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The fourth section of our Special Task Force report focuses on a health plan or payer's technology adoption or reimbursement decision, given the array of technologies, on the basis of their different values and costs. We discuss the role of budgets, thresholds, opportunity costs, and affordability in making decisions. First, we discuss the use of budgets and thresholds in private and public health plans, their interdependence, and connection to opportunity cost. Essentially, each payer should adopt a decision rule about what is good value for money given their budget; consistent use of a cost-per-quality-adjusted life-year threshold will ensure the maximum health gain for the budget. In the United States, different public and private insurance programs could use different thresholds, reflecting the differing generosity of their budgets and implying different levels of access to technologies. In addition, different insurance plans could consider different additional elements to the quality-adjusted life-year metric discussed elsewhere in our Special Task Force report. We then define affordability and discuss approaches to deal with it, including consideration of disinvestment and related adjustment costs, the impact of delaying new technologies, and comparative cost effectiveness of technologies. Over time, the availability of new technologies may increase the amount that populations want to spend on health care. We then discuss potential modifiers to thresholds, including uncertainty about the evidence used in the decision-making process. This article concludes by discussing the application of these concepts in the context of the pluralistic US health care system, as well as the "excess burden" of tax-financed public programs versus private programs. [ABSTRACT FROM AUTHOR]

The market-based US healthcare system relies on pharmacy benefit managers (PBMs) to control pharmaceutical costs, in contrast to most other countries that regulate drug prices and access. Optimal structuring and regulation of PBM contracts pose significant agency challenges for private and public payers. However, recent reporting requirements for PBMs may be counterproductive and reflect the interests of competitors rather than customers. [ABSTRACT FROM PUBLISHER]

The option of legalizing the commercial importation of prescription drugs is of continued policy interest as a way to reduce U.S. drug spending. Using IMS data, we estimate potential savings from commercial drug importation under assumptions about percentage of drugs likely to attract imports; potential supply from foreign countries; and share of savings passed on to payers. Our base case estimate is that $1.7 billion per year, or 0.6 percent of total drug spending, would be saved by payers; sensitivity analyses range from 0.2 to 2.5 percent under plausible assumptions and up to 17.4 percent under unrealistic assumptions about unlimited foreign supply, costless trade, and zero profits for intermediaries. Estimated savings to payers are less than the average price differentials between the United States and foreign countries because proposed legislation exempts certain drugs from importation; foreign markets are small relative to the United States; regulatory and other constraints may limit the volume of exports; trade is costly; and intermediaries will retain some savings. Although savings to U.S. payers/consumers would likely be small and have minimal impact on total U.S. health care spending, costs to other countries could be significant, due to reduced access and possibly higher prices. In the long run, reduced investment in R&D could adversely affect consumers globally. [ABSTRACT FROM AUTHOR]

This paper compares pharmaceutical spending, availability, use, and prices in twelve countries in 2005. Drug spending per capita was higher in the United States than in other countries. The United States had relatively high use of new drugs and high-strength formulations; other countries used more of older drugs and weaker formulations. Thus, whether U.S. overall volume of use is lower or higher depends on the measure of volume and type of product. Comprehensive price indexes show foreign prices to be 20-40 percent lower than U.S. manufacturer prices, but only 10-30 percent lower than U.S. public prices. Generics are cheaper in the United States than in other countries. [ABSTRACT FROM AUTHOR]

We examine the determinants and effects of M&A activity in the pharmaceutical/biotechnology industry using SDC data on 383 firms from 1988 to 2001. For large firms, mergers are a response to expected excess capacity due to patent expirations and gaps in a firm's product pipeline. For small firms, mergers are primarily an exit strategy in response to financial trouble (low Tobin's q, few marketed products, low cash–sales ratios). In estimating effects of mergers, we use a propensity score to control for selection based on observed characteristics. Controlling for merger propensity, large firms that merged experienced a similar change in enterprise value, sales, employees, and R&D, and had slower growth in operating profit, compared with similar firms that did not merge. Thus mergers may be a response to trouble, but they are not a solution. Copyright © 2007 John Wiley & Sons, Ltd. [ABSTRACT FROM AUTHOR]

