Abstract

Background

The use of budget thresholds is a recent development in the United States (e.g., the Institute for Clinical and Economic Review drug assessments). Budget thresholds establish limits that require some type of budgetary action if exceeded. This research focused on the advisability of using product-level budget thresholds as fixed spending caps by examining whether they are likely to improve or worsen market efficiency over status quo.

Objective

The aim of this study was to determine whether fixed product-level spending caps are advisable for biopharmaceuticals.

Methods

We systematically examined 5-year, postlaunch revenue for drugs that launched in the United States between 2003 and 2014 using the IMS MIDAS database. For products launched between 2011 and 2014, we used historical revenue as the baseline and trended out 60 months postlaunch based on exponential smoothing. Forecasted fifth-year revenue was compared to analyst reports. Fifth-year revenue was compared against a hypothetical $904 million spending cap to determine the amount of annual spending that might require reallocation. Descriptive statistics of 5-year, postlaunch revenue and annual spending requiring reallocation were calculated.

Results

Adhering to a $904 million product-level spending cap requires that approximately one-third of new drug spending be reallocated to other goods and services that have the potential to be less cost-effective due to significant barriers.

Conclusion

Fixed product-level spending caps have the potential to reduce market efficiency due to their independence from value and the presence of important operational challenges.