IDEAS home Printed from https://ideas.repec.org/a/wly/hlthec/v17y2008i11p1277-1294.html
   My bibliography  Save this article

Optimal drug pricing, limited use conditions and stratified net benefits for Markov models of disease progression

Author

Listed:
  • Gregory S. Zaric

Abstract

Limited use conditions (LUCs) are a method of directing treatment with new drugs to those populations where they will be most cost effective. In this paper we investigate how a drug manufacturer could determine pricing and LUCs to maximize profits. We assume that the payer makes formulary decisions on the basis of net monetary benefits, that the disease can be modeled using a Markov model of disease progression, and that the drug reduces the probability of progression between states of the Markov model. LUCs are expressed as a range of probabilities of disease progression over which patients would have access to the new drug. We assume that the manufacturer determines the price and LUCs in order to maximize profits. We show that an explicit trade‐off exists between the drug's price and the use conditions, that there is an upper bound on the drug price, that the proportion of the population targeted by the LUC does not depend on quality of life or costs in each health state or the payer's willingness to pay, and that high drug prices do not always correspond with high profits. Copyright © 2008 John Wiley & Sons, Ltd.

Suggested Citation

  • Gregory S. Zaric, 2008. "Optimal drug pricing, limited use conditions and stratified net benefits for Markov models of disease progression," Health Economics, John Wiley & Sons, Ltd., vol. 17(11), pages 1277-1294, November.
    • Handle: RePEc:wly:hlthec:v:17:y:2008:i:11:p:1277-1294
    DOI: 10.1002/hec.1332
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/hec.1332
    Download Restriction: no
    File URL: https://libkey.io/10.1002/hec.1332?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Karen M. Kuntz & Sue J. Goldie, 2002. "Assessing the Sensitivity of Decision-Analytic Results to Unobserved Markers of Risk: Defining the Effects of Heterogeneity Bias," Medical Decision Making, , vol. 22(3), pages 218-227, June.
    2. Gregory S. Zaric, 2003. "The Impact of Ignoring Population Heterogeneity when Markov Models are Used in Cost-Effectiveness Analysis," Medical Decision Making, , vol. 23(5), pages 379-386, September.
    3. Tambour, Magnus & Zethraeus, Niklas & Johannesson, Magnus, 1997. "A Note on Confidence Intervals in Cost-Effectiveness Analysis," SSE/EFI Working Paper Series in Economics and Finance 181, Stockholm School of Economics.
    4. George Laking & Joanne Lord & Alastair Fischer, 2006. "The economics of diagnosis," Health Economics, John Wiley & Sons, Ltd., vol. 15(10), pages 1109-1120, October.
    5. Mark Sculpher & Amiram Gafni, 2001. "Recognizing diversity in public preferences: The use of preference sub‐groups in cost‐effectiveness analysis," Health Economics, John Wiley & Sons, Ltd., vol. 10(4), pages 317-324, June.
    6. 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.
    7. Karl Claxton, 2007. "Oft, Vbp: Qed?," Health Economics, John Wiley & Sons, Ltd., vol. 16(6), pages 545-558, June.
    8. Nancy Devlin & David Parkin, 2004. "Does NICE have a cost‐effectiveness threshold and what other factors influence its decisions? A binary choice analysis," Health Economics, John Wiley & Sons, Ltd., vol. 13(5), pages 437-452, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Puig-Junoy, Jaume & López-Valcárcel, Beatriz González, 2014. "Launch prices for new pharmaceuticals in the heavily regulated and subsidized Spanish market, 1995–2007," Health Policy, Elsevier, vol. 116(2), pages 170-181.
    2. Alan J. Girling & Richard J. Lilford & Terry P. Young, 2012. "Pricing Of Medical Devices Under Coverage Uncertainty—A Modelling Approach," Health Economics, John Wiley & Sons, Ltd., vol. 21(12), pages 1502-1507, December.
    3. Jeremy D. Goldhaber-Fiebert & Lauren E. Cipriano, 2023. "Pricing Treatments Cost-Effectively when They Have Multiple Indications: Not Just a Simple Threshold Analysis," Medical Decision Making, , vol. 43(7-8), pages 914-929, October.
    4. Małgorzata Skweres-Kuchta & Iwona Czerska & Elżbieta Szaruga, 2023. "Literature Review on Health Emigration in Rare Diseases—A Machine Learning Perspective," IJERPH, MDPI, vol. 20(3), pages 1-31, January.
    5. Reza Mahjoub & Fredrik Ødegaard & Gregory S. Zaric, 2018. "Evaluation of a pharmaceutical risk‐sharing agreement when patients are screened for the probability of success," Health Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 15-25, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gregory S. Zaric, 2008. "Optimal drug pricing, limited use conditions and stratified net benefits for Markov models of disease progression," Health Economics, John Wiley & Sons, Ltd., vol. 17(11), pages 1277-1294.