This paper presents new evidence on availability, use, and prices of biopharmaceuticals in five major European Union (EU) markets, Canada, Australia, Japan, and Mexico, relative to the United States. Our data set from IMS Health includes all product sales in 2005. Per capita spending on biopharmaceuticals was at least twice as high in the United States as in the other countries. This difference reflects primarily greater availability and use of new, relatively high-price molecules and formulations. Prices for identical formulations are not higher on average in the United States. The broader price indexes, which do not control formulation, are also not higher in the United States, after adjusting for income. [ABSTRACT FROM AUTHOR]

In U.S. vaccine markets, competing producers with high fixed, sunk costs face relatively concentrated demand. This tends to lead to exit of all but one or very few producers per vaccine. Detailed evidence of exits and shortages in the flu vaccine market demonstrates the importance of high fixed costs, demand uncertainty, and dynamic quality competition. A comparison of vaccine suppliers in four industrialized countries compared with the United States shows that smaller foreign markets often have more and different vaccine suppliers. High, country-specific, fixed costs, combined with price and volume uncertainty, plausibly deters these potential suppliers from attempting to enter the U.S. market. [ABSTRACT FROM AUTHOR]

The price differentials reported by Gerard Anderson and colleagues are not fully representative and are probably biased upward. If Congress does seek to reduce drug prices, there are no simple, effective, and efficient strategies. The most likely is drug importation, which would be ineffective at lowering U.S. drug costs and would pose sizable safety risks, yet it would reduce research and development (R&D) costs and access for foreign consumers. Careful cost-effectiveness analysis would be more appropriate than trying to import other countries' price controls. Income-related subsidies are a better strategy for dealing with excessive cost sharing for low-income seniors. [ABSTRACT FROM AUTHOR]

This study compares average price levels for pharmaceuticals in eight countries-Canada, Chile, France, Germany, Italy, Japan, Mexico, and the United Kingdom-relative to the United States. Our most comprehensive indexes, adjusted for U.S. manufacturer discounts, show Japan's prices to be higher than U.S. prices, and other countries' prices ranging from 6 percent to 33 percent lower than U.S. prices. The decline of the Canadian dollar and rise of the U.K. pound contribute to the finding of lower Canadian prices and higher U.K. prices in 1999 than in 1992. Our findings suggest that U.S.-foreign price differentials are roughly in line with income and smaller for drugs than for other medical services. [ABSTRACT FROM AUTHOR]

This paper examines the contribution of insurance coverage to the recent unprecedented growth in spending on pharmaceuticals. Trends in drug spending over time closely paralled the growth in drug coverage. Most of the coverage growth reflects an increase in the number of people with coverage, 65 percent from 1987 to 1996, rather than increased depth of coverage. The direct moral hazard effect of this insurance growth accounts for between one-fourth and one-half of the increase in drug spending. Technological change contributed to these changes, because both the flow of new drugs increased the demand for insurance and information technologies enabled the development of pharmacy benefit management, which reduced the real price of drug coverage. It is plausible that insurance growth also stimulated drug promotion. The only obvious source of inefficiency is the tax subsidy, which may lead to excessive insurance and promotion. This applies to al health care, not just pharmaceuticals. [ABSTRACT FROM AUTHOR]

Focuses on the relationship between insurance coverage and the technology-induced shift of medical care and spending from inpatient to outpatient setting in the United States. Increase in private insurance coverage for outpatient treatments; Changes in insurance administration technology; Impact of tax subsidy on insurance technology.

Presents a study which analyzed the relationship among rate regulation, inflationary cost surges and incentives for loss growth in workers' compensation insurance. Use of state-level data on worker's compensation insurance growth for 24 states during 1984-1990 in the United States; Review of related studies; Development of hypotheses on the effects of price regulation on loss growth; Methodology of the study; Discussion on the results of the study.

