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Why do pharmacists need to understand economics?


Andrew Walker
Senior Lecturer in Health Economics
Robertson Centre for Biostatistics
University of Glasgow
E:[email protected]

To most people economics is a dry subject, encountered mainly on the television news, or only coming to their attention when they find how much tax they must pay next year. Some people might even know Thomas Carlyle’s comment about it being “the dismal science”. Others will know a joke about economists, like the view attributed to the American president Harry Truman, who is alleged to have said that the next economist he hired should only have one arm, because whenever he asked an economist for their view, they always replied, “Well, on the one hand this might happen, but on the other hand …”.

These misconceptions are unfortunate. When I talked to students completing a pharmacoeconomics course they said they did not expect it to be so interesting. They were surprised there were not more figures and arithmetic – one even claimed to have bought a calculator especially, but had not taken it out of its box! The most frequent comment I’ve heard is about the value of economics as a way of thinking about problems they face in their day-to-day jobs. So what is it that grabs their attention?

Economics as a way of thinking
The main attraction of the economics approach is that it starts from a position that most people recognise: there are not enough resources to do everything that is possible or desirable, so choices must be made. It proceeds to use a stated set of principles to analyse problems and to make recommendations. Economics is the study of resource allocation decisions when choices must be made. More specifically, it advocates the systematic working through of the costs and benefits of different courses of action; this
measurement should be in similar units in order to inform a decision.

Limited budgets and lack of staff or equipment are all features that pharmacists will be familiar with; the question is, “How should we use the resources that are available?” Pharmacists may face this question themselves when dealing with the resources they control directly, or they might encounter it when they are competing with others within the hospital for limited additional funding. An understanding of the presentation of economic data, combining financial and clinical perspectives in a single framework, can provide invaluable input to decisions.

Some economists are happy to simply present the evaluation results to decision-makers, but others prefer (or are required) to use a decision rule to give a definite policy recommendation. The most commonly used decision rule is the assumption that the objective of resource allocation is to maximise benefits to society. (The philosophical basis of this view is to be found in the utilitarian school, with its maxim of “the greatest happiness for the greatest number”.) Under this decision rule an efficient allocation is achieved when healthcare resources are allocated to maximise benefits – in terms of pharmacy resources this might mean looking for the greatest health gain possible from the drugs budget.

The set of techniques known as economic evaluation (including cost-effectiveness analysis, cost-utility analysis and cost-benefit analysis) are ways of putting these principles into practice. The value of these methods in decision-making has been demonstrated by Tengs et al,(1) who estimated the current resource allocation of 185 different lifesaving interventions in America and their effectiveness in terms of deaths averted. They then estimated how many deaths could have been averted if the same resources had been allocated between the interventions according to cost-effectiveness data. This demonstrated that current resource allocation achieved only half the health gain of an economically efficient allocation, so there is a strong ethical case for using these approaches: without it people are left suffering, and some will die unnecessarily as a result.

Despite this, surveys of pharmacists in the UK and in Europe have shown that the use of such data is still limited.(2,3) What, then, are the barriers to putting these principles into practice in pharmacy decision-making?

Problems applying the principles to pharmacy decision-making
Lack of awareness of the approach is not as important as it once was: not only are journals full of articles analysing the cost-effectiveness of drug treatment, but also the pharmaceutical industry increasingly uses such studies to support its case for products. Faced with such data, pharmacists need the critical appraisal skills to assess the evidence presented to them. Fortunately there is widespread agreement among economists on what represents a good quality evaluation, and the principles involved have much in common with the assessment of clinical trials (for example, a well-defined study question, a clear perspective, all data sources clearly stated, results with external validity, and so on). In my experience, pharmacists find these skills valuable and relatively easy to assimilate.

Training is needed because the principles outlined above are not clearly understood, and there are many misconceptions about the subject. Pharmacists have expressed surprise to me that the subject is not about either cost control irrespective of the impact on patient health, or treating as many patients as possible within the budget available. In addition, the economic aspects of a problem are sometimes seen as an “optional” addition to the decision-making process. In fact, any resource allocation decision (eg, one that commits spending) is an economic decision – there will be gainers (the people who get treatment) and losers (the people who do not get treated because the funds have been committed). Under this view, pharmacists take part in economic decisions all the time. The issue is only whether they do so on an unaccountable and possibly inconsistent basis, or whether they attempt to use explicit principles such as those outlined above to assist them.

A second important barrier is that economics is not easily applied to every decision an individual pharmacist must make in the course of a working day. The best way to use economic thinking might be through some form of collective decision-making, either when guidelines for managing diseases are being drawn up, in decisions about funding for new drugs, or in drug utilisation reviews. This gives more time to carry out the economic analysis and review its results: there are several published accounts of the way that this can be achieved (see, for example, Raftery(4) for national decision-making and Foy et al(5) for a method for looking at economic evidence in the context of other information). A second reason for reserving economic input for the collective decisions is that economic evaluation is often carried out from a societal perspective, looking at broad, long-term costs and benefits. By contrast, in day-to-day decision-making, clinicians often adopt the viewpoint of the individual patient.

There are practical and ethical reasons for pharmacists to be aware of economic principles and to use them in their work. There are barriers to individual pharmacists trying to use these ideas in isolation. However, there is increasing evidence that these ideas can be successfully applied to informing pharmacy decision-making at the organisation level.


  1. Tengs T, Graham J. The opportunity costs of haphazard social investments in life-saving. In: Hahn R, editor. Risks, costs and lives saved: getting better results from regulation. Oxford: Oxford University Press; 1996.
  2. Drummond M, Cooke J, Walley T. Economic evaluation under managed competition: evidence from the UK. Soc Sci Med 1997;45:583-95.
  3. von der Schulenberg J-M, editor. The influence of economic evaluation studies in health care decision-making. Amsterdam: IOS Press; 2000.
  4. Raftery J. NICE: faster access to modern treatments? Analysis of guidance on health technologies. BMJ 2001;323:1300-3.
  5. Foy R, So J, Rous E, Scarffe H. Perspectives of commissioners and cancer specialists in prioritising new cancer drugs: impact of the evidence threshold. BMJ 1999;318:456-9.

Scottish Medicines Consortium
A health service committee that assesses new drugs,
including an economic evaluation, and makes recommendations on their use

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