An Overview of the Stratified Economics of Stratified Medicine

NBER Working Paper No. 21233

Issued in June 2015

NBER Program(s):Health Care



The economics of stratified medicine depend critically on setting the cut-off score of the companion diagnostic (CDx). This action integrates scientific, clinical, ethical and commercial considerations, and simultaneously determines the value of the stratified medicine to developers, providers, payers and patient. Setting a high cut-off ensures a larger response by excluding more non-responders but also denies treatment to patients who would respond. This creates ethical and clinical concerns, and limits market size. Setting a low cut-off includes more patients who can benefit but includes more non-responders with commensurate costs, side effects and lost time. CDx’s capture little value under current reimbursement and exclusivity protections. Combined with low CDx investment incentives for generic drug manufacturers, little CDx development occurs for older legacy drugs. Therefore payers face an asymmetric situation of novel stratified medicines raising public health and payers’ costs, but no CDx’s for legacy treatments to reduce costs. It would be in payers’ interests to rediscover their heritage of direct investment in diagnostic development.

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Document Object Identifier (DOI): 10.3386/w21233

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