The right price for a branded pharmaceutical optimally balances affordability with incentives for research and development. This requires consideration of the full value of the innovation, both during the patent period and thereafter, while considerable focus to date has concerned value during the patent period only.
Achieving the optimal balance can be informed by how the value of an innovation is shared between producers (manufacturers) and consumers (patients). There is debate about what the optimal share to the manufacturer ought to be, in principle, and what the share is observed to be in practice.
Recent work in the UK context has developed a measure of value of branded pharmaceuticals that accounts for value across the product life-cycle (both during and post-patent) and for health opportunity cost. This work has also sought to estimate the observed share of this value that accrues to the manufacturer. In this seminar I will outline an exploratory analysis along these lines in the US context. This preliminary investigation indicates that the current incentives for innovation are not optimal. This implies that regulation of prices such that they are value-based could improve upon these incentives.
However, the extent to which improvement is achieved will depend upon the detail of how value-based prices are established. Importantly, moving from consideration of incremental cost-effectiveness ratios to consideration of how value is shared between manufacturers and patients implies a subtle, but profound, shift in how health economic evaluation is conducted. Such a move is necessary to ensure that value-based pricing provides optimal innovation incentives.
James Lomas is a Lecturer in the Department of Economics and Related Studies at the University of York. His research interests include refining the methods used in economic evaluation to inform decisions in different contexts. He was previously a Research Fellow in the Centre for Health Economics at the University of York. He holds a PhD in Economics (York).