Value-Based Price Sensitivity: Differential Demand Elasticity of Prescription Drugs Following National Reimbursement Negotiations
Author(s)
Yawen Jiang, PhD1, Zhanyu Dong, PhD2.
1Associate Professor/Department Chair, Sun Yat-Sen University, Shenzhen, China, 2Sun Yat-Sen University, Shenzhen, China.
1Associate Professor/Department Chair, Sun Yat-Sen University, Shenzhen, China, 2Sun Yat-Sen University, Shenzhen, China.
OBJECTIVES: To determine whether and how the price elasticity of demand for prescription drugs varies with clinical value, measured by incremental quality-adjusted life years (QALYs).
METHODS: We analyzed drugs newly included in China's National Reimbursement Drug List (NRDL) through price negotiations in 2017-2018, with secondary analyses including 2019 NRDL drugs. The final analytic sample comprised 29 single-source medications with both pricing and sales data from approximately 3,000 hospitals in China (2016-2019). We categorized drugs as high-value or low-value using mean incremental QALY as the threshold based on a systematic literature review. We standardized drug prices and sales volumes (setting each drug's mean values to 100) and used fixed-effects regression models to estimate price elasticity of demand and the semi-elasticity of demand with respect to NRDL inclusion, stratified by value category.
RESULTS: Low-value drugs exhibited substantially higher price elasticity (-0.54; 95% CI, -0.76 to -0.32) compared to high-value drugs (-0.01; 95% CI, -0.03 to 0.004), indicating that sales volumes of low-value drugs were considerably more responsive to price changes (P<0.001 for difference). Despite NRDL inclusion triggering comparable price reductions across both value categories (approximately 55%), low-value drugs experienced significantly greater sales volume increases following inclusion (semi-elasticity: 38.83%; 95% CI, 10.94% to 66.71%) compared to high-value drugs (-2.44%; 95% CI, -35.73% to 30.85%; P=0.016 for difference).
CONCLUSIONS: This study provides novel empirical evidence that price elasticity of demand for prescription drugs varies systematically with clinical value, with high-value drugs exhibiting nearly inelastic demand. These findings suggest that centralized procurement policies built on volume-price trade-offs may be less effective for high-value medications and indicate that value-based payment strategies should consider differential price responsiveness across the value spectrum.
METHODS: We analyzed drugs newly included in China's National Reimbursement Drug List (NRDL) through price negotiations in 2017-2018, with secondary analyses including 2019 NRDL drugs. The final analytic sample comprised 29 single-source medications with both pricing and sales data from approximately 3,000 hospitals in China (2016-2019). We categorized drugs as high-value or low-value using mean incremental QALY as the threshold based on a systematic literature review. We standardized drug prices and sales volumes (setting each drug's mean values to 100) and used fixed-effects regression models to estimate price elasticity of demand and the semi-elasticity of demand with respect to NRDL inclusion, stratified by value category.
RESULTS: Low-value drugs exhibited substantially higher price elasticity (-0.54; 95% CI, -0.76 to -0.32) compared to high-value drugs (-0.01; 95% CI, -0.03 to 0.004), indicating that sales volumes of low-value drugs were considerably more responsive to price changes (P<0.001 for difference). Despite NRDL inclusion triggering comparable price reductions across both value categories (approximately 55%), low-value drugs experienced significantly greater sales volume increases following inclusion (semi-elasticity: 38.83%; 95% CI, 10.94% to 66.71%) compared to high-value drugs (-2.44%; 95% CI, -35.73% to 30.85%; P=0.016 for difference).
CONCLUSIONS: This study provides novel empirical evidence that price elasticity of demand for prescription drugs varies systematically with clinical value, with high-value drugs exhibiting nearly inelastic demand. These findings suggest that centralized procurement policies built on volume-price trade-offs may be less effective for high-value medications and indicate that value-based payment strategies should consider differential price responsiveness across the value spectrum.
Conference/Value in Health Info
2025-09, ISPOR Real-World Evidence Summit 2025, Tokyo, Japan
Value in Health Regional, Volume 49S (September 2025)
Code
RWD132
Topic Subcategory
Health & Insurance Records Systems
Disease
No Additional Disease & Conditions/Specialized Treatment Areas