title: The role of imperfect surrogate endpoint information in drug approval and reimbursement decisions.
abstract: Approval of new drugs is increasingly reliant on "surrogate endpoints," which correlate with but imperfectly predict clinical benefits. Proponents argue surrogate endpoints allow for faster approval, but critics charge they provide inadequate evidence. We develop an economic framework that addresses the value of improvement in the predictive power, or "quality," of surrogate endpoints, and clarifies how quality can influence decisions by regulators, payers, and manufacturers. For example, the framework shows how lower-quality surrogates lead to greater misalignment of incentives between payers and regulators, resulting in more drugs that are approved for use but not covered by payers. Efficient price-negotiation in the marketplace can help align payer incentives for granting access based on surrogates. Higher-quality surrogates increase manufacturer profits and social surplus from early access to new drugs. Since the return on better quality is shared between manufacturers and payers, private incentives to invest in higher-quality surrogates are inefficiently low.
authors.affiliation: Precision Health Economics, Los Angeles, CA, United States.
authors.forename: Katalin
authors.initials: K
authors.lastname: Bognar
authors.affiliation: University of Southern California, Los Angeles, CA, United States.
authors.forename: John A
authors.initials: JA
authors.lastname: Romley
authors.affiliation: Eli Lilly & Company, Indianapolis, IN, United States.
authors.forename: Jay P
authors.initials: JP
authors.lastname: Bae
authors.affiliation: Eli Lilly & Company, Indianapolis, IN, United States.
authors.forename: James
authors.initials: J
authors.lastname: Murray
authors.affiliation: Precision Health Economics, Los Angeles, CA, United States.
authors.forename: Jacquelyn W
authors.initials: JW
authors.lastname: Chou
authors.affiliation: University of Southern California, Los Angeles, CA, United States. Electronic address: dlakdawa@usc.edu.
authors.forename: Darius N
authors.initials: DN
authors.lastname: Lakdawalla
mesh_terms: D015415:Biomarkers; D003362:Cost-Benefit Analysis; D017277:Drug Approval / Q000191:economics / Q000379:methods*; D016527:Drug Costs; D004345:Drug Industry / Q000191:economics; D006801:Humans; D019458:Insurance Coverage / Q000191:economics / Q000592:standards; D017059:Models, Econometric; D016896:Treatment Outcome
chemical_list: D015415:Biomarkers
keywords: Drug approval; Drug reimbursement; Surrogate endpoints