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date: 15 July 2020

(p. 579) Index

(p. 579) Index

Abbreviated New Drug Application (ANDA)
biologics and, 291
biosimilars legislation vs., 191
establishment of, 217, 290
exclusivity periods and, 185–186, 213
and generic approval timing, 176–179
infringement litigation, 179–183
Orphan Drug Act (1983) and, 184
paragraph IV filing, 213, 291
patent expiration dates and, 189 See also bioequivalence; Hatch-Waxman Act
Access to Medicines Foundation, 303
ACE inhibitors, 370, 373, 381, 467–468
ACTs (artemisinin combination therapies), 314–315, 320 See also malaria
ADHD (attention-deficit hyperactivity disorder), 472, 475–476, 480
advance market commitments (AMCs), 11, 323–324, 326n13, 539 See also prizes for product development; push and pull incentives
Adverse Event Reporting System, 133
Advil (ibuprofen), 204
Affordable Medicines Facility for Malaria (AMFm), 314
Africa
donations of product in, 315
HIV/AIDS in, 465, 481–482
promotion in, 485
sales growth in, 1–2, 307
small- and medium-sized companies in, 309 See also specific country names
α-glucosidase inhibitors, 471
“AIDS cocktail,” 472 See also HIV/AIDS
albendazole, 315
AMCs (advance market commitments), 11, 323–324, 326n13, 539 See also incentives, push and pull
American Medical Association (AMA), 215–216
AMFm (Affordable Medicines Facility for Malaria), 314–315
Amgen, 553
AMP (Average Manufacturer Price), 229–230, 231, 250, 255
ANDA (Abbreviated New Drug Application). See Abbreviated New Drug Application (ANDA)
anemia treatments, 372, 385, 386
angiotensin receptor blockers (ARBs), 381, 467
angiotensin-converting enzyme (ACE) inhibitor, 370, 467
antidepressants
branded generics, 213
branded vs. generic, 440–441
co-payments and, 371
direct-to-consumer advertising (DTCA) of, 500–501, 517–518
labor supply and, 482–483
Medicare Part D and, 212n22
nonhealth benefits of, 480
price indexes and, 446
value of, 472–474
antipsychotic drugs, 250–251, 375, 474–475, 476, 479, 480
antiretroviral medications (ARVs), 129, 311, 465, 471–472
Anti-Trust and Monopoly Subcommittee, 215–216
antitrust law, 182–183, 182n81, 228, 440, 561–562
antitrust policy, 16–17, 570–572, 574
approval times, 115–116, 124–125
ARBs (angiotensin receptor blockers), 381, 467
Argus Health Systems, 237
Arrow, Kenneth, xvii, 314, 568
artemether/lumefantrine (Coartem), 325
artemisinin combination therapies (ACTs), 314–315
arthritis treatments, 372, 387, 453, 483–484, 509–510, 561
ARVs (antiretroviral medications), 129, 311, 465, 471–472
ascariasis, 306
Asia
cost-effectiveness analysis in, 395
generic drugs in, 293
sales growth in, 307
spending on biopharmeceuticals, 1–2
vaccines in, 309, 546 See also specific country names
ASP (Average Selling Price), 230–231, 231n77, 286, 295
(p. 580) asthma treatments
cost-sharing and compliance with treatment, 376
direct-to-consumer advertising (DTCA) for, 496
disease management programs, 562
promotion for, 503
QALYs and, 405
value-based insurance design (VBID), 382, 383
Astra Zeneca, 318, 561
atorvastatin (Lipitor), 279, 280, 440–442, 470, 561
attention-deficit hyperactivity disorder (ADHD), 472, 475–476, 480
Australia
cost-effectiveness analysis (CEA) in, 13, 281
disease awareness campaigns in, 496
health technology assessment in, 394
sales growth in, 307
spending on biopharmeceuticals, 1–2
therapeutic reference pricing (TRP) in, 278
autism, 545
Avastin, 247
Average Manufacturer Price (AMP), 229–230, 231, 250, 255
Average Selling Price (ASP), 230–231, 231n77, 286, 295
Average Wholesale Price (AWP)
cost-based reimbursement, 286
death of, 232–233
declining markups and, 225–226, 225n60
defined, 215, 221–222
discounts off, 244–247
litigation over use of, 218n40
reimbursement rates and, 286
Wholesale Acquisition Cost (WAC) and, 218, 222–223, 227–232
wholesaler consolidation and, 225–226
AZT (Retrovir), 471
Belgium, 395
benefit caps, health effects of, 372–373, 377, 386
beta. See market betas
beta-blockers, 381, 469
Bill and Melinda Gates Foundation, 320, 324, 528
Bingaman, Anne, 228, 228n69
BIO Ventures for Global Health (BVGH), 309, 322
bioequivalence
biologics and, 291
cost of determining, 212
difficulties in establishing, 214
FDA ratings and, 217n37, 217n38
free trade agreements and, 188
Hatch-Waxman Act and, 105, 174, 176, 180, 217, 290
international variations in adoption of, 291, 293
price competition and, 295
biologic drugs (large molecule)
bioequivalence and, 291
biosimilars and, 214, 525
cost metrics for, 28–29
costs and returns for, 40–42
data exclusivity period for, 291
generic development and, 387
increased R&D focus on, 43
interchangeability and, 191–192
investment in, 70
Patient Protection and Affordable Care Act (2010) and, 30
regulation of, 168, 208
regulatory exclusivity and, 188–189
sales practices for, 219
standards for, 102n1
vaccines, 524–525
Biologics Price Competition Act, 168n6
Biomedical R&D Price Index, 34
biopharmeceutical industry, key characteristics, 2–5
biosimilars
bioequivalence and, 214
Biologics Price Competition Act, 168n6
data exclusivity for, 41–42
data exclusivity periods and, 41–42
generic entry of, 214–215
Hatch-Waxman Act and, 168
interchangeability and, 192–193
Patient Protection and Affordable Care Act and, 41, 44, 295, 525
regulatory entry barrier for, 192
regulatory exclusivity for, 188–190
specialty drugs, versions of, 387
supplemental exclusivity periods for, 190–191 See also bioequivalence; generic drugs
bioterrorism, 526, 529
bipolar disorder, 474
Blue Book, 221–222, 227, 232, 233
Bolar Amendment, 291
Brazil, 283, 309, 395, 536
Bristol-Myers Squibb, 247
British Columbia, 280, 373
Brown, Sherrod, 324
Brownback, Sam, 324
Bureau of Labor Statistics, 438–439
calcium channel blockers, 373, 467
Canada
clinical outcomes in, 466
Common Drug Review (CDR) program, 281
cost-effectiveness analysis (CEA) in, 13, 281
external referencing, 283
generic entry in, 294
health technology assessment in, 394
price regulation in, 280, 292
(p. 581)  reference pricing in, 373
reimportation of drugs from, 235
tort liability, effect on drug prices in, 138–139
cancer drugs
Avastin, 247
chemotherapy, 56, 372, 456–457
clinical testing of, 102n2
Herceptin, 247
human testing of, 102n2
incentives to develop, 62, 556, 560
Medicare and, 248
off-label use of, 103
price indexes for, 453, 456, 457
reimbursement for, 286
Rituxan, 247
specialty drugs for, 247–248, 372, 386
Taxol (paclitaxel), 247
therapeutic vaccines, 524
Tykerb, 247
value of, measuring, 403, 413
welfare framework for, 114n18 See also human papillomavirus (HPV) vaccine
capital asset pricing model (CAPM)
betas, 88–90
defined, 76, 82–83
literature review, 77–81
vs. Fama-French (F-F) model, 77–87
cardiovascular disease treatments, 374, 381, 467–469, 471, 479, 484 See also hypertension treatments
Caterpillar—Wal-Mart agreement, 254
CBA (cost-benefit analysis), 112–115, 396–397, 407, 408, 534–535, 537
CDC (Centers for Disease Control and Prevention), 148, 545
CEAC (cost-effectiveness acceptibility curve), 423
CEAF (cost-effectiveness acceptibility frontier), 423
Celebrex, 483
Celera, 151–152
Centers for Disease Control and Prevention (CDC), 148, 545
Centers for Medicare and Medicaid Services (CMS), 229, 230, 231, 255
chargebacks, 219
chemotherapy, 56, 372, 456–457
children, vaccinating, 527–528, 531–532, 536, 538–539, 543–546
China, 286, 288, 303, 308, 309
cholera, 530, 537
cholesterol-lowering drugs, 381, 468–469, 470, 500–501 See also statin drugs; specific drug names
Cialis, 505
clinical outcomes, 478, 375, 377
Clorazil, 474–475
CMS (Centers for Medicare and Medicaid Services), 229, 230, 231, 255
Coartem (artemether/lumefantrine), 325
co-insurance
