Cost-Effectiveness Analysis of Branded Drugs With Market Demand and Insurance

OBJECTIVES

Cost-effectiveness analysis of branded pharmaceuticals presumes that both cost (or price) and marginal effectiveness levels are exogenous. This assumption underlies most judgments of the cost-effectiveness of specific drugs. In this study, we show the theoretical implications of letting both factors be endogenous by modeling pharmaceutical price setting with and without health insurance, along with patient response to the prices that depend on marginal effectiveness. We then explore the implications of these models for cost-effectiveness ratios.

METHODS

We used simple textbook models of patient demand and pricing behavior of drug firms to predict market equilibria in the drug and insurance markets and to generate calculations of the cost-effectiveness ratios in those settings.

RESULTS

We found that ratios in market settings can be much different from those calculated in cost-effectiveness studies based on exogenous prices and treatment of all patients at risk rather than those who would demand treatment in a market setting. We also found that there may be considerable similarity in these market cost-effectiveness ratios across different products because drug firms with market power set profit-maximizing prices.

CONCLUSIONS

We found that market cost-effectiveness ratios will always indicate an excess of benefits over cost. Insurance will lead to less favorable ratios than without insurance, but when insurers bargain with drug firms, rather than taking their prices as given, cost-effectiveness ratios will be more favorable.

North American cost analysis of brand name versus generic drugs for the treatment of glaucoma

Background

According to the World Health Organization, glaucoma is a leading cause of irreversible blindness worldwide. By 2020, 80 million people will be affected by glaucoma in the world, which represents a significant financial burden to society. Glaucoma medications alone make up 38-52% of the total direct cost. The purpose of this research is to conduct a cost-minimization analysis to evaluate brand-name medications versus generic medications for treating glaucoma patients.

Methods

The per-bottle cost (in Canadian dollars) of brand-name drugs for glaucoma was obtained from the wholesaler, McKesson Canada, and, for generic drugs, from the Ontario Drug Benefit (ODB) Formulary. Further, a wastage adjustment fee, a pharmacy mark-up, and an ODB dispensing fee ($CAD) was added to the cost of both brand and generic. Previously published frequencies of medication prescription were utilized to calculate the average annual cost for each class of brand and generic. For each medication class and for mono-, bi-, and tri-drug therapy, the cost differential between brands and generics over a six-year period was computed and analyzed from third-party payer perspective.

Results

In descending order, the average annual government-funded health care system costs were: combination drugs such as Cosopt^® ($748.23) were the most expensive, followed by prostaglandin analogs ($246.36), carbonic anhydrase inhibitors (CAIs) ($45.04), α-agonist ($30.34), β-blockers ($29.29), and cholinergic agonists ($16.51). Brand-name mono-drugs are 34% more expensive compared to generics. Brand-generic percentage cost differential for various medication classes over a six-year period was the highest for prostaglandin analogous (44%), followed by β-blockers (35%), α-agonist (31%), cholinergic agonists (22%), combination drugs (10%), and CAIs (1%).

Conclusion

Brand-name drugs are relatively more expensive than their generic counterparts, with variable cost differentials depending on drug class.

The economic impact of the transition from branded to generic oncology drugs

Background

Economic evaluations are an integral component of many clinical trials. Costs used in those analyses are based on the prices of branded drugs when they first enter the market. The effect of genericization on the cost-effectiveness (ce) or cost-utility (cu) of an intervention is unknown because economic analyses are rarely updated using the costs of generic drugs.

Methods

We re-examined the ce or cu of regimens previously evaluated in Canadian Cancer Trials Group (cctg) studies that included prospective economic evaluations and where genericization has occurred or is anticipated in Canada. We incorporated the new costs of generic drugs to characterize changes in ce or cu. We also determined acceptable cost levels of generic drugs that would make regimens reimbursable in a publicly funded health care system.

Results

The four randomized controlled trials included (representing 1979 patients) were cctg br.10 (early lung cancer, adjuvant vinorelbine-cisplatin vs. observation, n = 172), cctg br.21 (metastatic lung cancer, erlotinib vs. placebo, n = 731), cctg co.17 (metastatic colon cancer, cetuximab vs. best supportive care, n = 557), and cctg ly.12 (relapsed or refractory lymphoma, gemcitabine-dexamethasone-cisplatin vs. cytarabine-dexamethasone-cisplatin, n = 619). Since the initial publication of those trials, the genericization of vinorelbine, erlotinib, cetuximab, and cisplatin has taken place or is expected in Canada. Costs of generics improved the ces and cus of treatment significantly. For example, genericization of erlotinib ($1460.25 per 30 days) resulted in an incremental cost-effectiveness ratio (icer) of $45,746 per life-year gained compared with $94,638 for branded erlotinib. Likewise, genericization of cetuximab ($275.80 per 100 mg) produced an icer of $261,126 per quality-adjusted life-year (qaly) gained compared with $299,613 for branded cetuximab. Decreases in the cost of generic cetuximab to $129.39 and $63.51 would further improve the icer to $150,000 and $100,000 per QALY respectively.

Conclusions

Genericization of a costly oncology drug can modify the ce and cu of a regimen significantly. Failure to revisit economic analyses with the costs of generics could be a missed opportunity for funding bodies to optimize value-based allocation of health care resources. At current levels, the costs of generics might not be sufficiently low to sustain publicly funded health care systems.