Pricing implications of non-marginal budgetary impacts in health technology assessment: a conceptual model

Posted on 14 November 2017

CHE's latest Research Paper 148 written by Daniel Howdon and James Lomas

CHE Research Paper 119

This paper introduces a framework by which to conceptualise the decision-making process in health technology assessment when the quantity of health forgone by acceptance is high enough such that the use of a single threshold based on the marginal productivity of the health care system is inappropriate, and draws out the implications of this for pharmaceutical pricing. Under the condition of perfect divisibility, a large budgetary impact of a new treatment may imply that optimal implementation may be partial rather than full, even at a given incremental cost effectiveness ratio (ICER) that would nevertheless mean the decision to accept the treatment in full would not lead to a net reduction in health. In a one-shot price setting game, this seems to give rise to horizontal equity concerns which may be more apparent than real. When the assumption of fixity of the ICER (arising from the assumed exogeneity of the manufacturer’s price) is relaxed, it can be shown that the threat of partial implementation may be sufficient to give rise to an ICER at which cost the entire potential population is treated, maximising health at an increased level, and with no contravention of the horizontal equity principle.

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