Cost-effectiveness analysis and incentivizing innovation

In the paper by Santiago Moreno and Joshua Ray, the controversial role that conventional cost-effectiveness analysis (CEA) plays in incentivizing innovation is revealed [1]. Detractors criticize its use for pricing purposes because it disregards the value of innovation brought by new drugs, while supporters argue that it is already accounted for. The objective of the paper is to identify the limitations of the conventional CEA approach and to propose an alternative that offers a more realistic estimate of the true value of innovation.

The paper argues that the adoption of a new drug provides benefits to both present and future patients (with cost implications) for as long as the drug remains in clinical practice. The incident population and off-patent price are identified as two key drivers preventing a conventional CEA approach from capturing the:
1. benefit to future patients, and
2. future savings from off-patent prices.

The proposed CEA approach incorporates these two features to derive the total lifetime value of an innovative drug (hereafter defined as the ‘value of innovation’).

The main finding is that the conventional CEA approach tends to underestimate the value of innovative treatments, by disregarding the benefit to future patients and savings from off-patent prices. As a result, innovative drugs are generally underpriced, with manufacturers capturing around 15% of the total value of innovation during the period of patent protection.

In addition to including the incidence population and off-patent price, the novel approach proposes to price new drugs by initially negotiating the share of value of innovation to be appropriated by the manufacturer (> 15%?) and payer (85%?), to then identify the drug price that satisfies this condition. This is intended to incentivize innovation while supporting healthcare systems to pursue dynamic allocative efficiency.

Conflict of interest
The authors of the research paper [1] disclaimed that views in this paper are solely the authors’and do not reflect those of their professional affiliations. All authors work for F Hoffmann-La Roche, and indicate that they have no further no conflicts of interest.

Abstracted by Santiago G Moreno, Global Pricing and Market Access Department, F Hoffmann-La Roche, Basel, Switzerland.

Editor’s comment
Readers interested to learn more about cost-effectiveness analyses are invited to visit to view the following manuscript published in GaBI Journal:

The impact of pharmaceutical pricing and reimbursement policies on generics uptake: implementation of policy options on generics in 29 European countries─an overview

Readers interested in contributing a research or perspective paper to GaBI Journal – an independent, peer reviewed academic journal platform – please send us your submission here.

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1. Moreno SG, Ray JA. The value of innovation under value-based pricing. J Mark Access Health Policy. 2016;4.


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