BACKGROUND AND OBJECTIVE: When drug patents expire, price falls often follow. Most reimbursement agencies do not account for such price falls in the economic evaluations underlying their reimbursement decisions for patented drugs. Recent work arguing that the value provided by new drugs is systematically underestimated does not account for the possibility that including future price falls may result in higher prices during the patent period if producers act strategically. This paper explores the consequences of including off-patent prices in cost-effectiveness analyses of patented drugs in a publicly funded healthcare system while considering strategic response. METHODS: In five cases, we illustrate how the value of a new drug is shared between the healthcare system and the patent holder depending on how future off-patent prices are handled in the cost-effectiveness analyses underlying reimbursement decisions, and whether the patent holder responds strategically to the chosen approach. RESULTS: Including off-patent prices in reimbursement decisions may allow a patent holder to capture the surplus from competition beyond the patent period. The case studies illustrate the importance of considering strategic response and the purposes of the healthcare system in which the decisions are made, when evaluating new reimbursement policies. CONCLUSIONS: When deciding whether to include future cost savings in cost-effectiveness analyses underlying reimbursement decisions, it should be anticipated that producers will respond strategically to an opportunity to raise their on-patent prices. Evaluation approaches that account for this and illustrate the shares of value accruing to the patent holder and the healthcare system should be considered.
Klockhoff et al. (Tue,) studied this question.