout the study, explaining briefly the applicable nomenclature. This should allow prospective reader to get a better understanding, and a firmer grasp of the subject matter.
If, for example, a pharmacoeconomic study takes the institutional perspective, medication cost would be relevant to resource expenditures involved in therapy delivery. Since the institution (e.g. hospital) incurs this expense, it would be included. Other relevant costs include inventory carrying cost, pharmacy time to compound or dispense, nursing time to administer, disposables (e.g. medication cups or intravenous tubing) and allocated hospital overhead costs Valuation defines the currency reference that represents the resource expenditure associated with a given cost. The actual "dollar amount" to be attributed to the medication needs to be consistent with the perspective as well. Average wholesaler price (AWP) might not be considered an appropriate valuation of medication cost from an institutional perspective, if it does not represent the cost to the institution. Average acquisition cost would be more relevant.
More complex perspectives may require broader consideration of costs and more sophisticated valuations. For example, in the "societal" perspective, it is necessary for the author to consider costs that would not be relevant to a given institutional perspective. Examples include lost productivity and lost wages due to illness.
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In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's activity. Externalities can be considered as unpriced goods involved in either consumer or producer market transactions. Air pollution from motor vehicles is one example. The cost of air pollution to society is not paid by either the producers or users of motorized transport to the rest of society. Water pollution from mills and factories is another example. All consumers are made worse off by pollution but are not compensated by the market for this damage. A positive externality is when an individual's consumption in a market increases the well-being of others, but the individual does not charge the third party for the benefit. The third party is essentially getting a free product. An example of this might be the apartment above a bakery receiving the benefit of enjoyment from smelling fresh pastries every morning. The people who live in the apartment do not compensate the bakery for this benefit.
Investment is traditionally defined as the "commitment of resources to achieve later benefits". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broader viewpoint, an investment can be defined as "to tailor the pattern of expenditure and receipt of resources to optimise the desirable patterns of these flows". When expenditure and receipts are defined in terms of money, then the net monetary receipt in a time period is termed as cash flow, while money received in a series of several time periods is termed as cash flow stream. Investment science is the application of scientific tools for investments.
Real options valuation, also often termed real options analysis, applies option valuation techniques to capital budgeting decisions. A real option itself, is the right—but not the obligation—to undertake certain business initiatives, such as deferring, abandoning, expanding, staging, or contracting a capital investment project. For example, real options valuation could examine the opportunity to invest in the expansion of a firm's factory and the alternative option to sell the factory.
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 monetary value to the measure of effect. Cost-effectiveness analysis is often used in the field of health services, where it may be inappropriate to monetize health effect. Typically the CEA is expressed in terms of a ratio where the denominator is a gain in health from a measure and the numerator is the cost associated with the health gain. The most commonly used outcome measure is quality-adjusted life years (QALY).
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 improve health outcomes and lifestyle patterns through interactions between individuals, healthcare providers and clinical settings. In broad terms, health economists study the functioning of healthcare systems and health-affecting behaviors such as smoking, diabetes, and obesity.
Public finance is the study of the role of the government in the economy. It is the branch of economics that assesses the government revenue and government expenditure of the public authorities and the adjustment of one or the other to achieve desirable effects and avoid undesirable ones. The purview of public finance is considered to be threefold, consisting of governmental effects on:
The efficient allocation of available resources;
The distribution of income among citizens; and
The stability of the economy.
In finance, valuation is the process of determining the value of a (potential) investment, asset, or security. Generally, there are three approaches taken, namely discounted cashflow valuation, relative valuation, and contingent claim valuation.
Prescription drug list prices in the United States continually rank among the highest in the world. The high cost of prescription drugs became a major topic of discussion in the 21st century, leading up to the American health care reform debate of 2009, and received renewed attention in 2015. One major reason for high prescription drug prices in the United States relative to other countries is the inability of government-granted monopolies in the American health care sector to use their bargaining power to negotiate lower prices and that the American payer ends up subsidizing the world's R&D spending on drugs.
