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Dynamic Cost-Effectiveness: A More Efficient Reimbursement Criterion

Author

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  • Lundin Douglas

    (Swedish Competition Authority)

  • Ramsberg Joakim

    (Swedish Pharmaceutical Benefits Board)

Abstract

Basing drug reimbursement on cost-effectiveness provides too little incentives for R&D. The reason for this is that cost-effectiveness is concerned with immediate value for money. But since the price of a drug usually declines over time, the drug might well provide value for money as seen over its entire life cycle, even though its price during patent protection is too high to warrant reimbursement according to the cost-effectiveness decision rule. We show in a theoretical model that welfare could be improved if decision-makers took a longer perspective and initially allowed higher prices than immediate value for money can motivate. We also discuss the real world relevance of applying dynamic cost-effectiveness.

Suggested Citation

  • Lundin Douglas & Ramsberg Joakim, 2008. "Dynamic Cost-Effectiveness: A More Efficient Reimbursement Criterion," Forum for Health Economics & Policy, De Gruyter, vol. 11(2), pages 1-17, November.
    • Handle: RePEc:bpj:fhecpo:v:11:y:2008:i:2:n:7
    DOI: 10.2202/1558-9544.1120
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    References listed on IDEAS

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    1. Tomas J. Philipson & Anupam B. Jena, 2005. "Surplus Appropriation from R&D and Health Care Technology Assessment Procedures," Public Economics 0511021, University Library of Munich, Germany.
    2. Daron Acemoglu & Joshua Linn, 2004. "Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(3), pages 1049-1090.
    3. Darius Lakdawalla & Neeraj Sood, 2007. "The Welfare Effects of Public Drug Insurance," NBER Working Papers 13501, National Bureau of Economic Research, Inc.
    4. Garber Alan M & Jones Charles I. & Romer Paul, 2006. "Insurance and Incentives for Medical Innovation," Forum for Health Economics & Policy, De Gruyter, vol. 9(2), pages 1-27, March.
    5. Z. John Lu & William S. Comanor, 1998. "Strategic Pricing Of New Pharmaceuticals," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 108-118, February.
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    Cited by:

    1. Ulf Persson & Johanna Svensson & Billie Pettersson, 2012. "A New Reimbursement System for Innovative Pharmaceuticals Combining Value-Based and Free Market Pricing," Applied Health Economics and Health Policy, Springer, vol. 10(4), pages 217-225, July.
    2. Ulf Persson & J. M. Norlin, 2018. "Multi-indication and Combination Pricing and Reimbursement of Pharmaceuticals: Opportunities for Improved Health Care through Faster Uptake of New Innovations," Applied Health Economics and Health Policy, Springer, vol. 16(2), pages 157-165, April.

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