AUTHOR=Berdud Mikel , Ferraro Jimena , Towse Adrian 

TITLE=A theory on ICER pricing and optimal levels of cost-effectiveness thresholds: a bargaining approach

JOURNAL=Frontiers in Health Services

VOLUME=Volume 3 - 2023

YEAR=2023

URL=https://www.frontiersin.org/journals/health-services/articles/10.3389/frhs.2023.1055471

DOI=10.3389/frhs.2023.1055471

ISSN=2813-0146

ABSTRACT=In many health systems around the world, decisions about the reimbursement of – and patient access to – new medicines are based on health technology assessments (HTA) which, in some countries, includes calculation of an Incremental Cost-Effectiveness Ratio (ICER). Decision makers compare the ICER against a pre-specified value for money criterion, known as the Cost-Effectiveness Threshold (CET) to decide for or against reimbursement. 
We develop a general model of pharmaceutical markets to analyse the relationship between the CET value and the distribution of the health and economic value of new medicines as between consumers (payers) and producers (life science industry developers). We add to existing literature in three ways: including research and development (R&D) cost for developers as a sunk cost; incorporating bargaining using the Nash Bargaining Solution to model payer bargaining power from regulation and use of competition; analysing the impact of a non-uniform distribution of developers R&D costs on the supply of innovation.  
We find in some circumstances of bargaining power distribution and R&D cost, use of a CET value in HTA decision-making higher than the supply-side CET is socially efficient. Decision makers should consider adjustable levels of the CET or interpretation of ICERs higher than the CET according to the bargaining power effect. Results of this research suggest that more research is needed on the impact of bargaining power, how R&D investment responds to rewards i.e., the elasticity of innovation, and pre- and post- patent expiry modelling.