Looking beyond drug launch prices in cost-effectiveness analyses

A new publication in The American Journal of Managed Care questions the extent to which a value-based launch price, derived from conventional cost-effectiveness analysis (CEA), accurately reflects a drug’s value over its full lifecycle.

Authored by Melanie Whittington (Leerink Center for Pharmacoeconomics), Lou Garrison (The Comparative Health Outcomes, Policy, and Economics Institute, University of Washington), and Jonathan Campbell (National Pharmaceutical Council), the article, titled, “Challenges With Judging and Interpreting a Drug’s Launch Price,” highlights how such comparisons can be misleading and oversimplified. As the authors note, drug prices are frequently critiqued, often with launch prices negatively judged and positioned next to cost-effectiveness thresholds. However, they argue that this approach can be misleading and oversimplified, highlighting four reasons why such comparisons require more careful interpretation.

First, the launch price is typically the list price and not the actual amount paid after rebates and discounts. As they explain, “the list price is unlikely to equate to the net price most of the time.” CEAs often use net prices, meaning the comparison between a list launch price and a cost-effectiveness-based price is not like-for-like.

Second, traditional CEAs often fail to capture the full spectrum of a drug’s impact. They typically adopt a health system perspective, focusing narrowly on direct medical costs and patient health outcomes, while overlooking broader societal effects such as productivity gains, caregiver burden, and other non-health-related benefits. They suggest that novel frameworks, such as generalized cost-effectiveness analysis (GCEA), may help incorporate a wider set of value elements. However, they caution that even when combined with algorithmic pricing models, CEAs still remain, “fraught with limitations and subjectivity.”

Third, CEAs usually assume static pricing across a patient’s lifetime, overlooking the fact that most drug prices fall significantly after loss of exclusivity and generics enter the market. The authors caution that CEAs often reflect a scenario in which the launch price is held constant over a patient’s lifetime—one that fails to capture real-world price dynamics.

Fourth, the thresholds used in CEAs to define ‘cost-effective’ are highly uncertain. In the US, there is no formal threshold, and the widely cited figures are based on modeling with limited generalizability. “A wide range [of thresholds] would better capture the uncertainty and potential variability... that exists.”

Rather than fixating on a drug’s launch price or static value estimates, the authors call for a more holistic approach to evaluating pharmaceutical value. They recommend shifting the focus toward, “the societal net benefits of a medicine over the long term,” which they argue provides a more accurate reflection of a medicine’s overall contribution to health and innovation. As Jonathan Campbell emphasizes on LinkedIn, this perspective underscores the need for nuance:

“This commentary is an important reminder that cost-effectiveness analyses include both science and judgment. That’s why we ought to view them as a tool, not a rule.”