Study Findings from University of Washington Broaden Understanding of Healthcare Economics (Price elasticities of pharmaceuticals in a value based-formulary setting)

By a News Reporter-Staff News Editor at Health & Medicine Week -- Researchers detail new data in Economics - Healthcare Economics. According to news reporting originating in Seattle, Washington, by NewsRx journalists, research stated, "Empirical estimates of price elasticities of demand (PED) for pharmaceuticals suggest that they are relatively price inelastic. However, in many settings, a medication and its substitutes and complements face simultaneous differential changes in prices that affect the observed composite PED."

Financial supporters for this research include Agency for Healthcare Research and Quality, National Center for Advancing Translational Sciences (see also Economics - Healthcare Economics).

The news reporters obtained a quote from the research from the University of Washington, "We exploit an implementation of a value-based formulary (VBF) that utilized drug-specific incremental cost-effectiveness ratios (ICERs) to inform drug copayments, resulting in increases in copayments for some medications and decreases in copayments for others. We first show theoretically that by changing the price of a medication and its substitute in opposite directions, VBF designs can leverage cross-price effects to increase the range of composite PEDs. We then empirically estimate PED and welfare effects using a consumer surplus approach. Overall PED was -0.16, similar to the RAND Health Insurance Experiment estimate. However, there was substantial dispersion of PED across the VBF copayment tiers ranging from -0.09 to -0.87 with a statistically significant trend aligned with the levels of value as reflected by the ICER estimates (p <0.001). The net welfare increase was $147,000 for the cohort or $28 per member over the postpolicy year."

According to the news reporters, the research concluded: "Further experimentations of VBF designs with alternative cost-effectiveness thresholds, copayment levels and value definitions could be quite promising for improving welfare."

For more information on this research see: Price elasticities of pharmaceuticals in a value based-formulary setting. Health Economics, 2018;27(11):1788-1804. Health Economics can be contacted at: Wiley, 111 River St, Hoboken 07030-5774, NJ, USA. (Wiley-Blackwell - www.wiley.com/; Health Economics - onlinelibrary.wiley.com/journal/10.1002/(ISSN)1099-1050)

Our news correspondents report that additional information may be obtained by contacting K. Yeung, University of Washington, Comparat Hlth Outcomes Policy & Econ Inst, Seattle, WA 98195, United States. Additional authors for this research include A. Basu, R.N. Hansen and S.D. Sullivan.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.1002/hec.3801. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.

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