cancer drugs and, 248 see also insurance
changes in rates, 370
effect on demand and insurance design, 350–353
historical evolution of drug insurance, 347–348
moral hazard and, 338
optimal price regulation and, 272
pricing and reimbursement, 205–211, 241, 243–244, 249, 341 See also insurance; pricing and reimbursement
COLI (cost of living index), 439, 442, 446, 458–459
Comanor, William, 571, 572
commercial speech protection, 103n3, 296
Common Drug Review (CDR) program, 281
Community Health Centers, 231, 238
comparative-effectiveness research (CER), 13, 395–399, 427
compliance with treatment
compliance effect of promotion, 501–503, 514
co-payments and, 12
cost-sharing and, 220, 360, 375–376, 381–386
decision-making by consumers and, 240
promotion and, 498
two-part pricing and, 383–385 See also consumer demand and cost-sharing
compound annual growth rate (CAGR), 348, 441
confidential discounts, 311, 312
Congressional Budget Office (CBO), 37–38, 202n4, 226
Congressional Office of Technology Assessment (OTA), 23, 78
consumer demand and cost-sharing
access and, 386
benefit caps, 372–373, 375, 386
clinical outcomes, 377–378
demand, own-price elasticity of, 368–371
demand across therapeutic categories, 371
demand and government regulation, 108–110
demand response, socioeconomic differences in, 371–372
health effects of cost-sharing, 365–387
incentive-based formularies, 368
medical spending, effect on, 375–375
Medicare Part D, 386
moral hazard, 366–368
overview of issues, 365
price sensitivity of consumers, 269
prior authorization programs, 374–375
RAND health insurance experiment (HIE), 366, 368–369
reference pricing, 373–374
research opportunities, 375, 382, 386–387
reservation price of consumers, 340–341
socioeconomic status, 386
specialty drugs and, 372, 386–387
summary of findings, 385–387
(p. 582) theory of cost-sharing with multiple goods, 366–368
two-part pricing, 382–385
value-based insurance design, 380–382
welfare gains from alternative designs, 380–385 See also compliance with treatment; co-payments; elderly consumers
consumer ignorance, 239, 240
consumer optimization theory, 203, 442
contraceptives, differential pricing for, 311
co-payments
demand prices and, 205
historical evolution of drug insurance, 347–348
market equilibrium price and, 341
medical spending, effect on, 376
network differential, 254
optimal price regulation and, 272, 274
overview of issues, 9, 10, 12, 202
price-increasing effect of, 269
pricing models and, 207–211
public systems and, 161
recent developments and trends, 241–244
triple-tier co-payment structures, 347
cost containment, 347, 358–359, 368, 369, 374–375, 376
cost of capital, 75–98
betas, historical market, 87–88
betas and R&D intensity, 94–97
CAPM (capital asset pricing model), 82–83
CAPM and Fama-French models defined, 76, 77–87, 88–90
data and sample firms, 84–87
estimates of, 92–94
Fama-French (F-F) model, 76, 82–83, 90–92
leverage, 76–77, 81
literature review, 77–81
market betas, 76, 77
pricing models defined, 76, 82–83
risk measures, 76–77
study conclusions, 97–98
summary of principal findings, 77
cost of living index (COLI), 439, 442, 446, 458–459
cost-benefit analysis (CBA), 112–115, 396–397, 407, 408, 534–535, 537
cost-effectiveness analysis (CEA), 395–396
defined, 427–429
disinvestment from inefficient treatments, 422
implementation of cost-effective treatments, 421–422
improving interpretation and use of, 426–427
modeling uncertainty in, 423
multicriteria decision analysis (MCDA) and, 417
priorities for undertaking, 425–426
of quality of new drug treatments, 456–457 See also health technology assessment (HTA); pharmacoeconomics
cost-plus pricing, 255–256
costs, research and development. See research and development (R&D) costs and returns
counterfeit medicines, 234, 304
Cournot-Nash equilibrium, 344
coverage with evidence development (CED), 424, 428 See also risk sharing
COX-2 inhibitors, 483–484
cross-country price comparisons, 457–458
cross-national price differentials, 3, 274–275
Cuba, 309
CVS Caremark, 237, 252, 254
data exclusivity
for biologic drugs (large molecule), 291
for biosimilars, 41–42
European Union (EU), 42
European Union (EU) and, 42
Food and Drug Administration (FDA), 291
Hatch-Waxman Act and, 185–187, 290–291
incentives for innovation, 42, 154
for new chemical entities (NCEs), 41
for New Chemical Entity (NCE), 185–186
partial, in patent pools, 322
patents and, 47
Patient Protection and Affordable Care Act and, 41
research and development costs and returns, 41
DCL (descarboethoxyloratadine), 173
“death panel,” 395n3
Deficit Reduction Act (2005), 230
demand elasticity, 338–340, 350, 354–356
cost-sharing and, 360
demand response, socioeconomic differences in, 371–372
dementia, 474
Department of Health and Human Services, 225, 464, 545
depression, chronic, 472–473, 482–483
DERP (Drug Effectiveness Review Project), 395
descarboethoxyloratadine (DCL), 173
detailing (by sales representatives)
defined, 493
demand and, 507, 512, 513, 514, 517
in developing countries, 239–240
direct-to-consumer advertising (DTCA) vs., 505–506
effectiveness of, 507
generic drugs, effect on subsequent entry of, 506–507
informative vs. persuasive qualities of, 495, 500–501
research opportunities, 514
developing countries, 302–329
Access to Medicines Foundation, 303
BIO Ventures for Global Health (BVGH), 309
(p. 583)  confidential discounts, 311
counterfeit medicines, 304
detailing (by sales representatives), 239–240
disease burden, 304–306
disease classification, 302n1, 304
donations of product in, 315
generic competition, increasing, 317
Global Alliance for Vaccines and Immunization (GAVI), 309, 528
global diseases, 302, 303, 304–305
market segmentation and differential pricing, 310–312
multinational companies (MNCs), 303–304, 308
neglected diseases, 302, 305–306, 309, 317
nongovernmental organizations (NGOs), 315
overview of issues, 302–304, 307, 328–329
patent protection in, 152, 308–310
patent rule flexibility in, 316–317
R&D initiatives and incentives, 318–319
R&D push and pull incentives, 319–328, 537–538
research recommendations, 329
subsidies for the purchase of existing medicines, 312–315
Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, 308
vaccination in, 528
development of new drugs. See research and development costs and returns
devices
1976 Medical Device Amendments, 105
Hatch-Waxman Act and, 106
liability of manufacturers, 131–132
market betas for device firms, 77
and Orphan Drug Act (1983), 106
regulation of, 105–106
diabetes, 304, 470–471
diabetes treatments
benefit caps and, 377
co-payments and, 381
cost-sharing and compliance with treatment, 376
Diabetes Control and Complications Trials (DCCT), 470
as secondary prevention, 156
specialty drugs, 372
value-based insurance design and, 382
diarrheal diseases, 306
differential pricing, 274–275, 310–312
diptheria, pertussis and tetanus (DPT) vaccine, 137
diptheria and tetanus (DT) vaccine, 137
diptheria/pertussis vaccine, 525
directly observed therapy, short course (DOTS), 241
direct-to-consumer advertising (DTCA)
amount of, factors determining the, 502
demand, effect on, 507–508
detailing (by sales representatives) vs., 505–506
endogeneity of, 511–513
exposure to, 509–510
informative vs. persuasive qualities of, 15, 500–502
in New Zealand, 296, 503
regulatory environment for, 494–498
research opportunities, 15, 514, 516
disability-adjusted life years (DALYs), 407, 535, 536
disinvestment from inefficient treatments, 421, 422
dispensing fees
decline in, 244–246
fixed, 292
Medicaid and, 221
Medicare calculation of, 295
Medicare Part D and, 252
third party payers (TPPs) and, 220
waiving of, 253
diuretics, 467–468
doctrine of equivalents, 154–155
