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

Abstract

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.