The impact of conventional cost-effectiveness analysis on pricing dynamics in the market of new medicines: a proposed countervailing approach

ABSTRACT

Background

Countries using cost effectiveness ratio as a decision tool for price and reimbursement decisions still witness accelerating price increases. The objective of this paper is to propose a change in the application of the incremental cost effectiveness ratio as a criterion for price policy.

Research design

We develop a model that sets a price for marginal effectiveness equal to the marginal willingness to pay, but it reimburses average effectiveness according to the size of increased QALY gain.

Results

This new formula also allows to split the economic value of drug between patients and the industry and creates a reward to invest into QALY gains. We show some empirical data of the new prices derived from the application of the new formula, as well as the implications in terms of the consumer and manufacturer´s surplus based on two potential scenarios of the incentives generated by this new formulation.

Discussion

We propose that small increases in life expectancy be priced differently from substantial as a way of containing the price dynamics.

Conclusions

A change in the application of the ICER threshold will help to reduce the price pressure on public budgets.

KEYWORDS:

• costeffectiveness
• cost-effectiveness threshold
• drug price policy
• drug innovation

Article highlights

• Currently, small increases in life expectancy derived from new drugs are often priced (in average terms) by HTA authorities the same as substantial increases; this may be one of the reasons why prices may not reflect value for money in some therapeutic areas.

• It is feasible to use a simple formula that allows to set a price for marginal effectiveness equal to the marginal willingness to pay, while also paying average effectiveness according to the size of increased QALY gain.

• The formula we propose should incentivise research into new active pharmaceutical ingredients that are able to make a substantial impact on patient quality of life and life expectancy and does not reduce the incentives to invest in drug discovery since the marginal reward is still the maximum willingness to pay for an extra QALY gained.

• The new formula provides incentives for companies whose drugs produce a significant increase in the number of QALY gained which will translate into higher interest in investing in this type of drug rather than in those offering marginal improvements; this will constitute a strategy for claiming a larger share of the market.

Acknowledgments

We are thankful to Professor Roberto Rodríguez for his insights and comments to the draft of this text.

Declaration of interest

The authors have no relevant affiliations or financial involvement with any organization or entity with a financial interest in or financial conflict with the subject matter or materials discussed in the manuscript. This includes employment, consultancies, honoraria, stock ownership or options, expert testimony, grants or patents received or pending, or royalties.

Reviewer disclosures

One peer reviewer declares co-leading a relevant ISPOR Special Task Force. Peer reviewers on this manuscript have no other relevant financial relationships or otherwise to disclose.

Author contributions

All authors made a significant contribution to the work reported, whether that is in the conception, study design, execution, acquisition of data, analysis and interpretation, or in all these areas; took part in drafting, revising, or critically reviewing the article; gave final approval of the version to be published; agreed on the journal to which the article has been submitted; and agreed to be accountable for all aspects of the work.

Additional information

Funding

This paper was not funded.