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

Author

Listed:
  • Caroline Savage Bennette

    (Flatiron Health)

  • Anirban Basu

    (Departments of Pharmacy, Health Services, and Economics, University of Washington, and NBER)

  • Scott D. Ramsey

    (Hutchinson Institute for Cancer Outcomes Research, Fred Hutchinson Cancer Research Center)

  • Zachary Helms

    (Center for Health Policy and Outcomes, Memorial Sloan Kettering Cancer Center)

  • Peter B. Bach

    (Center for Health Policy and Outcomes, Memorial Sloan Kettering Cancer Center)

Abstract

We estimated the average returns, in terms of patient survival, to the marginal innovations in the oral chemotherapy market induced by Part D expansion of oral chemotherapy coverage for elderly individuals by mandating inclusion of “all or substantially all” oral anticancer 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 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 the Food and Drug Administration and clinical studies from January 1994 to December 2016, we find that the approval rate for oral chemotherapies increased an additional 5.7 percent (95 percent CI: 1.7, 9.8) after implementation of Part D for every 1 percent relative expansion in the Medicare market. In contrast, the same relative expansion in the Medicare market resulted in a smaller increase in the indication-specific survival gains reported in the drug's label (3.2 percent (95 percent CI: 2.1, 4.3)) and 8.0 percent (95 percent CI: 6.1, 9.8) lower in absolute and relative gains, respectively). Similar trends were not observed for intravenously administered chemotherapy whose coverage was unaffected by Part D. These findings suggest that while increased innovation will generate health benefits, there could be diminishing marginal returns to incentives for pharmaceutical innovation created by broad coverage mandates, and more nuanced coverage policies and targeted treatment uses may help maximize the health benefits provided by future pharmaceutical innovations.

Suggested Citation

  • 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, MIT Press, vol. 5(3), pages 360-375, Summer.
  • Handle: RePEc:tpr:amjhec:v:5:y:2019:i:3:p:360-375
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    References listed on IDEAS

    as
    1. David H. Howard & Peter B. Bach & Ernst R. Berndt & Rena M. Conti, 2015. "Pricing in the Market for Anticancer Drugs," Journal of Economic Perspectives, American Economic Association, vol. 29(1), pages 139-162, Winter.
    2. Daron Acemoglu & Joshua Linn, 2004. "Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 1049-1090.
    3. Blume-Kohout, Margaret E. & Sood, Neeraj, 2013. "Market size and innovation: Effects of Medicare Part D on pharmaceutical research and development," Journal of Public Economics, Elsevier, vol. 97(C), pages 327-336.
    4. David H. Howard & Peter B. Bach & Ernst R. Berndt & Rena M. Conti, 2015. "Pricing in the Market for Anticancer Drugs," NBER Working Papers 20867, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    pharmaceutical innovation; chemotherapy; Part D;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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