Dorfman-Steiner equation, 499
DOTS (directly observed therapy, short course), 241
Drug Effectiveness Review Project (DERP), 395
Drug Efficacy Amendment (1962), 115–116
“drug lag,” 124–125
drug loans for patients, 385
drug performance/efficacy, 67–69
Drug Price Competition and Patent Term Restoration Act (1984). See Hatch-Waxman Act
drug quality, 67–69, 71, 110–111, 127, 267, 502
drug regulation. See regulation of medical products
drug vs. molecule, 440–442
drug withdrawal rates, 125–126
dual eligibles, 256
dual government intervention, 132–136
dynamic welfare effects of regulation, 112–115
Eisai, 315
elderly consumers
benefit caps and, 372–373
demand elasticity and, 371–372
drug coverage, lack of before Medicare Part D, 256
drug insurance, percentage covered by, 350
influenza vaccines and, 530–531
labor supply of, 483–484
medical spending by, 377, 478
price responsiveness of, 376 See also Medicare Part D; retiree plans
Eli Lilly, 560
Embrel, 561
employer-based plans, 370
epidemics, 316, 531
Epvir, 471
erythropoietin, 385
Esai, 560
EUnetHTA project, 415
(p. 584) European Medicines Agency, 291
European regulations, 56
European Union (EU)
centralized HTA body (proposed), 415–416
data exclusivity and, 42
data exclusivity period, 42
EUnetHTA project, 415
external referencing, 283–284
generic drugs, 291, 292
market size, 1–2
orphan drug policy, 328
patent regulation, 271
price discrimination, 236–237
priority review vouchers, 325
regulatory exclusivity for drugs, 188
supplemental exclusivity periods, 191
Transparency Directive (1989)‘, 288
EuroQoL EQ-5D measure, 402
evidence-based medicine (EBM), 395n2
Express Scripts, 237
fail-first requirements. See prior authorization programs
Fama and French (F-F) model, 76–83, 90–92 See also CAPM (capital asset pricing model)
FDA (Food and Drug Administration). See Food and Drug Administration (FDA)
Federal Ceiling Price (FCP), 231
Federal Food, Drug, and Cosmetic Act (FD&C Act)
Medical Device Amendments (1976), 105–106, 132, 132n31
overview of, 102
passage of, 494
patent system and, 104–105, 167 See also Kefauver Harris amendments (1962)
Federal Register, 189
Federal Supply Schedule (FSS), 231
Federal Trade Commission (FTC), 181–183, 237, 494–495
Federal Upper Limit (FUL), 229–230
financing research and development. See research and development financing
Finland, 395
First Amendment protection, for commercial speech, 103n3
First DataBank, 232
first-dollar coverage, 381
Fisher price index formula, 444–450, 458
fixed-dollar subsidies, 540, 541–542
Food, Drug and Cosmetic Act (1938), 216
Food and Drug Act (1906), 101–102
Food and Drug Administration (FDA), 106–130
1962 Amendments to the Food and Drug Cosmetic Act (1938), 27
Adverse Event Reporting System, 133
approval process for generics, 176–179
authority overlap with state tort liability, 131–136
average study time for new drugs, 169–170
bias of, 133
biosimilarity and interchangeability, demonstrating, 191–192
biosimilars approval pathway, 291
blackbox warning from, 385
data exclusivity period for biologics, 291
drug regulation, 101–105
Federal Food, Drug, and Cosmetic Act (FD&C Act), 102, 168
Food and Drug Act (1906), 101–102
the Orange Book, 177–179, 182
Orphan Drug Act (1983), 149
priority review vouchers, 324–325
Public Health Service Act (PHSA), 168
regulation vs. litigation, 132–136
Food and Drug Administration Modernization Act (1997), 187
France
cost-effective treatments, implementation of, 422
generic drug market in, 294
Haute Autorite de Sante (SAS), 415
promotion regulation, 295
regulatory structure, 277
free-riding, 3–4, 66, 159–160, 267
FSS (Federal Supply Schedule), 231
FTC (Federal Trade Commission), 182–183, 237, 494–495
Gardisil, 529
GAVI Alliance, 314, 324
Genentech, 247, 560
generic drugs
authorized generic entry, 213
biologic drugs (large molecule), 214
Bolar Amendment, 291
branded generics, 213–214
branded vs. generic, 440–441
competition with donated drugs, 315
in developing countries, 309–310, 317
dispensing rate trends, 246–247
distribution channel logistics and pricing, 218–221
drug pricing, effect on, 202
exclusivity periods for, 213
Generic Product Identifier (GPI), 440–442
increased use of, 371
infringement litigation, 179–183
International Nonproprietary Name (INN), 292
manufacturing and marketing by wholesalers, 216–217
overview of issues, 3, 4
paragraph IV entry, 213
patents and, 105n5, 168–169, 212–215, 235, 246, 250
pharmacy substitution of, 292
price indexes, 440–442
pricing and reimbursement for, 212–215, 235, 255–256, 281, 290–295
(p. 585)  prior authorization programs and, 374
promotion to physicians and consumers, 506
regulation of, 104–105, 105n5
regulatory regimes to promote, 268
reimbursement rates for, 232
retail chain discounting of, 252–255
specialty drugs, versions of, 387
supplemental New Drug Application exclusivity, 186–187
timing of approval, 176–183
transferable patent extensions and, 326
Generic Product Identifier (GPI), 440–442
Germany
cost-effectiveness analysis in, 395, 395n1
drug budgets and expenditure controls, 285
generic drug market in, 294
incentives for innovation, 289
Institute for Quality and Efficiency in Health Care (IQWiG), 415
promotion regulation, 295
reference price reimbursement, 279–280
GFATM (Global Fund to Fight AIDS, Tuberculosis and Malaria), 314
GHI (Global Health Initiative), 314n5
Giant Food, 254
GlaxoSmith Kline
albendazole, donations of, 315
Glaxo acquisition of Wellcome, 560–561
mergers and acquisitions, 553
organizational structure, 560
pneumococcal vaccine, 324
Pool for Open Innovation, 322
SmithKline-Beecham, 561
study of HPV vaccination in Brazil, 536
Tres Cantos research facility, 318
Tykerb, 247
Gleevec (imatinib), 205
Global Alliance for Vaccines and Immunization (GAVI), 309, 528
global diseases, 302, 303, 304–305
Global Fund to Fight AIDS, Tuberculosis and Malaria (GFATM), 314
Global Health Initiative (GHI), 314n5
Good Manufacturing Practices, 217
GPI (Generic Product Identifier), 440–442
GPOs (group purchasing organizations), 218, 219
Greece, 283
group purchasing organizations (GPOs), 218, 219
HAART (highly active antiretroviral therapy), 471–472
Hatch-Waxman Act
abbreviated drug approval pathway, 525
biologics and, 41
Bolar Amendment, 291
data exclusivity and, 185–187, 290–291
devices and, 106
exemption from infringement, 173–174
generic approval timing and, 176, 177–178
generic exclusivity, 192–193, 213
Good Manufacturing Practices, 217
innovation, effects on, 37–38
overview of, 9–10
patents and, 105, 167–168, 180, 290
regulatory exclusivity vs. patent protection, 189–190
Health Action International (HAI), 311
Health Impact Fund, 327
health insurance. See insurance
health maintenance organizations (HMOs), 236, 256, 369, 373, 441
health outcomes. See clinical outcomes
Health Security Act (proposed 1993), 81
health states, valuing, 401–406
health technology assessment (HTA)
early engagement activities and, 413
EUnetHTA project, 415
evolution to comparative-effectiveness research (CER), 395–399
international use of, 395
interpretation and implementation of, 420–422, 426–427
links between producers and users of, 421
new technologies, focus on, 422
priorities for undertaking, 425
QALYs and, 400, 407–408, 420
research opportunities, 427–429
resource constraints, opportunity cost of, 426
health technology assessment (HTA) bodies, HTA bodies, 415–417
Health Utilities Index, 402
Hearst Corporation, 232
heart conditions. See cardiovascular disease treatments
hepatitis, 148, 372, 536, 544
Herceptin, 247
highly active antiretroviral therapy (HAART), 471–472
HIV/AIDS
differential pricing for, 311
economic effects of, 481–482
