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Cost Implications of Value-Based Pricing for Companion Diagnostic Tests in Precision Medicine


  • Gregory S. Zaric

    (Western University)


Many interpretations of personalized medicine, also referred to as precision medicine, include discussions of companion diagnostic tests that allow drugs to be targeted to those individuals who are most likely to benefit or that allow treatment to be designed in a way such that individuals who are unlikely to benefit do not receive treatment. Many authors have commented on the clinical and competitive implications of companion diagnostics, but there has been relatively little formal analysis of the cost implications of companion diagnostics, although cost reduction is often cited as a significant benefit of precision medicine. We investigate the potential impact on costs of precision medicine implemented through the use of companion diagnostics. We develop a framework in which the costs of companion diagnostic tests are determined by considerations of profit maximization and cost effectiveness. We analyze four scenarios that are defined by the incremental cost-effectiveness ratio of the new drug in the absence of a companion diagnostic test. We find that, in most scenarios, precision medicine strategies based on companion diagnostics should be expected to lead to increases in costs in the short term and that costs would fall only in a limited number of situations.

Suggested Citation

  • Gregory S. Zaric, 2016. "Cost Implications of Value-Based Pricing for Companion Diagnostic Tests in Precision Medicine," PharmacoEconomics, Springer, vol. 34(7), pages 635-644, July.
  • Handle: RePEc:spr:pharme:v:34:y:2016:i:7:d:10.1007_s40273-016-0388-x
    DOI: 10.1007/s40273-016-0388-x

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    References listed on IDEAS

    1. Patricia Danzon & Adrian Towse & Jorge Mestre‐Ferrandiz, 2015. "Value‐Based Differential Pricing: Efficient Prices for Drugs in a Global Context," Health Economics, John Wiley & Sons, Ltd., vol. 24(3), pages 294-301, March.
    2. Martin Frank & Thomas Mittendorf, 2013. "Influence of Pharmacogenomic Profiling Prior to Pharmaceutical Treatment in Metastatic Colorectal Cancer on Cost Effectiveness," PharmacoEconomics, Springer, vol. 31(3), pages 215-228, March.
    3. Alan J. Girling & Richard J. Lilford & Terry P. Young, 2012. "Pricing Of Medical Devices Under Coverage Uncertainty—A Modelling Approach," Health Economics, John Wiley & Sons, Ltd., vol. 21(12), pages 1502-1507, December.
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    1. Denicolai, Stefano & Previtali, Pietro, 2020. "Precision Medicine: Implications for value chains and business models in life sciences," Technological Forecasting and Social Change, Elsevier, vol. 151(C).
    2. Daniel Gallacher & Nigel Stallard & Peter Kimani & Elvan Gökalp & Juergen Branke, 2022. "Development of a model to demonstrate the impact of National Institute of Health and Care Excellence cost‐effectiveness assessment on health utility for targeted medicines," Health Economics, John Wiley & Sons, Ltd., vol. 31(2), pages 417-430, February.

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