Cost of Illness and Pharm Pricing

Direct vs Indirect vs Intangible Burden

Direct Costs: Resource consumed BECAUSE Of disease

Indirect Costs: Productivity losses related to morbidity/premature mortality

Intangible burden: pain, suffering, anxiety, quality of life loss

What do payers, healthcare providers, employers, healthcare firm min/max? How bout patients and scoiety?

Payer: cost minimizer

Healthcare provider: health maximizer

Healthcare firm: profit max

Employers: productivity maximize

Patients Utility Maximize

Cost

Value of resource used to deliver care/treat condition

Charge

The amount a provider bills for service BEFORE discounts/negotiated payments. Often higher than amount actually paid

Payment definition

Amount actually paid to provider by insurer and /or patients for service: is observed in claims data

Price definition

Amount assigned to good/service in a transition or benchmark. Can be WAC, ASP, negotiated price, net price

Present value vs future costs vs past costs

Present value: costs from same/different periods

Future costs: discount to today's costs using assumption on future inflaation

past costs: inflate to today's cost using consumer price index.

Prevalence based, vs incidence based cost

Prevalence: amount spent each year to care for person with disease/injury

Incidence: Amount spent over person's lifetime for disease or injury first occurring within particular time period.

Cost benefit vs illness vs minimizationv s utility vs effectiveness analysis

Benefit: compare monetary costs and outcomes where outcomes are in monetary terms

Illness: all costs incurred in treating patients with diff treatment approaches

Minimization: compare total cost for different treatments where outcomes are THE SAME

Utility Measurement of monetary input cost sand QALYs

Effectiveness: measurement on monetary input costs and non monetary outcomes

Fee for services vs capitation

FFS: Providers paid for each service: usually primary care and specialists and medicare

Capitation: monthly payment for all individualsin their care: Usually primary care, shift risk to provider and away from payer.

Innovative branded vs generics/biosims

Innovative branded: patnet proc drugs with no equivalents: price set by innovator and reflect clinica value, NOT COMPETITION

Generics: Out of Scope: Compete for cost

Demand and Supply theory

Usually do Demand> supply price goes up, supply>demand prices goes down, market eq.

Price Elasciscity

Lots of constantsz, and if determinants shifts demand curve shifts with it, but nature of demand curve and all the constants makes it impractical for pharm

3 reasons why pricing pharmaceuticals is different: (Derive, negative, experience)

Prescription med subject to derived demand: Products given inr esponse to medical need: use affected by recognized standards of care: people dont' know what they need, just take what they're given.

Prescription meds are negative goods: those who get them would prefer not to: only benefit is they remove an unpleasant condition

Prescription meds are experience goods: Actual utility can't be determined until actually use: Continued used epends on satisfactory epxperience.

Cost plus vs comp baesd vs value based pricing

Cost plus: set price from cost of making and delivering product+ target margin

Comp: Compete

Value based pricing: set price on value product delivers to patients, payers and health system (mainly pharmaceuticals); priced on an objective measure.

Value assessment and HTA

value assessment done by health technology assessment bodies usually:

Most referenced for HTA: Canada and UK, Germany is biggest for Europe,

3 payer archetypes for US price decisions, and international?

Cost effectiveness markets: have a willingness to pay threshold

Budget imapct; negotiate to net neutral/negative budget impact

Comparative effectiveness: Add clinical benefit vs Standard of care to set price ceiling.

MFN

International refernece pricing applies to US< benchmarked to floor rather than basket average.

Shorter exclusivity runway for small molecules, pressure to protect ex US prices.