(p. 586) Global Fund to Fight AIDS, Tuberculosis and Malaria (GFATM), 314
HIV therapies, 114n18, 129, 157
major discussion, 471–472
as neglected disease, 303, 305
potential of vaccine for, 525–526, 534, 539
prevalence and condom use, 531
TRIPS compulsory license provision and, 316
US President's Emergency Plan for AIDS Relief (PEPFAR), 314
HMG-CoA reductase inhibitors, 381
HMOs (health maintenance organizations). See health maintenance organizations (HMOs)
Hoffman-LaRoche, 560
hookwork, 306
hospitals
pricing and reimbursement, 216n34, 218–219, 222, 225
referrals to, 284
restrictions on, 235, 254
HTA (health technology assessment). See health technology assessment (HTA)
Human Genome project, 151–152
human papillomavirus (HPV), 314, 529, 536 See also cancer drugs
human testing, 25, 27, 102, 216
hypertension treatments, 374, 377, 382, 467–468 See also cardiovascular disease
ibuprofen (Advil, Rufen), 204, 483, 495
IFPMA (International Federation of Pharmaceutical Manufacturers and Associations), 315
imatinib (Gleevec), 205
immune disorders, 372
incentives for innovation, 143–195
canonical model, 145–146, 155–159
capital constraints, 153
cash flows, 150, 153
cumulative innovation, 158–159
data exclusivity, 42, 154
drug prices and innovation, 143
drug regulation, effects on, 104–105, 112
exclusivity periods and, 42
global marketplace, 159–160
health insurance two-part pricing, 161–162
intellectual property rights, 143–144
investment, optimal level of, 144
investment demand, 146–149
investment supply, 149–152
market size and public policy, 148–149
Medicare Part D, 148
normative theory of innovation, 155–160
Orphan Drug Act (1983), 149
overview of issues, 6, 143–144
patent breadth, 155, 162–163
patent buyouts, 163
patent design, 153
patent length, 154, 155, 162–163
patent races, 158
positive theory of innovation, 145–155
Prescription Drug Users Fee Act (PDUFA), 150
price regulation and, 146–148, 289
profit expectations, 150
public investments in research and training, 150–151
push and pull incentives, 319–328, 537–540
research recommendations, 297
returns on investment, 157
rewards for inventors, 144, 160–161
subsidies, 159, 161, 162
tax credits, 149
theories of innovation, 145
welfare-improving policies, 160–163 See also public policy
India
Astra Zenica TB research facility, 318
generic drugs in, 309–310
Hilleman Research Laboratory, 318
multinational companies (MNCs) in, 308
niche companies in, 309
sales growth in, 308
willingness to pay (WTP) in, 530
influenza, 525, 530–532, 536, 542–543, 544
infringement litigation, 178–179, 189–190, 194
INN (International Nonproprietary Name), 292
Institute for Quality and Efficiency in Health Care (IQWiG), 407
insurance, 336–363
cost-sharing, 362–363
Cournot-Nash equilibrium, 344
demand elasticity, 338–340, 341, 342
demand for insurance with value-based cost-sharing, 359–360
demand for value-based insurance, 360
demand in the social insurance context, 361–362
essential drugs and economics, 353–356
first-dollar coverage, 381
fixed-dollar insurer payments, 341
historical evolution of drug insurance, 347–350
monopoly vs. monopsony, 345–346
moral hazard, 337–338, 340, 350, 352–353, 361–362
optimal insurance protection, 267, 358–359
optimal price regulation and, 272
overview of issues, 3, 336–337
percentage of Americans with, 204–205
prescription drug coverage by, 203–205
price responsiveness, 355–356
price-increasing effect of, 269–270
public insurance programs, 272–273
RAND health insurance experiment, 351
reference pricing, 343
research opportunities, 343–344
retiree plans, 202n4, 370, 380, 478–479
(p. 587)  simultaneity problem and market structure, 344–346
subsidies, 159
summary of arguments, 356–357
supplementary policies, 205
two-part pricing and, 161–162
unit prices and coverage, 340–344
intellectual property rights, 143–144, 308 See also patents
interchangeability, 191–193 See also substitution of drugs
international exhaustion principle, 4, 271, 274, 309
International Federation of Pharmaceutical Manufacturers and Associations (IFPMA), 315
International Nonproprietary Name (INN), 292
international price comparisons, 457–458
international regulations
Australia, 278
British Columbia, 278
external referencing, 283
France, 277
generic drugs, 294
Germany, 278
Italy, 278
middle and lower income countries (MLICs), 275
The Netherlands, 278
New Zealand, 278
optimal price regulation, 273–275
for on-patent drugs, 271, 272
price discrimination, 236–237
price referencing, 202n4, 268
reference price reimbursement, 278
regulatory exclusivity for drugs, 188, exclusivity periods and See also specific country names
inventors, 144, 160–161
Investigational New Drug (IND) application, 102
investment
in biologic drugs (large molecule), 70
investment cycles, 21
optimal level of, 54–57, 144
overinvestment, 48
returns on, 34–42, 157
underinvestment, 47, 66, 537–538
IQWiG (Institute for Quality and Efficiency in Health Care), 407
Ireland, 395
Italy, 283, 285, 286, 294, 318
ivermectin (Mectizan), 315
Japan, 288, 288n18, 293, 294, 328
Johnson & Johnson, 315
Joint National Committee on Prevention, Detection, Evaluation, and Treatment of High Blood Pressure (JNC VII), 467
Kaiser Permanente, 236, 373, 377
Kaplan-Zingales (KZ) index, 60–61
Kefauver, Estes, 215, 494
Kefauver Harris amendments (1962)
approval times, effect on, 124
new drug development, effect on, 115–116, 127, 129, 130
overview of, 215–216
Kenya, 324, 481–482
Korea. See South Korea
Kroger, 254
Lamberth, Royce, 230
large-molecule drugs. See biologic drugs (large molecule)
Laspeyres price index formula, 444–450, 458
Latin America, 1–2, 293, 307
lawsuits
failure-to-warn suits, 138–139
infringement litigation, 179–183
against makers of medical devices, 132
medical devices and, 132
no-fault compensation for injuries, 538–539, 543–546
Riegel v Medtronic, 132, 133
Schering v Geneva, 173
Wyeth v Levine, 132, 133 See also tort liability
leishmaniasis, 306
leukemia, chronic myelogenous, 205
liability of manufacturers. See tort liability
license fees (in two-part pricing), 382
life expectancy, 465–466 See also mortality
Lipitor (atorvastatin), 279, 280, 440–442, 470, 561
litigation vs. regulation, 132–136
lovastatin (Mevacor), 205
lower-income groups, 312
lymphatic filariasis, 315
MAC (Maximum Allowable Cost), 229–230
mail order pharmacies, and maintenance drugs, 220
malaria
Affordable Medicines Facility for Malaria (AMFm), 314–315
Coartem (artemether/lumefantrine), 325
Global Fund to Fight AIDS, Tuberculosis and Malaria (GFATM), 314
as neglected disease, 303, 305
(p. 588) potential of vaccine for, 525–526, 534
TRIPS compulsory license provision and, 316
vaccines development for, 539 See also ACTs (artemisinin combination therapies)
mandating coverage, for vaccines, 541
market betas, 76–81, 87–98
market exclusivity, 328
Orphan Drug Act (1983), 184
patents and, 47
market risk measures, 76–77
market segmentation and differential pricing, 310–312
market share, increasing via mergers and acquisitions, 562–563
Maximum Allowable Cost (MAC), 229–230
MCDA (multicriteria decision analysis), 399, 417–418
measles/mumps/rubella vaccine, 525
Mectizan (ivermectin), 315
Medco Health Solutions, 237
Médecins Sans Frontières, 311, 316
Medicaid, 216
and Average Wholesale Price (AWP), 221, 229
basis for reimbursement, 230–231
benefit caps, health effects of, 372–373
Centers for Medicare and Medicaid Services (CMS), 229, 230, 231, 255
demand elasticity and, 371–372
discounting of drugs by, 270
dispensing fees, 253
dual eligibles, 250
health technology assessment under, 395
net benefits of pharmaceuticals, 477–478
percentage of the pharmaceutical market, 238
pricing and reimbursement, 250