The purpose of professional liability is viewed as the deterrence of negligence. Conditions necessary for the malpractice system to provide appropriate incentives for injury prevention are described. The operation of the system is compared to this theoretical ideal. Evidence is presented on the number of claims relative to injuries; the disposition of claims through the courts; the effects of tort reforms; the efficiency of insurance mechanisms; and causes and solutions of the 1975 malpractice insurance crisis. The overall efficiency of the system is evaluated and proposals for reform are discussed. [ABSTRACT FROM AUTHOR]

Presents information on a study which examined the implications for liability of the growth of managed care in the United States. Misperception that undermines the adoption of sound liability rules for medical malpractice; Characteristics of health care markets; Structural change in health care insurance and delivery systems; Conclusions.

Focuses on a study which examined two statutory tort reforms of private insurance market in the United States. Size of awards for catastrophic injuries; Risk associated with latent injuries; Market responses to residual risk; Implications of long statutes of repose for the tort system.

A review of previous analyses of labor supply effects of Social Security Disability Insurance (DI) concludes that estimates of labor supply effects and net social costs are upward biased because they ignore interactions between DI and other insurances. A model of optimal insurance, postinjury accommodations, and labor supply shows that reduction in labor supply and increase in consumption when disabled do not necessarily imply moral hazard. Optimal postinjury accommodations vary inversely with firm size. The Americans with Disabilities Act will reduce wages and labor supply of healthy workers, particularly in small firms. Effects on labor supply of the disabled are ambiguous. [ABSTRACT FROM AUTHOR]

Analyzes the welfare effects of price discrimination for pharmaceuticals in the United States and the European Union. Role of drug research and development in costs and pricing; Observed versus optimal price differentials; Welfare effects of the anti-trust settlement.

For many years physicians and other medical providers in the United States have been subject to a negligence rule of liability. Under a negligence rule, patients who suffer an adverse outcome are entitled to compensation if they can show that they incurred an injury that was caused by the physician's failure to take due care, defined as departure from the customary standard of care of physicians in good standing in the profession. The traditional tort standard of damages is full compensation for monetary and nonmonetary loss. There have been no major doctrinal shifts in the law, expanding liability for medical malpractice over the last decade-indeed, many states have enacted tort reforms designed to reduce the number and size of claims. Nevertheless, from 1975 to 1984, claims per physician rose at an average rate of 10 percent a year; between 1982 and 1986 claim frequency per 100 physicians rose from 13.5 to 17.2 a year. In 1984, the median and mean payment were $18,000 and $80,741, respectively. There remain large differences among states and among specialties in claim frequency and severity.

Tort awards for product-related injuries have risen rapidly in recent years. This trend reflects the outcome of court-made decisions, tempered only recently by modest statutory constraints. The workers' compensation (WC) system, under which employers are strictly liable for work-related injuries, is governed entirely by statute at the state level. It provides much lower benefits than does the tort system. There is little presumption that statutory choices for product liability reflect a social optimum, since voters in each state bear a larger share of the costs than the benefits of limiting consumers' rights against product manufacturers, many of whom are located out of state. This paper analyzes the political economy of the WC system. The purpose is to investigate whose preferences are reflected in the choice of the WC benefit structure and what lessons can be learned for the optimal design of compensation for product-related injuries and other injuries currently compensated through the tort system.

Presents an open letter to members of the executive and legislative branches of the government urging them to reform the United States Health Care Financing Administration. Mismatch between the agency's administrative capacity and political mandate; Growth in Medicare spending between 1977 and 1997.

Comments on the adoption of regulated-monopoly approach to pharmaceutical benefit managers (PBM) for Medicare prescription drug benefit in the United States. Pros and cons of monopoly PBM; Issues on reference pricing; Impact of Medicare reference-pricing system on drug prices; Notion on the design of drug formularies by competing PBM.

