Pharmacoeconomics is the discipline of placing a value on drug therapy. As a sub discipline of health economics, pharmacoeconomics identifies and compares the costs and consequences of pharmaceutical products and services to healthcare systems and society as a whole. It aims to determine which alternative produces the best outcome with respect to the resource invested. This is accomplished through the quantification of the value of pharmacotherapy by balancing costs and outcomes. In today’s healthcare settings, pharmacoeconomic methods can be applied for effective formulary management, individual patient treatment, medication policy determination, and resource allocation. In most countries around the world, health care costs have increased faster than costs in any other sector of the economy. This is most notably because of a rise in life expectancy and standard of living, chronic diseases, discovery of new diseases, new treatments, new technologies, and the systematic development of the pharmaceutical industry. As a consequence of limited financial resources, pharmacoeconomic analyses are becoming a frequently used criterion for decision making in modern health care policy (Kumar 2013).

Quality healthcare must above all demonstrate pharmacoeconomic value – a balance of economic, humanistic and clinical outcomes. By understanding the principles, methods, and application of pharmacoeconomics, healthcare professionals will be prepared to make more informed decisions regarding the use of pharmaceutical products and services. Needless to say these decisions ultimately represent the best interests of the patient, the healthcare system, and society. (AMA Citation —  TRASK L. Chapter 1. Pharmacoeconomics: Principles, Methods, and Applications. In: DiPiro JT, Talbert RL, Yee GC, Matzke GR, Wells BG, Posey L. eds. Pharmacotherapy: A Pathophysiologic Approach, 8e New York, NY: McGraw-Hill; 2011. http://accesspharmacy.mhmedical.com/content.aspx?bookid=462&sectionid=41100767. Accessed December 28, 2017.)

Pharmacoeconomic analysis uses tools for examining the outcomes or impact (desirable, undesirable) of alternative drug therapies and other medical interventions. These tools can be separated into two distinct categories: economic (cost-benefit, cost-effectiveness, cost-minimization and cost utility) and humanistic (quality of life, patient preferences, patient satisfaction) evaluation techniques. Among the economics tools of pharmacoeconomic analysis, cost-utility is the most versatile and sophisticated in that it integrates the patient benefit (patient value) conferred by a drug both in terms of an improvement in length and/or quality of life. It also incorporates the costs expended for that benefit, as well as the dollars returned to patients and society from the use of a drug. However, an issue that arises with cost-utility analysis is that it is generally not comparable to another measurement because of the lack of standardized input variables which can include costs, cost perspective, quality-of-life measurement instruments, quality-of-life respondents, discounting and so forth. However, an increasingly popular value-based medicine (VBM) cost-utility analysis standardizes these variants so that one VBM analysis is comparable to another. This system provides a highly rational methodology that allows providers and patients to quantify and compare the patient value and financial value gains associated with the use of pharmaceutical agent.

It is important to note that there are potential issues with pharmacoeconomics which may arise in practice. First of all, the analysis itself is often prone to bias. This includes problems with clinical trial data transferability, selective reporting of final results, and the choice of comparative therapy. This is mostly due to the management and decision making bodies as not all committees for drug reimbursement have a pharmacoeconomist. This can also occur because of drug policies since the drug may be proven to be cost-effective but for some reason not reimbursed. In most cases there is a problem with budget impact issues. This may involve a shift from payer to hospital budget, or simply that the drug is too expensive. As a result there have been many guidelines developed for the conduct of economic evaluation, recognizing the possibilities of bias and the poor understanding of the whole process by many potential users. 

The overarching goal of pharmacoeconomics is to contribute to the rational use of drugs by incorporating cost in the questions on safety, efficacy and quality of different medical therapies, and to search for a better relationship with the costs and results. Greater use of pharmacoeconomic evaluation should assist clinical staff to make better decisions regarding medical products and services, including effective formulary management, individual patient treatment, medication policy, and resource allocation.