prior authorization programs and, 374–375
reimbursement rates, 225–226, 233
MediCal, 221
Medical Expenditure Panel Survey (MEPS), 476, 497
medical services, nondrug, 241
commoditization of, 256
Medicare, 216
basis for reimbursement, 230–231
benefit caps, health effects of, 377
Centers for Medicare and Medicaid Services (CMS), 229, 230, 231, 255
dual eligibles, 250
effects on use and spending, 352
Medicare+ Choice program, 477–478
Medigap, 350
Prescription Drug Plan (PDP), 249
pricing and reimbursement, 250
reference pricing and, 347
reimbursement rates, 225–226, 295
therapeutic classes defined by, 211–212
Medicare Advantage, 478
Medicare Part B, 225–226, 230
cancer drugs, 248
cost-based reimbursement, 286
Medicare Part D
cancer drugs, special tier for, 248
co-insurance rates, 205
cost-sharing and consumer demand, effect on, 378–380, 386
coverage with evidence development (CED), 231
demand for separate drug coverage, 350
discounting of drugs by, 270
drugs covered under, 212, 212n22, 216
incentives for innovation, 148
market for pharmeceuticals, effect on, 249–252
market share of federal programs, effect on, 238
medical spending, effect on, 377, 478
Medicare Prescription Drug, Improvement and Modernization Act (2003), 378
overview of, 10, 202
Prescription Drug Plans (PDP), 256
pricing and reimbursement under, 211, 256
private health insurance costs and, 202n4
promotion of drugs, effect on, 517
two-part pricing and, 382 See also elderly consumers
Medicare Prescription Drug, Improvement and Modernization Act (2003), 179, 230, 378
Medicines Patent Pool, 322
Medigap, 350
Medi-Span, 232
Menactra, 529
meningitis, 320
mental health conditions, 472–476, 480–481, 482–483
mental health treatments, benefit caps, health effects of, 373
Merck, 315, 318, 529, 561, 572
mergers, acquisitions, and alliances, 552–574
access to new technologies, 560–561
adverse effect of large mergers on alliances, 571–572
alliances, effects on R&D and innovation, 568–569
alliances, market structions and incentives for effective, 569–570
alliances, rationales for, 567–568
antitrust policy considerations, 570–572
company performance, subsequent, 563–567
determinants of mergers and acquisitions, 557–563
economies of scale and slope, 559–560
effects on R&D and innovation, 563–567
expansion to foreign markets, 561–562
global market shares, changes in, 553–554
increasing market power and size, 562
innovation markets and antitrust authorities, 570
overview of issues, 4, 552–557
research opportunities, 573–574
as strategic response to shocks, 557–559
Waxman-Hatch Act (1984), 552 See also specific company names
(p. 589) metformin, 470
Mevacor (lovastatin), 205
middle and lower income countries (MLICs)
generic drug market in, 293
generic drugs, 291, 292
increased industry interest in, 307–309
patent protection in, 308–310
pricing and reimbursement in, 267, 275
as source of revenue growth, 303 See also developing countries
minimum quality standards, 110–111
molecule vs. drug, 440–442
monopoly producers, 108, 345
monopsony market, 345–346
monopsony power, 212, 251
moral hazard, 3n2, 266, 270, 352–353, 361–362, 366–368 See also consumers; insurance
morbidity, vaccines and, 525
mortality, 305, 377, 466–470, 471, 472, 530–531 See also life expectancy
MTA Cooperative Group, 475
multiattribute utility (MAU) measure, 402, 409
multicriteria decision analysis (MCDA), 399, 428
multinational companies (MNCs), 267, 303–304, 320
multiple sclerosis, 372
Myocardial Ischemia Reduction with Aggressive Cholesterol Lowering (MIRACL) clinial trial, 470
naproxen, 483
Nash equilibrium, 228
National Academy of Sciences, 539–540, 541
National Childhood Vaccine Injury Act (1986), 543
National Drug Code (NDC), 440
National Health Accounts, 202n4
national health emergencies, 316
National Health Expenditure Accounts, 438
National Health Service (NHS), 394, 395n3, 418–422, 426 See also United Kingdom
National Income and Product Accounts, 438
National Institute for Health and Clinical Excellence (NICE), 281, 395n3, 402, 418–420, 421, 422 See also health technology assessment (HTA); United Kingdom
National Institutes of Health (NIH), 5, 34, 50, 56–57
National Oceanic and Atmospheric Administration (NOAA), 408
National Vaccine Authority Act, 542
National Vaccine Injury Compensation Program (NVICP), 136, 137, 138, 543–545
National Wholesale Druggist's Association (NWDA), 223
NDC (National Drug Code), 440–442
nematode infections, 306
net present value of projects (NPV), 48, 53, 54–55, 57–59, 61–63, 75
network differential co-payment concept, 254
new chemical entities (NCEs)
average approval times for, 115–116
data exclusivity period for, 40–42
introductions of, 1948–1971, 116–124
research and development costs and, 22, 24
New Drug Application (NDA), 176–177, 213
New Zealand, 281, 296, 374, 394, 494–498, 503–505
Nicaragua, 324, 532
NICE (National Institute for Health and Clinical Excellence). See National Institute for Health and Clinical Excellence (NICE)
NIH (National Institutes of Health). See National Institutes of Health (NIH)
nitrates, 373
NNRTIs (non-nucleoside reverse transcriptase inhibitors), 471
no-fault compensation for vaccine injuries, 538–539, 543–546
nongovernmental organizations (NGOs), 311, 315, 316, 329
non-nucleoside reverse transcriptase inhibitors (NNRTIs), 471
nonresponse insurance for patients, 385
nonsteroidal antiinflammatory drugs (NSAIDs), 373, 374
non-sulfonylurea, 471
Norway, cost-effectiveness analysis in, 395
Novartis, 315, 318, 325
NRTIs (nucleoside reverse transcriptase inhibitors), 471
nucleoside reverse transcriptase inhibitors (NRTIs), 471
NVICP (National Vaccine Injury Compensation Program), 136, 137, 138, 543–545
NWDA (National Wholesale Druggist's Association), 223
OBRA (Omnibus Budget Reconciliation Act of 1990), 229
OECD (Organisation for Economic Co-operation and Development), prices and regulation in member countries, 146–147
Office of Fair Trading (UK), 398
Office of Inspector General (OIG), 225, 231
off-label drug use, 103, 104
Omnibus Budget Reconciliation Act of 1990 (OBRA), 229, 231
onchocerciasis (river blindness), 315
oncology. See cancer drugs
opportunity costs, 25–26, 418–420
option contracts, 70
(p. 590) Orange Book, 177–179, 182, 189, 190
Organisation for Economic Co-operation and Development (OECD), 146–147, 465
Orphan Drug Act (1983)
devices and, 106
incentives for innovation and, 149, 328
market exclusivity, 184
overview of, 104
patents and, 167, 184
rare diseases, effect on R&D for, 382
regulatory exclusivity, as example of, 184 See also neglected diseases; rare diseases and conditions
osteoporosis, specialty drugs for, 372
OTA (Congressional Office of Technology Assessment). See Congressional Office of Technology Assessment (OTA)
Paasche index formula, 458
paclitaxel (Taxol), 247
parallel trade, 283, 309
partial, in patent pools, data exclusivity, 322
Patent and Trademark office (PTO), evaluation of nonobviousness, 171–172
patent buyouts, 9, 144, 160–161, 163, 316–317
patent medicines (quack), 102
patent menus, 162–163
patent pools, 322
patent races, 158
patents, 167–195
alliances motivated by expirations, 587
asychrony with drug development, 169–175
breadth of, 154–155, 162–163
data exclusivity and, 47
design of, 153
developing countries, patent protection in, 305, 308–310
doctrine of equivalents, 154–155
double-patenting, 174–175
drug prices and, 268–269
in early stages of R&D, 170–172
exclusivity periods for, 47, 185–193
extensions for, 37–38, 173–175, 325–326
filing for, 169–170
flexibility in patent rules to improve access, 316–317
Food and Drug Administration (FDA) and, 176–179
global patent protection, 159
Hatch-Waxman Act and, 185
