title: Optimal drug pricing, limited use conditions and stratified net benefits for Markov models of disease progression.
abstract: Limited use conditions (LUCs) are a method of directing treatment with new drugs to those populations where they will be most cost effective. In this paper we investigate how a drug manufacturer could determine pricing and LUCs to maximize profits. We assume that the payer makes formulary decisions on the basis of net monetary benefits, that the disease can be modeled using a Markov model of disease progression, and that the drug reduces the probability of progression between states of the Markov model. LUCs are expressed as a range of probabilities of disease progression over which patients would have access to the new drug. We assume that the manufacturer determines the price and LUCs in order to maximize profits. We show that an explicit trade-off exists between the drug's price and the use conditions, that there is an upper bound on the drug price, that the proportion of the population targeted by the LUC does not depend on quality of life or costs in each health state or the payer's willingness to pay, and that high drug prices do not always correspond with high profits.
authors.affiliation: Richard Ivey School of Business, University of Western Ontario, London, Canada. gzaric@ivey.uwo.ca
authors.forename: Gregory S
authors.initials: GS
authors.lastname: Zaric
mesh_terms: D003362:Cost-Benefit Analysis; D018450:Disease Progression; D016527:Drug Costs; D004345:Drug Industry / Q000191:economics*; D017850:Economics, Pharmaceutical; D005252:Fees, Pharmaceutical; D006801:Humans; D008390:Markov Chains; D018803:Models, Economic; D009965:Orphan Drug Production / Q000191:economics; D035583:Rare Diseases / Q000188:drug therapy / Q000191:economics