Regulating Drug Pricing with CEA
Regulating Drug Prices- The Utility of Cost Effectiveness Analysis (CEA)
Most recently there has been strong bipartisan support to curb the high cost of prescription drugs for most patients. Assuming that some form of drug pricing legislation passes, then what would be the best way to decide what those prices should be? Ideally, instead of using an arbitrary or emotional basis for the pricing of drugs, it would be best to calculate the most cost-effective pricing for a particular disease or illness.
This is where cost effectiveness analysis (CEA) becomes quite useful. In medicine, Medicare is moving towards outcome-based fees where the cost effectiveness of services will become a factor. A similar strategy could be developed for pharmaceuticals with a model constructed that compares therapies using drugs with different types of costs. The model can figure out at what point the drug cost is low enough to be useful or effective for a particular disease. This way drug prices can be set based on a scientific method and not guesswork or emotions. Instead of an arbitrary number, the cost effectiveness model can set a price that is effective for the treatment without charging excess money for the medication.
Cost effectiveness models are useful because they can compare different treatments, different prices and even compare relative to a benchmark. This puts the price in a realistic perspective. A wider application of cost effectiveness models will have great utility and application in today’s healthcare environment.
If your objective is to provide the best decision-making for your organization and take a global view of your business, expanding your sights beyond ROI, and educating other decision-makers, Cost Effectiveness Analysis can make your organization more competitive and more profitable.