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Impact of Generic Drug Entry on Cost-Effectiveness Analysis

Author

Listed:
  • Ya-Chen Tina Shih

    (Section of Health Services Research, Department of Biostatistics and Applied Mathematics, The University of Texas MD Anderson Cancer Center, Houston, Texas)

  • Shu Han

    (Department of Statistics, Rice University, Houston, Texas)

  • Scott B. Cantor

    (Section of Health Services Research, Department of Biostatistics and Applied Mathematics, The University of Texas MD Anderson Cancer Center, Houston, Texas)

Abstract

The market share of generic drugs has grown substantially since the passage of the Waxman-Hatch Act, increasing from 19% in 1984 to 50% in 2001. At entry, the generic drugs typically are priced lower than brand-name drugs; thus, incorporating the impact of the generic drug entry introduces an additional source of uncertainty in economic models as both the timing of entry and the level of generic drug pricing are subject to variation. In this article, the authors explored the impact of generic drug entry on cost-effectiveness analyses of new or brand-name drugs. Using a mathematical model, they argue that failure to incorporate the impact of generic drug entry will underestimate the incremental cost-effectiveness ratio (ICER) and, thus, overstate the economic benefit of the new product. The authors provide 2 examples to illustrate such impact on short-term and long-term cost-effectiveness analyses. To better assess the uncertainty associated with the impact of generic drug entry, in addition to a deterministic analysis, they also employed a Bayesian probabilistic approach to analyze these examples and presented the results using cost-effectiveness acceptability curves. They conclude that incorporating generic drug entry into pharmacoeconomic models will yield more accurate projections of the ICER and lead to better decision making.

Suggested Citation

  • Ya-Chen Tina Shih & Shu Han & Scott B. Cantor, 2005. "Impact of Generic Drug Entry on Cost-Effectiveness Analysis," Medical Decision Making, , vol. 25(1), pages 71-80, January.
    • Handle: RePEc:sae:medema:v:25:y:2005:i:1:p:71-80
    DOI: 10.1177/0272989X04273139
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    References listed on IDEAS

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    1. Aaron A. Stinnett & John Mullahy, 1998. "Net Health Benefits: A New Framework for the Analysis of Uncertainty in Cost-Effectiveness Analysis," NBER Technical Working Papers 0227, National Bureau of Economic Research, Inc.
    2. Grabowski, Henry G & Vernon, John M, 1992. "Brand Loyalty, Entry, and Price Competition in Pharmaceuticals after the 1984 Drug Act," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 331-350, October.
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    Cited by:

    1. Martin Hoyle, 2011. "Accounting for the Drug Life Cycle and Future Drug Prices in Cost-Effectiveness Analysis," PharmacoEconomics, Springer, vol. 29(1), pages 1-15, January.
    2. Ya-Chen Shih & Nebiyou Bekele & Ying Xu, 2007. "Use of Bayesian Net Benefit Regression Model to Examine the Impact of Generic Drug Entry on the Cost Effectiveness of Selective Serotonin Reuptake Inhibitors in Elderly Depressed Patients," PharmacoEconomics, Springer, vol. 25(10), pages 843-862, October.
    3. Srivatsa Srinivas, S. & Marathe, Rahul R., 2021. "Averting adverse selection: The Government of India's scheme to distribute affordable medicines," Socio-Economic Planning Sciences, Elsevier, vol. 78(C).
    4. James F. O’Mahony & Joost van Rosmalen & Ann G. Zauber & Marjolein van Ballegooijen, 2013. "Multicohort Models in Cost-Effectiveness Analysis," Medical Decision Making, , vol. 33(3), pages 407-414, April.

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