Health Returns to Pharmaceutical Innovation in the Market for Oral Chemotherapy in Response to Insurance Coverage Expansion

We estimated the average returns, in terms of patient survival, to the marginal innovations in the oral chemotherapy market induced by Part D expansion of oral chemotherapy coverage for elderly individuals by mandating inclusion of “all or substantially all” oral anticancer medications on plans’ formularies. We exploited exogenous variation in the age of diagnosis for different cancer sites—and therefore the relative expansion in market size for different cancers under Medicare's prescription drug coverage—to isolate the effect of Part D on innovation and the health benefits that these innovative technologies provide. Using data from the Food and Drug Administration and clinical studies from January 1994 to December 2016, we find that the approval rate for oral chemotherapies increased an additional 5.7 percent (95 percent CI: 1.7, 9.8) after implementation of Part D for every 1 percent relative expansion in the Medicare market. In contrast, the same relative expansion in the Medicare market resulted in a smaller increase in the indication-specific survival gains reported in the drug's label (3.2 percent (95 percent CI: 2.1, 4.3)) and 8.0 percent (95 percent CI: 6.1, 9.8) lower in absolute and relative gains, respectively). Similar trends were not observed for intravenously administered chemotherapy whose coverage was unaffected by Part D. These findings suggest that while increased innovation will generate health benefits, there could be diminishing marginal returns to incentives for pharmaceutical innovation created by broad coverage mandates, and more nuanced coverage policies and targeted treatment uses may help maximize the health benefits provided by future pharmaceutical innovations.