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The Interaction between Price Negotiations and Heterogeneity: Implications for Economic Evaluations

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  • Helen O’Donnell

    (National Centre for Pharmacoeconomics, Trinity Centre for Health Sciences, St James’s Hospital, Dublin, Ireland
    Department of Pharmacology and Therapeutics, Trinity Centre for Health Sciences, St James’s Hospital, Dublin, Ireland)

  • Laura McCullagh

    (National Centre for Pharmacoeconomics, Trinity Centre for Health Sciences, St James’s Hospital, Dublin, Ireland
    Department of Pharmacology and Therapeutics, Trinity Centre for Health Sciences, St James’s Hospital, Dublin, Ireland)

  • Michael Barry

    (National Centre for Pharmacoeconomics, Trinity Centre for Health Sciences, St James’s Hospital, Dublin, Ireland
    Department of Pharmacology and Therapeutics, Trinity Centre for Health Sciences, St James’s Hospital, Dublin, Ireland)

  • Cathal Walsh

    (University of Limerick, Limerick, Ireland)

Abstract

Economic evaluation is an important element of the decision making process for the reimbursement of drugs. Heterogeneity can be considered an explained variation in clinical or economic outcomes based on the clinical and sociodemographic characteristics of patients. However, to our knowledge, the relationship between price negotiations and population heterogeneity has not been considered in the literature to date. If a company offers a conditional discount that is dependent on obtaining reimbursement in 2 subgroups or indications, an interaction is generated between groups that should be accounted for in economic evaluations. Critically, where the drug has 2 indications but is only cost-effective in 1 indication at the full price (herein “indication 1†), the cost savings realized from implementation of the discount in indication 1 can be used to offset the incremental cost of extending reimbursement to indication 2 at the discounted price. This reduces the incremental cost-effectiveness ratio and increases the probability of positive reimbursement compared to a stratified approach. Given the additional complexity that this introduces, we introduce a framework deemed the “hybrid approach†to guide the economic assessment. We present 2 worked examples. We show that failure to account for the interaction can lead to inaccurate conclusions regarding a drug’s cost effectiveness and that adoption of strategic behavior could theoretically increase the reimbursement price of drugs. By adopting this framework, cost-effective interventions are identified that may have been previously misclassified as not being cost-effective and vice versa. Recognition of the interaction in the literature by pharmaceutical companies may influence the forms of discounts offered to decision makers. Therefore, we expect this research to have far-reaching effects on medical decision making.

Suggested Citation

  • Helen O’Donnell & Laura McCullagh & Michael Barry & Cathal Walsh, 2020. "The Interaction between Price Negotiations and Heterogeneity: Implications for Economic Evaluations," Medical Decision Making, , vol. 40(2), pages 144-155, February.
  • Handle: RePEc:sae:medema:v:40:y:2020:i:2:p:144-155
    DOI: 10.1177/0272989X19900179
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    References listed on IDEAS

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    1. Douglas Coyle & Martin J. Buxton & Bernie J. O'Brien, 2003. "Stratified cost‐effectiveness analysis: a framework for establishing efficient limited use criteria," Health Economics, John Wiley & Sons, Ltd., vol. 12(5), pages 421-427, May.
    2. Drummond, Michael F. & Sculpher, Mark J. & Claxton, Karl & Stoddart, Greg L. & Torrance, George W., 2015. "Methods for the Economic Evaluation of Health Care Programmes," OUP Catalogue, Oxford University Press, edition 4, number 9780199665884.
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    1. So-Young Ha & Dong-Won Kang & Hye-In Jung & Eui-Kyung Lee & Mi-Hai Park, 2022. "Value-Based Pricing and Budget Impact Analysis for Multi-Indication Drugs: A Case Study of Immunotherapies," IJERPH, MDPI, vol. 19(7), pages 1-10, March.

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