ESTIMATING THE LIFETIME PRICE OF PHARMACEUTICALS: WHAT ARE THE LONG-TERM COSTS TO SOCIETY?

D.N. Lakdawalla; J.P. MacEwan; A. Towse; M. Berdud; K.D. Westrich; R.W. Dubois

doi:10.1016/j.jval.2016.03.883

Abstract only| Volume 19, ISSUE 3, PA273, May 01, 2016

ESTIMATING THE LIFETIME PRICE OF PHARMACEUTICALS: WHAT ARE THE LONG-TERM COSTS TO SOCIETY?

Lakdawalla D.N.
D.N. Lakdawalla
Affiliations
University of Southern California, Los Angeles, CA, USA
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MacEwan J.P.
J.P. MacEwan
Affiliations
Precision Health Economics, Los Angeles, CA, USA
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Towse A.
A. Towse
Affiliations
Office of Health Economics, London, UK
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Berdud M.
M. Berdud
Affiliations
Office of Health Economics, London, UK
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Westrich K.D.
K.D. Westrich
Affiliations
National Pharmaceutical Council, Washington, DC, USA
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Dubois R.W.
R.W. Dubois
Affiliations
National Pharmaceutical Council, Washington, DC, USA
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Open ArchiveDOI:https://doi.org/10.1016/j.jval.2016.03.883

Objectives

Estimate the long-term average cost for a typical pharmaceutical accounting for the effects of generic competition and medical cost offsets.

Methods

Estimate the long-term average cost (LAC) for a drug as the average price per unit paid during the lifecycle of the drug, appropriately discounted across all time periods using Medical Expenditure Panel Survey (MEPS) data and accounting for the affects of generic competition and medical cost offsets attributable to the use of pharmaceuticals.

Results

The average market-weighted price for the typical drug falls rapidly after generic entry. As a result, the LAC over the 30-year drug lifecycle equals 72% (95% CI: 70%–73%) of the brand price in the year prior to generic market entry. When direct medical cost offsets are accounted for, the LAC falls to 57% (95% CI: 56%–59%) of the brand price in the year prior to generic market entry. Compared to launch price, the LAC for a typical drug is 90% of the launch price and 71% of the launch price after adjusting for direct medical cost offsets.

Conclusions

Reductions in price due to generic entry yield meaningful reductions in the average cost per prescription society pays over the lifetime of a drug. Decisions about coverage for a drug usually focus on the price of a drug at a specific time, particularly at drug launch. Focusing on such prices may significantly overstate the long-run cost of the average prescription to society over time. Decisions to grant market access should consider these long-term costs, in order to ensure that patients have access to drugs that provide value.