Returns to Pharmaceutical Innovation in the Market for Oral Chemotherapy in Response to Insurance Coverage Expansion

Caroline S. Bennette, Anirban Basu, Scott D. Ramsey, Zachary Helms and Peter B. Bach

No 23842, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We estimated the average returns, in terms of patient survival, to the marginal innovations in oral chemotherapy market induced by Part D expansion of oral chemotherapy coverage for elderly individuals by mandating inclusion of “all or substantially all” oral anti-cancer medications on plans’ formularies. We exploited exogenous variation in the age of diagnosis for different cancer sites - and therefore the relative expansion in market size for different cancers under the Medicare’s prescription drug coverage – to isolate the effect of Part D on innovation and the health benefits that these innovative technologies provide. Using data from FDA and clinical studies from January 1994 to December 2016, we find that the approval rate for oral chemotherapies increased an additional 5.7% (95% CI: 1.7, 9.8) after implementation of Part D for every 1% increase in exposure to the Medicare market. In contrast, greater exposure to Medicare was associated with a smaller increase in the indication-specific survival gains reported in the drug’s label (3.2% [95% CI: 2.1, 4.3]) and 8.0% [95% CI: 6.1, 9.8] lower in absolute and relative gains, respectively). Similar trends were not observed for intravenously administered chemotherapy whose coverage was largely unaffected by Part D. These findings suggest that there could be diminishing returns to incentives for pharmaceutical innovation created by broad coverage mandates and that health policy tools, such as value–based pricing, may help maximize the health benefits provided by future pharmaceutical innovations.

JEL-codes: I11 I13 I18 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-hea, nep-ias and nep-ino
Note: EH PE
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Published as Caroline Savage Bennette & Anirban Basu & Scott D. Ramsey & Zachary Helms & Peter B. Bach, 2019. "Health Returns to Pharmaceutical Innovation in the Market for Oral Chemotherapy in Response to Insurance Coverage Expansion," American Journal of Health Economics, vol 5(3), pages 360-375.

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