Cost–benefit analysis (CBA), sometimes also called benefit–cost analysis, is a systematic approach to estimating the strengths and weaknesses of alternatives. It is used to determine options which provide the best approach to achieving benefits while preserving savings in, for example, transactions, activities, and functional business requirements. A CBA may be used to compare completed or potential courses of action, and to estimate or evaluate the value against the cost of a decision, project, or policy. It is commonly used to evaluate business or policy decisions, commercial transactions, and project investments. For example, the U.S. Securities and Exchange Commission must conduct cost-benefit analyses before instituting regulations or deregulations.
The green gross domestic product is an index of economic growth with the environmental consequences of that growth factored into a country's conventional GDP. Green GDP monetizes the loss of biodiversity, and accounts for costs caused by climate change. Some environmental experts prefer physical indicators, which may be aggregated to indices such as the "Sustainable Development Index".
Cost–utility analysis (CUA) is a form of economic analysis used to guide procurement decisions. The most common and well-known application of this analysis is in pharmacoeconomics, especially health technology assessment (HTA).
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 in perfect health. QALY scores range from 1 to 0 (dead). QALYs can be used to inform health insurance coverage determinations, treatment decisions, to evaluate programs, and to set priorities for future programs.
A shadow price is the monetary value assigned to an abstract or intangible commodity which is not traded in the marketplace. This often takes the form of an externality. Shadow prices are also known as the recalculation of known market prices in order to account for the presence of distortionary market instruments. Shadow Prices are the real economic prices given to goods and services after they have been appropriately adjusted by removing distortionary market instruments and incorporating the societal impact of the respective good or service. A shadow price is often calculated based on a group of assumptions and estimates because it lacks reliable data, so it is subjective and somewhat inaccurate.
Net output is an accounting concept used in national accounts such as the United Nations System of National Accounts (UNSNA) and the NIPAs, and sometimes in corporate or government accounts. The concept was originally invented to measure the total net addition to a country's stock of wealth created by production during an accounting interval. The concept of net output is basically "gross revenue from production less the value of goods and services used up in that production". The idea is that if one deducts intermediate expenditures from the annual flow of income generated by production, one obtains a measure of the net new value in the new products created.
Health care prices in the United States of America describes market and non-market factors that determine pricing, along with possible causes as to why prices are higher than other countries. Compared to other OECD countries, U.S. healthcare costs are one-third higher or more relative to the size of the economy (GDP). According to the CDC, during 2015 health expenditures per-person were nearly $10,000 on average, with total expenditures of $3.2 trillion or 17.8% GDP. Proximate reasons for the differences with other countries include: higher prices for the same services and greater use of healthcare. Higher administrative costs, higher per-capita income, and less government intervention to drive down prices are deeper causes. While the annual inflation rate in healthcare costs has declined in recent decades; it still remains above the rate of economic growth, resulting in a steady increase in healthcare expenditures relative to GDP from 6% in 1970 to nearly 18% in 2015.
Valuation using discounted cash flows is a method of estimating the current value of a company based on projected future cash flows adjusted for the time value of money. The cash flows are made up of those within the “explicit” forecast period, together with a continuing or terminal value that represents the cash flow stream after the forecast period. In several contexts, DCF valuation is referred to as the "income approach".
Intellectual property assets such as patents are the core of many organizations and transactions related to technology. Licenses and assignments of intellectual property rights are common operations in the technology markets, as well as the use of these types of assets as loan security. These uses give rise to the growing importance of financial valuation of intellectual property, since knowing the economic value of patents is a critical factor in order to define their trading conditions.
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 pharmacoeconomic study evaluates the cost and effects of a pharmaceutical product. Pharmacoeconomic studies serve to guide optimal healthcare resource allocation, in a standardized and scientifically grounded manner.
Cost-minimization is a tool used in pharmacoeconomics to compare the cost per course of treatment when alternative therapies have demonstrably equivalent clinical effectiveness.
Natural capital accounting is the process of calculating the total stocks and flows of natural resources and services in a given ecosystem or region. Accounting for such goods may occur in physical or monetary terms. This process can subsequently inform government, corporate and consumer decision making as each relates to the use or consumption of natural resources and land, and sustainable behaviour.
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