as incentives for innovation, 104–105, 143–144, 151–152, 158–159, 266n1, 419
infringement litigation, 189–190
in later stages of R&D, 172–173
length of, 154, 155, 162–163, 173–175
market exclusivity and, 47
Medicines Patent Pool, 322
merger and acquisitions activity and, 557–558, 560–561, 563
optimal price differentials across countries and, 274
Orange Book, 177–179, 182
Orphan Drug Act (1983), 167, 184
overview of issues, 2, 5, 167–169
Patent and Trademark office (PTO), 171–172
patent buyouts, 9, 144, 160–161, 163, 316–317
patent menus, 162–163
patent pools, 322
patent races, 158
policy recommendations for, 195
Pool for Open Innovation, 322
price discrimination and, 4
pricing incentives for on-patent products, 271
Patient Protection and Affordable Care Act, data exclusivity and, 41
Patient Protection and Affordable Care Act (2010)
Average Manufacturer Price (AMP) and, 230, 255
biosimilars and, 6, 41–42, 295, 525
subsidies and, 202n4 See also national health insurance
Patient Protection and Affordable Care Act (ACA), 395
Patient-Centered Outcomes Research Institute (PCORI), 395
PBMs (pharmacy benefit managers). See pharmacy benefit managers (PBMs)
PCORI (Patient-Centered Outcomes Research Institute), 395
PDP (Prescription Drug Plan), 249 See also pharmacy benefit managers (PBMs)
PDPs (product development partnerships). See product development partnerships (PDPs)
PDUFA (Prescription Drug Users Fee Act), 105
pediatric exclusivity, 187
Pennebaker, George, 221, 222
PEPFAR (US President's Emergency Plan for AIDS Relief), 314
Pfizer, 324, 553, 560, 572
Pharmacia, 561
pharmacoeconomics, 394–429
cost-benefit analysis (CBA), 112–115, 396–397, 407, 408, 534–535, 537
cost-effective treatments, implementation of, 420–422
cost-effectiveness analysis (CEA), 394–400, 395n2, 406–410, 417, 425–427
costs and benefits vs. health gain, 409–410
coverage with evidence development (CED), 424
decision making, 416–422
decision making, evidence uncertainty in, 423–425
disinvestment from inefficient treatments, 422
(p. 591)  Drug Effectiveness Review Project (DERP), 395
economic evaluation in drug development, 411–413
economic evaluation, international standard for, 414–416
economic evaluations, transferability of, 413–414
evidence-based medicine (EBM), 395n2
evolution of CEA from HTA, 396–399
health states, valuing, 401–406
health technology assessment (HTA), 395n2
health-related quality of life (HRQOL), 402, 403
HTA bodies, 416–417
Institute for Quality and Efficiency in Health Care (IQWiG), 407, 412–413
multiattribute utility (MAU) measure, 402, 409
multicriteria decision analysis (MCDA), 399, 417–418
National Institute for Health and Clinical Excellence (NICE), 405, 416–417
opportunity costs of adopting a technology, 418–420
overview of issues, 394–396
Patient-Centered Outcomes Research Institute (PCORI), 395
probabilistic sensitivity analysis (PSA), 423
quality-adjusted life years (QALYs), 395, 397, 399–409, 410, 413, 419–420
randomized controlled trials (RCTs), 411, 412
studies, cost-effectiveness of, 425–427
studies, transferability of, 427
summary of theory and practice, 427–429
time trade-off (TTO) valuation, 405n7
visual analog scale (VAS), 401–402
willingness to pay (WTP), 396–397, 399, 407, 419
WTP methods to value health care interventions, 408–409 See also health technology assessment (HTA)
Pharmacy Benefit Management Institute report, 243
pharmacy benefit managers (PBMs)
Argus Health Systems, 237
Average Wholesale Price (AWP) paid to, 202, 218, 227, 244
CVS Caremark, 237
equal-access mandates and, 246
Express Scripts, 237
generic drugs and, 254–255, 294
Medco Health Solutions, 237
negotiating power of, 249
prescription drug insurance and, 236–237
pharmacy substitution. See substitution of drugs
phases of drug development, 102
PHSA (Public Health Service Act), 168
physician offices, 218
physician prescribers, 266, 269, 286, 288
Pitney-Bowes, 381–382
placebos, 103
PMI (US President's Malaria Initiative), 314
pneumococcal disease, 314, 318, 324, 525, 531, 536
policy, public, 148–149
polio, 525
Pool for Open Innovation, 322
Portugal, cost-effectiveness analysis in, 395
PPACA (Patient Protection and Affordable Care Act). See Patient Protection and Affordable Care Act (2010)
preemption, 131–132, 136
Prescription Drug Marketing Act (1987), 234
Prescription Drug Plan (PDP), 249
bargaining power of, 251–252 See also pharmacy benefit managers (PBMs)
Prescription Drug Users Fee Act (PDUFA), 105
approval times, effect on, 124–125
device regulation, 106
effect on social surplus, 129
effects on drug withdrawal rates, 126
as incentive for innovation, 150
preventative treatments. See vaccines, economics of
Prevnar, 529
price discrimination
international, 4, 236–237
in prescription pharmeceuticals, 233–237
uninsured consumers, 220–221
price elasticity, 351
cost-sharing and, 375–376
price elasticity of demand, for vaccines, 532
price indexes, 438–459
aggregation issues, 444–450
cost of living index (COLI), 439, 442, 446, 458–459
cost-effectiveness studies, 456–457
cross-country comparisons and, 457–458
decompositions of spending growth, 448–450
defining the product: drug vs. molecule, 440–442
defining units of quantity, 442–443
formulas for, 444–450, 458
Generic Product Identifier (GPI), 440–442
hedonic price indexes, 451–457
National Drug Code (NDC), 440
overview of issues, 438–439
quality change and, 439
quality change, measuring, 450–457
quality in matched-model indexes, 450–451
research opportunities, 459
summary of findings, 458–459
price referencing, international, 310–311
price regulation
and innovation, 146–148
limiting effects of, 382 See also regulation of medical products
price responsiveness. See demand elasticity
pricing and reimbursement, 201–256
arbitrage potential, 234–235
Average Manufacturer Price (AMP), 229–230, 231, 250, 255
(p. 592) average percent discounts, 244
Average Selling Price (ASP), 230–231, 231n77, 286, 295
Bertrand pricing model, 208–211, 208n18
commoditization of medical services, 256
cost-based, 286
dispensing fees, 244–246
distribution channel logistics and pricing, 218–221
Federal Ceiling Price (FCP), 231
Federal Supply Schedule (FSS), 231
Federal Upper Limit (FUL), 229–230
generic dispensing rate trends, 246–247
for generic drugs, 212–215
increased utilization of drugs, 249–250
insurers, 249
legislative developments, historical, 215–217
mail order prescriptions, 241–247
maintenance drugs, 220
market power of firms, 234
Maximum Allowable Cost (MAC), 229–230
Medicaid, 245–246
Medicare Part D, 202, 205, 211–212, 249–252
Nash equilibrium prices, 209–210
out of pocket prices, 207
out of pocket spending, 204–205, 249
overview of issues, 201–202
paragraph IV entry, 213
patient heterogeneity and, 234
payers for pharmeceutical products, 218
pharmacies, 244
pharmacy margins, 252
preferred pharmacy networks, disintermediation of, 252–255
prescription drug insurance, 203–212, 236–237
Prescription Drug Marketing Act (1987), 234
Prescription Drug Plan (PDP), 249
price discrimination, 220–221, 233–237
providers of pharmeceutical products, 218
public sector payers, 245–246
rebates, 220
retail chains, 252–255
retail pharmacy gross margins, 245
specialty drugs, growth in, 247–248
spending on prescription drugs, 201–202
therapeutic classes, 211–212
tiered formularies, 220, 236, 241, 274–275, 310–312, 369–370
transparency and cost-plus pricing, 255–256
trends, long term, 242–248
trends in pharmaceutical pricing, 248–256
uninsured consumers, 220–221
US Veterans’ Administration (VA), 211
value-based pricing, 240–241
welfare implications of market power and insurance, 239–241
Wholesale Acquisition Cost (WAC), 230
wholesaler markups, 222–232
