What is Pharmacoeconomics?

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  • Written By: Lisa Cox
  • Edited By: Angela B.
  • Last Modified Date: 14 August 2019
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Pharmacoeconomics is a field of economics that focuses on comparing the price of different pharmaceutical treatments and the price of non-pharmaceutical medical treatments. There are four areas that pharmacoeconomics uses to evaluate drug treatments. They are cost-effectiveness analysis, cost-benefit analysis, cost-minimization analysis, and cost-utility analysis.

Cost-effectiveness analysis evaluates multiple drug treatments for the same condition. The cost of the drug treatments are weighed against the effectiveness of the drug. The costs of drug treatments include acquisition costs, physician involvement, and nursing costs for administration of the drug. The effectiveness of drug treatment is measured in tangible measures such as length of hospital stay, duration of treatment required, and mortality rate.

Cost-benefits analysis in pharmacoeconomics turns the tangible measures of how a drug treatment works into monetary units. This allows the actual costs of drug treatments to be compared in units of money to the benefit to the patient. Giving a monetary value to the benefits patients receive makes it easier to compare in a meaningful way how the benefits of a treatment are related to their costs. Cost-benefits analysis also takes into account non-medical factors such as the education level of pharmacists and doctors. The central idea is to weigh the benefits of a drug treatment, but also to analyze the costs of different drug treatments and strive to give the lowest-cost drug treatments while still ensuring the best benefit to the patient.


Cost-minimization analysis is fairly straightforward. With two choices of drug treatment, when both are equally effective, the one that costs least is chosen for use. This is particularly important in communities where medical funding is severely limited. The idea is to pick the cheaper of two equally effective drug treatments. The emphasis of cost-minimization is to rigorously prove that all the treatments being compared are equally effective, and treatments that are not equally effective cannot be compared using cost-minimization analysis.

Cost-utility analysis focuses on life expectancy and quality of life as quantified in quality-adjusted life years (QALY). In such analysis, a monetary value is assigned for one QALY. The drug therapy is then given a cost and a determination is made about whether this increases a person’s QALY. Some drugs may be beneficial in the short term but not actually increase the length or quality of life of a patient. Other drugs do not seem as effective in the short term but they may increase a person’s QALY in the long term.

Quality of life is difficult to measure. Some indicators of quality of life may be number of visits to a hospital, level of pain over time, and duration of illness. Patients’ ability to perform basic functions such as bathing themselves, dressing themselves, and feeding themselves are also taken into account. This may seem cold blooded, but it is necessary to try to understand if a treatment is making a person’s life better.

Pharmacoeconomics attempts to balance the real limits of healthcare finance with the needs of patients. Pharmacoeconomics is about finding better treatments for less money. It imposes rigorous testing of treatments to determine their efficacy in addition to their cost. It also looks at where costs may be out of proportion to the actual cost of the drug therapy and can provide empirical evidence for effective changes to be made.


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