Distribution of health-related social surplus in pharmaceuticals: an estimation of consumer and producer surplus in the management of high blood lipids and COPD

Abstract

Following suggestions that developers should be allowed to capture a defined share of the total value generated by their technologies, the amount of surplus accruing to the pharmaceutical industry has become an important concept when discussing policies to encourage innovation in healthcare. Observational clinical and market data spanning over a period of 20 years were applied in order to estimate the social surplus generated by pharmaceuticals used in the management of high cholesterol and chronic obstructive pulmonary disease (COPD). The distribution of social surplus between consumers and producers was also computed and the dynamics of rent extraction examined. Health-related social surplus increased consistently over time for both disease areas, mostly due to the launch of more effective technologies and a greater number of patients being treated for the conditions. However, the growth rate of social surplus differed for each disease and dissimilar patterns of distribution between consumer and producer surplus emerged across the years. For lipid-lowering therapies, yearly consumer surplus reaches 85 % of total health-related social surplus after the loss of exclusivity of major molecules, whilst for COPD it ranges from 54 to 69 %. Average producer surplus is approximately 25 % of total health-related social surplus in the lipid-lowering market between 1990 and 2010, and 37 % for COPD between 2001 and 2010. The share of surplus captured by non-innovative generic producers also varies differently across periods for both markets, reaching 11.12 % in the case of lipid-lowering therapies but just 1.55 % in the case of COPD. A considerable amount of the value may be recouped by consumers only towards the end of the lifecycle. Elements affecting the distribution of social surplus vary across disease areas and include the market pricing structure and the pattern of clinical effectiveness observed over time. The application of a longer-term disease specific perspective may be required when assessing the cost-effectiveness of health technologies at launch.