pricing and reimbursement regulation, 270
cost-effectiveness review, 281–282
dispensing fees, 292
drug budgets and expenditure controls, 284–285
economic rationale for, 268–270
effects on competition, 288
effects on production and R&D, 288–289
effects on utilization, 288
external referencing, 283–284, 286–287, 290
of generics, 290–295
Germany, 278
government incentives for, 266–267
incremental cost-effectiveness ratio (ICER), 273, 281–282
internal benchmarking, 276–277
internal referencing, 289–290
manufacturer pricing incentives, 271
Maximum Allowable Cost (MAC), 292
middle and lower income countries (MLICs), 267
The Netherlands, 278
New Zealand, 278
optimal price differentials across countries, 273–275
optimal price regulation, 270–275
optimal structure for, 267
overview of issues, 266–268
parallel trade, 283–284
price discrimination models, 274
promotion, international regulation of, 295–296
Ramsey pricing, 274–275
rate of return on capital regulation, 286–287
recommendations for future research, 296–297
reference price reimbursement, 278–281, 292, 293
referencing, external (international), 268
referencing, internal, 267–268
regulatory systems, evaluating, 276
silo budgeting, 297
supplier moral hazard, 266
value-based pricing, 273, 282
pricing and reimbursement, regulation of, self-pay markets, 267
prior authorization, 374–375
priority review vouchers, 324–325
privately held firms, market betas, 77
prizes for product development, 326–327 See also advance market commitments (AMCs); rewards for inventors
probabilistic sensitivity analysis (PSA), 423–424, 426, 428
product development partnerships (PDPs), 318, 320–321
donors for, 320
Drugs for Neglected Diseases initiative (DNDi), 320
(p. 593)  Foundation for New Diagnostics (FIND), 320
incentives for, 328
Infectious Disease Research Institute (IDRI), 320
Institute for One World Health (iOWH), 320
International AIDS Vaccine Initiative (IAVI), 320
Medicines for Malaria Venture (MMV), 320
Program on Technologies for Health (PATH), 320
Special Programme for Research and Training in Tropical Diseases (TDR), 320
Project BioShield, 529
promotion to physicians and consumers, 296–297, 493–518
aggregation, level of, 508–510
compliance effect, 498, 501–503, 514
Dorfman-Steiner equation, 499
empirical patterns, 501–505
endogeneity of advertising, 510–513
extensions, 505–507
impact on demand, 507–517
international regulation of promotion, 295–296
inverted U hypothesis, 503
levels and trends, 496–498
Medicare Part D, effect of, 517
overview of issues, 2, 493–494
profit-maximizing model of pharmeceutical advertising, 498
regulation, international, 295–296
regulatory environment, 494–496
research opportunities, 513–518
protease inhibitors, 471
proton pump inhibitors, 211, 370
provision for generic exclusivity, Hatch-Waxman Act, 192–193
Prozac, 473
psychotropics, benefit caps, health effects of, 373
PTO (Patent and Trademark office), evaluation of nonobviousness, 171–172
Public Health Service Act (PHSA), 168
Public Health Service Panel on Cost-Effectiveness in Health and Medicine, 402
public insurance programs, 272–273
public policy, 148–150 See also incentives for innovation
publicly traded firms, 77
push and pull incentives, 319–327, 537–540 See also advance market commitments (AMCs)
Quality of Well-Being (QWB) scale, 402
quality-adjusted life years (QALYs)
cost-effectiveness analysis and, 394–395
cost-effectiveness analysis (CEA) and, 427
defined, 397
health gain measured by, 273
methodological requirements across countries and, 415
net benefits of pharmaceuticals and, 478–479
strengths and weaknesses of, 399–409
vaccines, economics of, 535, 536
Ramsey pricing, 274–275, 310–312
RAND health insurance experiment (HIE), 351, 366
rates of return, 34–38, 43, 47, 286–287
Red Book, 221, 222, 227, 233
reference pricing, 278–281, 293, 310–311, 347
regulation of medical products, 100–139
approval times, average, 115–116
approval times, effect on, 124–125
clinical testing phases, 102–103
consumer and producer surplus, 127–129
cost savings due to, 130
cost-benefit analysis framework, 112–115
costs and benefits of, 129–130
demand for drugs, 108–110, 127–129, 130
of devices, 105–106
of drugs, 101–105
effects on development costs, 126–127, 129–130
effects on drug withdrawal rates, 125–126, 130
effects on innovation, 112, 117–119, 123–124, 129
effects on social surplus, 130
evaluation approaches, 115–117
Federal Food, Drug, and Cosmetic Act (FD&C Act), 102, 104–105, 115–116
Food and Drug Act (1906), 101–102
generic drugs, 104–105, 105n5
Hatch-Waxman Act, 105
Investigational New Drug (IND) application, 102
Orphan Drug Act (1983), 104
overview of issues, 4–5, 8, 100–101
phases of drug development, 102
preemption, 131–132, 136
Prescription Drug Users Fee Act (PDUFA), 105, 106, 116, 124–125
production of information, 106–110
quality standards, minimum, 110–111
rationale for government regulation, 106–115
tort liability system as regulator, 130–139
regulation of pricing and reimbursement. See pricing and reimbursement regulation
reimportation of drugs, 235
(p. 594) research alliance contracts, 66
research and development costs and returns, 21–44
analysis of, 21
assessing productivity changes, 21
for biologic drugs (large molecule), 28–29, 40–42
biologic drugs (large molecule), 44
Biomedical R&D Price Index, 34
biosimilars, 41–42
cost trends, 22, 23, 26–28, 29–34, 42–43
costs, approaches to estimating, 22–23
costs, highest on record, 23
costs, opportunity, 25–26
costs, postapproval, 26
costs, preapproval, 27
costs, preclinical, 27
costs, variation by therapeutic category, 23
cross-national price differentials, 3–4
data exclusivity period, 41
in developing countries, 317–328
development times, changes in, 25
economies of scale and slope, 559–560
future competition, effects on, 44
Hatch-Waxman Act, 41
investment cycles, 21
new chemical entities (NCEs), 22, 40–41
new drug approval trends, 24–25, 43
overview of issues, 6, 21
Patient Protection and Affordable Care Act (2010), 41
phases of development, 24
policy actions and, 21
profits, 382
rates of return, 34–38, 43, 47, 286–287
returns, variability in, 38–40
returns expected by venture capitalists, 51
returns on investment, 34–42
technical risks for, 24–25
trends and incentives, 21
research and development financing, 47
agency issues, 70
of biotech entrepreneurs, 51
capital constraints, 153
drug development alliances, market for, 65–70, 71
drug performance/efficacy, 67–69
European regulations, 56
external cost of funds vs. internal, 47–48, 54–56
external funds, sources of, 50–52
financial constraints and biotech firms, 71
financial constraints of biotech firms, 57–63
by government, 48–50, 56–57
incentives for investment, 47–48, 54n8
internal spending, 52–54
investment as percentage of sales, 50
Kaplan-Zingales (KZ) index, 60–61
of large firms, 50
National Institutes of Health (NIH), 50, 56–57
by nonprofits, 48–49
optimal level of investment, 54–57
option contracts, 70
overinvestment, 48
overview of issues, 5
private returns vs. social returns, 56
property rights, 66–67, 70
total invested in 2008 (United States), 70
underinvestment, 47, 66
vaccines, 533
venture capital firms, 48, 51, 63–65, 70–71
RESTAT, 254
retail pharmacies, 224, 256
discounting of generics by, 252–255
prices paid by, 236
retiree plans, 202n4, 370, 380, 478–479 See also elderly consumers
Retrovir (AZT), 471
rewards for inventors, 144, 160–161, 326–327 See also patents; prizes for product development
rheumatoid arthritis, 372
Riegel v Medtronic, 132, 133
Rituxan, 247
river blindness (onchocerciasis), 315
rotavirus, 314
Rufen, 495
Safeway, 254
sales representatives (detailers). See detailing (by sales representatives)