The third section of our Special Task Force report identifies and defines a series of elements that warrant consideration in value assessments of medical technologies. We aim to broaden the view of what constitutes value in health care and to spur new research on incorporating additional elements of value into cost-effectiveness analysis (CEA). Twelve potential elements of value are considered. Four of them-quality-adjusted life-years, net costs, productivity, and adherence-improving factors-are conventionally included or considered in value assessments. Eight others, which would be more novel in economic assessments, are defined and discussed: reduction in uncertainty, fear of contagion, insurance value, severity of disease, value of hope, real option value, equity, and scientific spillovers. Most of these are theoretically well understood and available for inclusion in value assessments. The two exceptions are equity and scientific spillover effects, which require more theoretical development and consensus. A number of regulatory authorities around the globe have shown interest in some of these novel elements. Augmenting CEA to consider these additional elements would result in a more comprehensive CEA in line with the "impact inventory" of the Second Panel on Cost-Effectiveness in Health and Medicine. Possible approaches for valuation and inclusion of these elements include integrating them as part of a net monetary benefit calculation, including elements as attributes in health state descriptions, or using them as criteria in a multicriteria decision analysis. Further research is needed on how best to measure and include them in decision making. [ABSTRACT FROM AUTHOR]

The fifth section of our Special Task Force report identifies and discusses two aggregation issues: 1) aggregation of cost and benefit information across individuals to a population level for benefit plan decision making and 2) combining multiple elements of value into a single value metric for individuals. First, we argue that additional elements could be included in measures of value, but such elements have not generally been included in measures of quality-adjusted life-years. For example, we describe a recently developed extended cost-effectiveness analysis (ECEA) that provides a good example of how to use a broader concept of utility. ECEA adds two features-measures of financial risk protection and income distributional consequences. We then discuss a further option for expanding this approach-augmented CEA, which can introduce many value measures. Neither of these approaches, however, provide a comprehensive measure of value. To resolve this issue, we review a technique called multicriteria decision analysis that can provide a comprehensive measure of value. We then discuss budget-setting and prioritization using multicriteria decision analysis, issues not yet fully resolved. Next, we discuss deliberative processes, which represent another important approach for population- or plan-level decisions used by many health technology assessment bodies. These use quantitative information on CEA and other elements, but the group decisions are reached by a deliberative voting process. Finally, we briefly discuss the use of stated preference methods for developing "hedonic" value frameworks, and conclude with some recommendations in this area., (Copyright © 2018 International Society for Pharmacoeconomics and Outcomes Research (ISPOR). Published by Elsevier Inc. All rights reserved.)

This summary section first lists key points from each of the six sections of the report, followed by six key recommendations. The Special Task Force chose to take a health economics approach to the question of whether a health plan should cover and reimburse a specific technology, beginning with the view that the conventional cost-per-quality-adjusted life-year metric has both strengths as a starting point and recognized limitations. This report calls for the development of a more comprehensive economic evaluation that could include novel elements of value (e.g., insurance value and equity) as part of either an "augmented" cost-effectiveness analysis or a multicriteria decision analysis. Given an aggregation of elements to a measure of value, consistent use of a cost-effectiveness threshold can help ensure the maximization of health gain and well-being for a given budget. These decisions can benefit from the use of deliberative processes. The six recommendations are to: 1) be explicit about decision context and perspective in value assessment frameworks; 2) base health plan coverage and reimbursement decisions on an evaluation of the incremental costs and benefits of health care technologies as is provided by cost-effectiveness analysis; 3) develop value thresholds to serve as one important input to help guide coverage and reimbursement decisions; 4) manage budget constraints and affordability on the basis of cost-effectiveness principles; 5) test and consider using structured deliberative processes for health plan coverage and reimbursement decisions; and 6) explore and test novel elements of benefit to improve value measures that reflect the perspectives of both plan members and patients., (Copyright © 2018 International Society for Pharmacoeconomics and Outcomes Research (ISPOR). Published by Elsevier Inc. All rights reserved.)