    2. Olivier Ethgen & Baudouin Standaert, 2012. "Population–versus Cohort–Based Modelling Approaches," PharmacoEconomics, Springer, vol. 30(3), pages 171-181, March.
    3. Joanne Lord & George Laking & Alastair Fischer, 2006. "Non‐linearity in the cost‐effectiveness frontier," Health Economics, John Wiley & Sons, Ltd., vol. 15(6), pages 565-577, June.
    4. Gemma E. Shields & Paul Clarkson & Ash Bullement & Warren Stevens & Mark Wilberforce & Tracey Farragher & Arpana Verma & Linda M. Davies, 2024. "Advances in Addressing Patient Heterogeneity in Economic Evaluation: A Review of the Methods Literature," PharmacoEconomics, Springer, vol. 42(7), pages 737-749, July.
    5. Richard M. Nixon & Simon G. Thompson, 2005. "Methods for incorporating covariate adjustment, subgroup analysis and between‐centre differences into cost‐effectiveness evaluations," Health Economics, John Wiley & Sons, Ltd., vol. 14(12), pages 1217-1229, December.
    6. Rosella Levaggi & Paolo Pertile, 2016. "Pricing policies when patients are heterogeneous: a welfare analysis," Working Papers 17/2016, University of Verona, Department of Economics.
    7. Pedram Sendi, 2008. "Bridging the gap between health and non-health investments: moving from cost-effectiveness analysis to a return on investment approach across sectors of economy," International Journal of Health Economics and Management, Springer, vol. 8(2), pages 113-121, June.
    8. Qi Cao & Erik Buskens & Hans L. Hillege & Tiny Jaarsma & Maarten Postma & Douwe Postmus, 2019. "Stratified treatment recommendation or one-size-fits-all? A health economic insight based on graphical exploration," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 20(3), pages 475-482, April.
    9. Tappenden, P & Brazier, J & Ratcliffe, J, 2006. "Does the National Institute for Health and Clinical Excellence take account of factors such as uncertainty and equity as well as incremental cost-effectiveness in commissioning health care services? A," MPRA Paper 29772, University Library of Munich, Germany.
    10. Katharina Fischer & Reiner Leidl, 2014. "Analysing coverage decision-making: opening Pandora’s box?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 15(9), pages 899-906, December.
    11. Salas-Vega, Sebastian & Shearer, Emily & Mossialos, Elias, 2020. "Relationship between costs and clinical benefits of new cancer medicines in Australia, France, the UK, and the US," Social Science & Medicine, Elsevier, vol. 258(C).
    12. Mauskopf, Josephine & Chirila, Costel & Birt, Julie & Boye, Kristina S. & Bowman, Lee, 2013. "Drug reimbursement recommendations by the National Institute for Health and Clinical Excellence: Have they impacted the National Health Service budget?," Health Policy, Elsevier, vol. 110(1), pages 49-59.
    13. E. Stolk & M. Poley, 2005. "Criteria for determining a basic health services package," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 6(1), pages 2-7, March.
    14. Laura Levaggi & Rosella Levaggi, 2017. "Rationing in health care provision: a welfare approach," International Journal of Health Economics and Management, Springer, vol. 17(2), pages 235-249, June.
    15. Ian M. McCarthy, 2015. "Putting the Patient in Patient Reported Outcomes: A Robust Methodology for Health Outcomes Assessment," Health Economics, John Wiley & Sons, Ltd., vol. 24(12), pages 1588-1603, December.
    16. Colin Green & Karen Gerard, 2009. "Exploring the social value of health‐care interventions: a stated preference discrete choice experiment," Health Economics, John Wiley & Sons, Ltd., vol. 18(8), pages 951-976, August.
    17. Niklas Zethraeus & Magnus Johannesson & Bengt Jönsson & Mickael Löthgren & Magnus Tambour, 2003. "Advantages of Using the Net-Benefit Approach for Analysing Uncertainty in Economic Evaluation Studies," PharmacoEconomics, Springer, vol. 21(1), pages 39-48, January.
    18. Kisser, Agnes & Tüchler, Heinz & Erdös, Judit & Wild, Claudia, 2016. "Factors influencing coverage decisions on medical devices: A retrospective analysis of 78 medical device appraisals for the Austrian hospital benefit catalogue 2008–2015," Health Policy, Elsevier, vol. 120(8), pages 903-912.
    19. Martin Henriksson & Fredrik Lundgren & Per Carlsson, 2006. "Informing the efficient use of health care and health care research resources ‐ the case of screening for abdominal aortic aneurysm in Sweden," Health Economics, John Wiley & Sons, Ltd., vol. 15(12), pages 1311-1322, December.
    20. Chris Sampson & Bernarda Zamora & Sam Watson & John Cairns & Kalipso Chalkidou & Patricia Cubi-Molla & Nancy Devlin & Borja García-Lorenzo & Dyfrig A. Hughes & Ashley A. Leech & Adrian Towse, 2022. "Supply-Side Cost-Effectiveness Thresholds: Questions for Evidence-Based Policy," Applied Health Economics and Health Policy, Springer, vol. 20(5), pages 651-667, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:hlthec:v:17:y:2008:i:11:p:1277-1294. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/5749 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.