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Medical Decision Making, Vol. 25, No. 1, 71-80 (2005)
DOI: 10.1177/0272989X04273139

Impact of Generic Drug Entry on Cost-Effectiveness Analysis

Ya-Chen Tina Shih, PhD

Section of Health Services Research, Department of Biostatistics and Applied Mathematics, The University of Texas MD Anderson Cancer Center, Houston, Texas

Shu Han, MS

Department of Statistics, Rice University, Houston, Texas

Scott B. Cantor, PhD

Section of Health Services Research, Department of Biostatistics and Applied Mathematics, The University of Texas MD Anderson Cancer Center, Houston, Texas

The market share of generic drugs has grown substantially since the passage of the Waxman-Hatch Act, increasing from 19% in 1984 to 50% in 2001. At entry, the generic drugs typically are priced lower than brand-name drugs; thus, incorporating the impact of the generic drug entry introduces an additional source of uncertainty in economic models as both the timing of entry and the level of generic drug pricing are subject to variation. In this article, the authors explored the impact of generic drug entry on cost-effectiveness analyses of new or brand-name drugs. Using a mathematical model, they argue that failure to incorporate the impact of generic drug entry will underestimate the incremental cost-effectiveness ratio (ICER) and, thus, overstate the economic benefit of the new product. The authors provide 2 examples to illustrate such impact on short-term and long-term cost-effectiveness analyses. To better assess the uncertainty associated with the impact of generic drug entry, in addition to a deterministic analysis, they also employed a Bayesian probabilistic approach to analyze these examples and presented the results using cost-effectiveness acceptability curves. They conclude that incorporating generic drug entry into pharmacoeconomic models will yield more accurate projections of the ICER and lead to better decision making.

Key Words: generic drug entry • cost-effectiveness analysis • Bayesian • acceptability curve • pharmaceutical pricing • costs and cost analysis • health economics


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