Purpose: This study examines the effect of price regulation and competition on launch timing and pricing of new drugs., Methods: Our data cover launch experience in 15 countries from 1992 to 2003 for drugs in 12 major therapeutic classes. We estimate a two-equation model of launch hazard and launch price of new drugs., Findings: We find that launch timing and prices of new drugs are related to a country's average prices of established products in a class. Thus to the extent that price regulation reduces price levels, such regulation directly contributes to launch delay in the regulating country. Regulation by external referencing, whereby high-price countries reference low-price countries, also has indirect or spillover effects, contributing to launch delay and higher launch prices in low-price referenced countries., Implications: Referencing policies adopted in high-price countries indirectly impose welfare loss on low-price countries. These findings have implications for US proposals to constrain pharmaceutical prices through external referencing and drug importation.

This paper examines the issue of prices, relative to value, for cancer drugs. The analysis focuses on the effects on manufacturer pricing incentives of insurance coverage, specifically, the effectiveness of patient cost sharing, incentives created by reimbursement rules for physician-dispensed drugs, and payer ability and incentives to negotiate discounts. For pharmacy-dispensed cancer drugs, both Medicare Part D prescription drug plans (PDPs) and private payers' pharmacy benefit managers are increasingly placing these drugs on specialty tiers that offer no leverage for negotiating discounts and imply often unaffordable cost sharing for patients who lack catastrophic coverage. Simulation analysis of financial risks faced by PDPs confirms their incentives to place costly drugs on specialty tiers if more preferred formulary placement would increase use, possibly because of adverse selection risk. Faced with largely price-insensitive consumers and payers, manufacturers would rationally charge high prices. This situation is exacerbated for physician-dispensed cancer drugs, where Medicare's average selling price plus 6% reimbursement rule favors high-priced drugs. Because U.S. payers do not require evidence on prices relative to value, U.S. data are unavailable to test whether prices are higher, relative to value, for cancer drugs than for other drugs. Evidence from the Canadian Common Drug Review on cost-utility values suggests that cancer drugs are relatively high priced, although conclusions are tentative because of very small samples and non-U.S. data. Making such outcomes-adjusted prices available in the U.S. would be helpful to physicians, payers, and patients and indirectly constrain pricing to align with value.

This paper presents new evidence on availability, use, and prices of biopharmaceuticals in five major European Union (EU) markets, Canada, Australia, Japan, and Mexico, relative to the United States. Our data set from IMS Health includes all product sales in 2005. Per capita spending on biopharmaceuticals was at least twice as high in the United States as in the other countries. This difference reflects primarily greater availability and use of new, relatively high-price molecules and formulations. Prices for identical formulations are not higher on average in the United States. The broader price indexes, which do not control formulation, are also not higher in the United States, after adjusting for income.

Using data on over 900 firms for the period 1988-2000, we estimate the effect on phase-specific biotech and pharmaceutical R&D success rates of a firm's overall experience, its experience in the relevant therapeutic category, the diversification of its experience across categories, the industry's experience in the category, and alliances with large and small firms. We find that success probabilities vary substantially across therapeutic categories and are negatively correlated with mean sales by category, which is consistent with a model of dynamic, competitive entry. Returns to experience are statistically significant but economically small for the relatively straightforward phase 1 trials. We find evidence of large, positive and diminishing returns to a firm's overall experience (across all therapeutic categories) for the larger and more complex late-stage trials that focus on a drug's efficacy. There is some evidence that a drug is more likely to complete phase 3 if developed by firms whose experience is focused rather than broad (diseconomies of scope). There is evidence of positive knowledge spillovers across firms for phase 1. However, for phase 2 and phase 3 the estimated effects of industry-wide experience are negative, which may reflect either higher Food and Drug Administration (FDA) approval standards in crowded therapeutic categories or that firms in such categories must pursue more difficult targets. Products developed in an alliance tend to have a higher probability of success, at least for the more complex phase 2 and phase 3 trials, and particularly if the licensee is a large firm.

