The Interaction between Price Negotiations and Heterogeneity: Implications for Economic Evaluations

Helen O’Donnell, Laura McCullagh, Michael Barry and Cathal Walsh
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Helen O’Donnell: National Centre for Pharmacoeconomics, Trinity Centre for Health Sciences, St James’s Hospital, Dublin, Ireland
Laura McCullagh: National Centre for Pharmacoeconomics, Trinity Centre for Health Sciences, St James’s Hospital, Dublin, Ireland
Michael Barry: National Centre for Pharmacoeconomics, Trinity Centre for Health Sciences, St James’s Hospital, Dublin, Ireland
Cathal Walsh: University of Limerick, Limerick, Ireland

Medical Decision Making, 2020, vol. 40, issue 2, 144-155

Abstract: Economic evaluation is an important element of the decision making process for the reimbursement of drugs. Heterogeneity can be considered an explained variation in clinical or economic outcomes based on the clinical and sociodemographic characteristics of patients. However, to our knowledge, the relationship between price negotiations and population heterogeneity has not been considered in the literature to date. If a company offers a conditional discount that is dependent on obtaining reimbursement in 2 subgroups or indications, an interaction is generated between groups that should be accounted for in economic evaluations. Critically, where the drug has 2 indications but is only cost-effective in 1 indication at the full price (herein “indication 1†), the cost savings realized from implementation of the discount in indication 1 can be used to offset the incremental cost of extending reimbursement to indication 2 at the discounted price. This reduces the incremental cost-effectiveness ratio and increases the probability of positive reimbursement compared to a stratified approach. Given the additional complexity that this introduces, we introduce a framework deemed the “hybrid approach†to guide the economic assessment. We present 2 worked examples. We show that failure to account for the interaction can lead to inaccurate conclusions regarding a drug’s cost effectiveness and that adoption of strategic behavior could theoretically increase the reimbursement price of drugs. By adopting this framework, cost-effective interventions are identified that may have been previously misclassified as not being cost-effective and vice versa. Recognition of the interaction in the literature by pharmaceutical companies may influence the forms of discounts offered to decision makers. Therefore, we expect this research to have far-reaching effects on medical decision making.

Keywords: economic evaluation; heterogeneity; interactions; multi-indication pricing; strategy (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:sae:medema:v:40:y:2020:i:2:p:144-155

DOI: 10.1177/0272989X19900179

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