Value-Based Pricing for Patent-Protected Medicines Over the Product Life Cycle: Pricing Anomalies in the "Age of Cures" and Their Implications for Dynamic Efficiency

Challenges of Incorporating Life Cycle Drug Pricing in Cost-Effectiveness Models: A Review of Methods and Modeling Suggestions

OBJECTIVES

This study aimed to conduct a review of existing methods used to incorporate life cycle drug pricing (LCDP) in cost-effectiveness analyses (CEAs), identify common methodological challenges, and suggest modeling approaches for prospectively implementing LCDP in CEA.

METHODS

Two complementary searches were conducted in PubMed, combined with hand searching and reference mining, to identify English language full-text articles that explored (1) how drug prices change over time and (2) methods used to apply dynamic pricing in cost-effectiveness models (CEMs). Relevant articles were reviewed, and authors discussed the common methodological practices used in the literature and their associated challenges on prospectively implementing LCDP in CEMs. For each key challenge identified, we provide modeling suggestions to address the issue.

RESULTS

We screened 1200 studies based on title and abstract; 117 were reviewed for eligibility, and 47 individual studies were included across both searches. Variations in prices over a product's life cycle are complex and multifactorial, and models applying LCDP in CEA varied in their methodology. We identified 4 key challenges to modeling LCDP in CEA, including how to model price trends before and after loss of exclusivity, how to capture the effect of price changes on future patient cohorts, and how to report results.

CONCLUSION

Accurately quantifying the impact of LCDP requires careful consideration of multiple aspects pertaining to both the evolution of drug prices and how to reflect these in CEA. Although uncertainties remain, our findings can aid implementation and evaluation of LCDP in economic evaluations.

Incorporating Real Option Value in Valuing Innovation: A Way Forward

BACKGROUND

Considerable progress has been made in defining and measuring the real option value (ROV) of medical technologies. However, questions remain on how to estimate (1) ROV outside of life-extending oncology interventions; (2) the impact of ROV on costs and cost effectiveness; and (3) potential interactions between ROV and other elements of value.

METHODS

We developed a 'minimal modeling' approach for estimating the size of ROV that does not require constructing a full, formal cost-effectiveness model. We proposed a qualitative approach to assessing the level of uncertainty in the ROV estimate. We examined the potential impact of ROV on the incremental cost-effectiveness ratio as well as on the potential interactions between ROV and other elements of value. Lastly, we developed and presented a 15-item checklist for reporting ROV in value assessment.

RESULTS

The minimal modeling approach uses estimates on the efficacy of current treatment and potential future innovation, as well as success rate and length of new treatment development, and can be applied to all types of ROV across disease areas. ROV may interact with the conventional value, value of hope, productivity effects, and insurance value. The impact of ROV on cost effectiveness can be evaluated via threshold analysis.

CONCLUSION

The minimal modeling approach and the checklist developed in this paper simplifies and standardizes the estimation and reporting of ROV in value assessment. Systematically including and reporting ROV in value assessment will minimize bias and improve transparency, which will help improve the credibility of ROV research and acceptance by stakeholders.

Is the price right? Paying for value today to get more value tomorrow

BACKGROUND

Contemporary debates about drug pricing feature several widely held misconceptions, including the relationship between incentives and innovation, the proportion of total healthcare spending on pharmaceuticals, and whether the economic evaluation of a medicine can be influenced by things other than clinical efficacy.

MAIN BODY

All citizens should have access to timely, equitable, and cost-effective care covered by public funds, private insurance, or a combination of both. Better managing the collective burden of diseases borne by today's and future generations depends in part on developing better technologies, including better medicines. As in any innovative industry, the expectation of adequate financial returns incentivizes innovators and their investors to develop new medicines. Estimating expected returns requires that they forecast revenues, based on the future price trajectory and volume of use over time. How market participants decide what price to set or accept can be complicated, and some observers and stakeholders want to confirm whether the net prices society pays for novel medicines, whether as a reward for past innovation or an incentive for future innovation, are commensurate with those medicines' incremental value. But we must also ask "value to whom?"; medicines not only bring immediate clinical benefits to patients treated today, but also can provide a broad spectrum of short- and long-term benefits to patients, their families, and society. Spending across all facets of healthcare has grown over the last 25 years, but both inpatient and outpatient spending has outpaced drug spending growth even as our drug armamentarium is constantly improving with safer and more effective medicines. In large part, this is because, unlike hospitals, drugs typically go generic, thus making room in our budgets for new and better ones, even as they often keep patients out of hospitals, driving further savings.

CONCLUSION

A thorough evaluation of drug spending and value can help to promote a better allocation of healthcare resources for both the healthy and the sick, both of whom must pay for healthcare. Taking a holistic approach to assessing drug value makes it clear that a branded drug's value to a patient is often only a small fraction of the drug's total value to society. Societal value merits consideration when determining whether and how to make a medicine affordable and accessible to patients: a drug that is worth its price to society should not be rendered inaccessible to ill patients by imposing high out-of-pocket costs or restricting coverage based on narrow health technology assessments (HTAs). Furthermore, recognizing the total societal cost of un- or undertreated conditions is crucial to gaining a thorough understanding of what guides the biomedical innovation ecosystem to create value for society. It would be unwise to discourage the development of new solutions without first appreciating the cost of leaving the problems unsolved.