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

Cost effectiveness analyses (CEA) aim to examine how a new health technologies impact health outcomes and costs over a patient’s lifetime. While extrapolating long-run health benefits and measuring potential cost offsets are important, another important item to estimate is how the cost of the new health technology is likely to evolve over times. This is particularly relevant for pharmaceuticals.

Whittington et al. (2024) write:

A drug’s net price often increases following launch and may later fall as competitors enter the market. Prices usually fall more noticeably after the drug loses exclusivity and generic substitutes become available. However, CEAs in the past have rarely accounted for these possibilities and instead assume that a drug’s price remains constant over time.

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

…a CEA comparing a new drug to an inexpensive alternative can overstate the new drug’s added cost over its life cycle if it assumes that the drug’s introductory price will persist indefinitely. By neglecting to adjust for the “downstream” drop in price, the CEA may incorrectly suggest the new drug represents unfavorable value. Importantly, assumptions about drug price dynamics should also apply to comparator therapies in an analysis. Assuming no change in comparator drug prices can overstate the value of the new drug if the comparator treatment is nearing its loss of market exclusivity. A static drug pricing assumption fails to account for anticipated savings from the genericization of the alternative treatment…
Nonetheless, 95 percent of published CEAs, including those conducted by ICER, assume that drug prices remain constant in their base case.

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

…omitting expected price declines can make a drug look no more attractive than an equally effective non-drug intervention (for example, surgery) with the same initial price, even though price declines following loss of exclusivity mean that the drug (unlike the surgery) will be less expensive over the long run.

The commentary continues by adding that IRA has make the trajectory of drug pricing more predictable because (i) price increases are limited to inflation and (ii) IRA allows CMS to negotiate selected drugs before loss of exclusivity.

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