samples, free, 15, 220, 228n68, 239, 495, 497
Sanofi Pasteur, 529
Sanofi-Aventis, 315, 553
Scherer, F. M., 571, 572
Schering v Geneva, 173
schistosomiasis, 306
schizophrenia, 474
school vaccine requirements, 531
seniors. See elderly consumers
SF-6D (Short Form) measure, 402
sildenafil (Viagra), 203–204
silo budgeting, 297, 398
Singapore, Institute for Tropical Disease, 318
small-molecule (synthetic) drugs, 28–29, 191–192, 212, 219, 235, 295
social surplus, 129, 130, 157, 272
social value, 541–542
socioeconomic status, 371–372
South Africa, 309
South Korea, 288, 395
Spain, 294, 318
SPDCE (stated-preference discrete choice experiments), 409
specialty drugs, growth in, 247–248 See also rare diseases and conditions
spending on biopharmeceuticals, 1–2
spending on prescription drugs, 204–205, 463–464 See also value of pharmaceuticals, empirical evidence on
(p. 595) stated-preference discrete choice experiments (SPDCEs), 408–409, 427
statin drugs
cost-sharing and compliance with treatment, 376
coverage of, 211
market for, 468–470, 468n2
Mevacor (lovastatin), 205
prior authorization programs and, 374
three-tier plan design and, 370
step therapy requirements, 374
subsidies, 159, 161, 202n4, 540, 541–542
substitution of drugs, 192, 291, 292, 387, 441 See also generic drugs; interchangeability
suicidal behavior, 473–474
sulfonylureas, 471
summary of structure and contents, 5–17
supplemental exclusivity, 190–191, 193
supplemental insurance, 248
supplemental New Drug Application exclusivity, 186–187
supplier moral hazard, 266
survival rates, 413
Sweden
cost-effective treatments, implementation of, 421
Dental and Pharmeceutical Benefits Board, 394–395
Dental and Pharmeceutical Benefits Board (TLV), 422
disinvestment from inefficient treatments, 422
experiments with three-way engagement, 413
parallel trade, 283, 284
Switzerland, 289
synthetic drugs (small-molecule). See small-molecule (synthetic) drugs
Tanzania, 315
Target, 254
taxation, 107, 136
Taxol (paclitaxel), 247
Teva, 556
The Netherlands, 283, 303, 320, 395
The Pink Sheet, 224
thiazolidinediones, 470, 471
thimerosal, 545
third party payers (TPPs), 202, 219, 232, 236
tiered pricing, 220, 236, 241, 274–275, 310–312, 369–370
time trade-off (TTO) valuation, 405n7
torcetapib, 561
tort damages, effects of, 136–139
tort liability, 130–139, 539, 543, 544–545 See also lawsuits
TPPs (third party payers), 202, 219, 232, 236
Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement
compulsory license provision, 316
developing countries and, 309–310
drug development after, 305
as incentive for investment, 308
overview of, 188
patent protection, 152, 195
violation of, 194
transparency of prices, 311–312
trichuriasis, 306
triple-tier co-payment structures, 347
TRIPS agreement (Trade-Related Aspects of Intellectual Property Rights). See Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement
tropical diseases, 303, 318, 318n8 See also specific diseases
trypanosomiasis, 306
tuberculosis (TB)
Global Fund to Fight AIDS, Tuberculosis and Malaria (GFATM), 314
market size, 318
as neglected disease, 303, 305
potential of vaccine for, 534
product development by PDPs, 320
TRIPS compulsory license provision and, 316
vaccine development for, 539
Tufts Center for the Study of Drug Development (Tufts CSDD), 23
two-part pricing, 382
typhoid, 530
uninsured consumers, 220–221, 232
UNITAID, 314, 322
United Kingdom
antidepressants, 473
cost-effective treatments, implementation of, 421, 422
cost-effectiveness review, 281
DFID, 320
drug budgets, 285
drug regulation, 116, 117, 123, 124
drug withdrawal rates, 125
experiments with three-way engagement, 413
generic drug market in, 294
incentives for innovation, 289
National Institute for Health and Clinical Excellence (NICE), 281, 282, 394, 405, 415, 418–422
Office of Fair Trading, 398
parallel trade, 283
pharmacy substitution in, 292
price regulation, 398
promotion regulation, 295
Prospective Diabetes Study Group, 471
(p. 596) United States
market size, 1–2
percentage of global revenues, 281
US Agency for International Development (USAID), 320
US Consumer Price Index, 443
US President's Emergency Plan for AIDS Relief (PEPFAR), 314
US President's Malaria Initiative (PMI), 314
US Supreme Court, on exemption from infringement, 173–174
US Veterans’ Administration (VA), 211, 229, 231, 238, 270
USAID (US Agency for International Development), 320
vaccines, 463–485
advance market commitments and, 539
antiarthritis medications and labor supply, 483–484
CDC recommendations for, 148, 545
conditional cash transfer program, 532
cost-benefit analysis (CBA), 534–535, 537
cost-effectiveness analysis (CEA), 534–536
differential pricing for, 311
distinctive features of vaccines, 524–526
economics of, 524–547
effects of tort liability on, 136–139
externalities in consumption, 526–528
GAVI Alliance, 314
generic, lack of, 214n31
governments as purchasers, 532
mandating coverage, 541
mandatory vaccine programs, 531
market size for, 148
markets for vaccines, governments’ roles in, 528–529
National Vaccine Authority Act, 542
National Vaccine Injury Compensation Program (NVICP), 136, 137, 138
no-fault compensation for injuries, 538–539, 543–546
normative theory of innovation and, 156
preservatives, 544–545
private demand, 529–532
production of vaccines, 527, 532, 542–543
public policies that expand market size, 538–539
push vs. pull programs, 537–538
research and development (R&D) investment in, 148
research opportunities, 546–547
supply of, 532–534, 542–543
willingness to pay (WTP), 529–532, 534
value of pharmaceuticals
antiretroviral medications and economic outcomes, 481–482
crime rates, lower, 480–481
diabetes, 470–471
health effects of, 465–476
heart conditions, 467–470
HIV/AIDS, 471–472
labor supply, effect on, 482–484
mental health conditions, 472–476, 480–481, 482–483
net benefits of pharmeceuticals, 476–479
nonhealth benefits, 480–484, 541–542
overview of issues, 463–465
research opportunities, 483
summary of findings, 483–484
value-based insurance design (VBID), 380–382
value-based pricing, 240–241, 273, 282
varicella, 536
venture capital firms, 7, 48
Veteran's Administration. See US Veterans’ Administration (VA)
Veteran's Health Care Act (1992), 231
veterinary drugs, 318
Viagra (sildenafil), 203–204, 505
Vietnam, 530
Vioxx, 483–484
WAC (wholesale Acquisition Cost), 218
Walgreens Prescription Savings Club, 254
Wal-Mart, 202, 212, 219, 224, 252–254
welfare-improving policies, 160–163, 267, 380–385, 406–407
Wellcome Trust, 318
Wholesale Acquisition Cost (WAC)
and actual acquisition prices, 225–226
Average Wholesale Price (AWP) and, 218, 222–223, 227–232
and wholesaler consolidation, 225–226
wholesalers
computerization and, 224
consolidation of, 224–225
discounts off Average Wholesale Price (AWP), 225–227
and distribution channels, 218
generics marketing and manufacturing, 216–217
gross profit margins of, 223
markups, 222–232
willingness to pay (WTP)
cost-benefit analysis (CBA), 396–397
decision uncertainty and, 423
in developing countries, 538
vaccines and, 529–532, 534
withdrawal rates (of drugs), 125–126
Wolters Kluwer Health, 232
World Health Organization (WHO)
approval of NICE processes, 416
on counterfeit medicines, 304
disease classification, 302n1
essential drugs list, 354
First Report on Neglected Tropical Diseases, 315
international pharmaceutical price comparisons, 311
National Health Accounts, 201n3
(p. 597)  Special Programme for Research and Training in Tropical Diseases (TDR), 315
UNITAID, 314
use of disability-adjusted life years (DALYs), 407
WTP (willingness to pay). See willingness to pay (WTP)
Wyeth v Levine, 132, 133
Yemen, 315
Zantac, 561
Zoloft, 473