This paper describes three prototypical systems of therapeutic reference pricing (RP) for pharmaceuticals--Germany, the Netherlands, and New Zealand--and examines their effects on the availability of new drugs, reimbursement levels, manufacturer prices, and out-of-pocket surcharges to patients. RP for pharmaceuticals is not simply analogous to a defined contribution approach to subsidizing insurance coverage. Although a major purpose of RP is to stimulate competition, theory suggests that the achievement of this goal is unlikely, and this is confirmed by the empirical evidence. Other effects of RP differ across countries in predictable ways, reflecting each country's system design and other cost-control policies. New Zealand's RP system has reduced reimbursement and limited the availability of new drugs, particularly more expensive drugs. Compared to these three countries, if RP were applied in the United States, it would likely have a more negative effect on prices of onpatent products because of the more competitive U.S. generic market, and on research and development (R&D) and the future supply of new drugs, because of the much larger U.S. share of global pharmaceutical sales.

This paper reviews the economic case for patents and the potential for differential pricing to increase affordability of on-patent drugs in developing countries while preserving incentives for innovation. Differential pricing, based on Ramsey pricing principles, is the second best efficient way of paying for the global joint costs of pharmaceutical R&D. Assuming demand elasticities are related to income, it would also be consistent with standard norms of equity. To achieve appropriate and sustainable price differences will require either that higher-income countries forego trying to "import" low drug prices from low-income countries, through parallel trade and external referencing, or that such practices become less feasible. The most promising approach that would prevent both parallel trade and external referencing is for payers/purchasers on behalf of developing countries to negotiate contracts with companies that include confidential rebates. With confidential rebates, final transactions prices to purchasers can differ across markets while manufacturers sell to distributors at uniform prices, thus eliminating opportunities for parallel trade and external referencing. The option of compulsory licensing of patented products to generic manufacturers may be important if they truly have lower production costs or originators charge prices above marginal cost, despite market separation. However, given the risks inherent in compulsory licensing, it seems best to first try the approach of strengthening market separation, to enable originator firms to maintain differential pricing. With assured market separation, originators may offer prices comparable to the prices that a local generic firm would charge, which eliminates the need for compulsory licensing. Differential pricing could go a long way to improve LDC access to drugs that have a high income market. However, other subsidy mechanisms will be needed to promote R&D for drugs that have no high income market.

Background and Objective: Health plans are increasingly using more open drug formularies that offer differential prescription copayments as an incentive to enrollees to use brands that plans prefer. How much this financial incentive affects use of preferred brands has not been widely reported. The aim of this study was to estimate the effect of tiered copayments on the choice between preferred and nonpreferred brand medications., Materials and Methods: Longitudinal logistic regression analyses of pharmacy claims from 1998 and 1999 comparing concurrent groups that were or were not exposed to tiered copayments., Subjects: Enrollees in four independent physician practice association model health plans who had pharmacy claims for angiotensin converting enzyme inhibitors (ACEI), proton pump inhibitors (PPI), or hydroxymethylglutaryl coenzyme A reductase inhibitors (STATINS)., Outcome Measure: Change in the percentage of prescription claims that were for preferred brands., Main Results: Regression adjusted estimates of the average net increase in the percentage use of preferred brands of ACEI, PPI and STATIN from first quarter 1998 to third quarter 1999 attributed to tiered prescription copayments were 13.3 (P = 0.001), 8.9 (P = 0.03), and 6.0 (P <0.001) percentage points, respectively., Conclusions: Tiered prescription copayments were associated with a significant shift from nonpreferred to preferred brand medications. This type of financial incentive can help purchasers providing open access drug benefits by steering use of medications toward lower cost brands. The clinical effects of changes in medication use brought about differential copayments warrant further investigation.