Direct and Indirect Cost Considerations in Drug Selection

July 20, 2019

It is important to understand the indirect costs that can be associated with a drug, as well as direct costs.

This article was written by Tyler Ballinghoff, PharmD, a clinical pharmacist for CareKinesis, Inc., a subsidiary of Tabula Rasa HealthCare.

Prescribers are often faced with difficult decisions when selecting the most appropriate medication for a patient’s condition. There are typically several things to consider when initially selecting a drug. The most important considerations include the safety and efficacy of the particular drug, as well as the evidence-based guideline recommendations. Another aspect often taken into account is cost. However, it is important to understand the indirect costs that can be associated with a drug, as well as direct costs.

In some clinical situations the high cost of a drug is difficult to justify over a much cheaper agent, even if the higher cost drug has a slightly more favorable side-effect profile. Depending on the reimbursement model used, some providers may choose the drug with the best safety data, despite the high cost. Regardless, it is a challenging decision to make. While a particular drug may provide the best medical outcomes, it may also empty the pockets of the patient or payer. This is the reality of medicine today.

When analyzing the cost of therapy, one cannot conclude that since a particular drug is the cheapest in price, it has the lowest cost. Indeed, there are several determinants of total long-term cost.

One recent clinical example of this occurred with a PACE (Program of All-inclusive Care for the Elderly, a federal program) participant treated for overactive bladder with mirabegron (Myrbetriq). Upon reviewing the monthly expense report, the PACE prescriber was alarmed at the high cost of the drug and promptly contacted me to discuss other options. After reviewing the patient’s information, I explained that while the drug is expensive, it is the only medication for this condition that does not have the serious side effects that increase the patient’s risk of falling and hospitalization.

According to a 2013 survey, the average cost of a hospital stay in the United States is well over $10,000.1 If we can prevent hospitalization by using mirabegron, then the initial higher cost of the medication is easily justified. Additionally, the patient’s quality of life may improve since there are fewer side effects associated with mirabegron. A recent study comparing mirabegron to tolterodine for overactive bladder showed that mirabegron was indeed cost-effective from the payer and societal perspectives.2 The use of mirabegron also led to improved health outcomes compared to tolterodine.2

Considering both the financial and clinical aspects of medications can make the drug selection process difficult. Of course, clinical knowledge takes priority when selecting a medication, but cost analyses should be considered. When assessing the cost of a treatment, it is important to weigh not only the direct costs, but the indirect costs such as injury and hospitalization that can result from use of a medication.


  1. Torio C, Moore B. National inpatient hospital costs: The most expensive conditions by payer, 2013. Rockville, MD: Healthcare Cost and Utilization Project; 2016. Accessed May 17, 2019.
  2. Herschorn S, Nazir J, Ramos B, Hakimi Z. Cost-effectiveness of mirabegron compared to tolterodine ER 4 mg for overactive bladder in Canada. Can Urol Assoc J. 2017 Mar-Apr;11(3-4):123-130.