Should Dynamic Drug Pricing be Incorporated into Cost-Effectiveness Analyses? – Healthcare Economist

Cost-effectiveness analyzes (CEA) aim to examine how new healthcare technologies impact health outcomes and costs throughout a patient’s life. While it is important to extrapolate long-term health benefits and measure potential cost offsets, another important element to estimate is how the cost of new health technology is likely to evolve over time. This is particularly relevant for pharmaceuticals.

Whittington et al. (2024) write:

The net price of a drug often rises after launch and can then fall as competitors enter the market. Prices tend to fall most noticeably after the drug loses its exclusivity and generic substitutes become available. However, In the past, ECAs have rarely taken these possibilities into account. and instead assume that the price of a drug remains constant over time.

Why is it important to incorporate dynamic pricing? The FDA estimated that generic drugs approved in 2022 performed $18.9 billion in total savings during the 12 months after its approval.

…a CEA that compares a new drug to an affordable alternative may overstate the additional cost of the new drug over its life cycle if it assumes that the drug’s introductory price will persist indefinitely. By not adjusting for the “downward” price drop, the CEA may incorrectly suggest that the new drug represents an unfavorable value. Importantly, assumptions about drug price dynamics should also be applied to comparative therapies in an analysis. Assuming no price changes for comparator drugs may overstate the value of the new drug if the comparator treatment is about to lose its market exclusivity. A static assumption about drug pricing does not take into account the expected savings from the widespread use of alternative treatment…
However, 95 percent of published CEAsincluding those by ICER, assume that drug prices remain constant in their base case.

The need for dynamic pricing is particularly important when comparing pharmaceutical and non-pharmaceutical health technologies.

…ignoring expected price drops may make a drug appear no more attractive than an equally effective non-pharmacological intervention (e.g., surgery) with the same initial price, even though price drops following the loss of exclusivity mean that the drug (unlike surgery) will be less expensive in the long run.

He comment He goes on to add that IRA has made the trajectory of drug prices more predictable because (i) price increases are limited to inflation and (ii) IRA allows CMS to negotiate select drugs before losing exclusivity.

To read the authors’ recommendations for incorporating dynamic pricing into CEA, you can read the full article. here.