Victor R. Fuchs Award for 2020 Goes to Patricia Danzon

Article by: Adrian Towse

The American Society of Health Economists (ASHEcon) announced Patricia Danzon as recipient of the 2020 Victor R. Fuchs Award. This is given to an economist making significant lifetime contributions to the health economics field. Professor Danzon is an internationally recognized expert in the fields of economics of health care, the biopharmaceutical industry, and insurance, including the medical malpractice area where she began her research. 

Patricia Danzon is the Celia Moh Professor Emeritus at The Wharton School, University of Pennsylvania. Professor Danzon received a B.A. from the University of Oxford, England, and a Ph.D. in Economics from the University of Chicago. She has also held faculty positions at Duke University and the University of Chicago.

She is a member of the US National Academy of Medicine and the National Academy of Social Insurance, and is a former Research Associate at the US National Bureau of Economic Research. She has served as a consultant to many governmental agencies, NGOs, and private corporations in the US and internationally. Professor Danzon has served on the Board of Directors of Medarex, Inc., the Policy and Global Affairs Board of the US National Academy of Sciences, and is a longstanding member (since 1995) of the Research Committee of the Office of Health Economics (UK).

Her work on the structure of the pharmaceutical industry has included co-editing the Handbook on the Economics of the Biopharmaceutical Industry (2012) for Oxford University Press. Selected publications include: ‘Exits from Vaccine Markets in the US: The Role of Competition vs. Regulation’ (Danzon and Pereira, 2011); ‘Productivity in Pharmaceutical-Biotechnology R&D: The Role of Experience and Alliances’ (Danzon, Nicholson and Pereira, 2005) and ‘Biotech-Pharma Alliances as a Signal of Asset and Firm Quality’ (Nicholson, Danzon and McCulloch, 2005).

However, it is her contribution to biopharmaceutical pricing that is perhaps most immediately relevant today. It can be grouped into four areas:

  • Analysis as to what has been happening to US pharmaceutical prices (compared to those in other countries, taking into account (Danzon and Kim, 1998) the difficulty of making price comparisons across countries. Danzon and Chao (2000a), and Danzon and Furakawa, (2006, 2008) show that US drug prices and volumes were higher, but within reach of other countries of similar income levels until the mid 2000s. In Danzon (2018), it is clear that by 2016 US prices are diverging in a way that was out of line with relative GDP per capita.   
  • Evidence on how post-patent generic markets generate low prices and savings for health care systems and patients. Danzon and Chao (2000b) in a cross-national study show that, in the off-patent market, price control hinders competition and leads to higher prices. A later paper, Danzon, Mulcahy and Towse (2015), found that in Middle and Low Income Countries (MLICs), generic prices were high despite competition, due to a lack of quality regulation. Tendering led to multinational generic suppliers entering markets and to lower prices.
  • The case for differential pricing to improve access, especially in MLICs, whilst providing returns to R&D. She argues (Danzon and Towse, 2003) that differential pricing, based on Ramsey pricing principles, is a second best efficient way of paying for the global joint costs of pharmaceutical R&D. She points out that implementation of differential pricing between countries based roughly on per capita income is undermined by parallel trade (Danzon 1998) and external price referencing. In two empirical studies  (Danzon, Wang and Wang, 2005; Danzon and Epstein, 2012) she shows how external referencing by higher-price (usually also higher-income) countries leads to delays and non-launch of new drugs in lower-price (usually also lower-income) referenced countries. The most promising approach to implementing differential pricing is for MLIC payers/purchasers to negotiate contracts with companies that include confidential rebates. In Danzon 1997, she set out this issue and also noted that the R&D based industry could best be described as monopolistically competitive, i.e. over time entry of similar but differentiated on-patent products would erode excess profits – as we have seen in the case of Hep C drugs. The challenge is making the demand side an effective purchaser.
  • The case for value-based differential pricing. In Danzon, Towse and Mulcahy (2011) ‘Setting Cost-Effectiveness Thresholds As A Means To Achieve Appropriate Drug Prices In Rich And Poor Countries‘ and Danzon, Towse and Mestre-Ferrandiz (2015) she sets out an approach that can make the demand side an effective purchaser, whereby, if third party payers set willingness to pay for health and health related gain at levels that reflect enrollees underlying preferences for health over other goods and services, and correctly assess the ability of products to deliver health gain, then second best static and dynamic efficiency is achieved with price levels and relative prices for on-patent products, within and across health systems in the same or different countries, which lead to optimal global R&D investments. 

At a time when the US is considering possible reforms to drug pricing arrangements, with leading proposals focused on either external reference pricing and enabling parallel imports or some mechanism for payers to assess value(s) within the US health care system, it is hard to think of a body of theoretical and empirical work generated over a period of more than two decades that is more relevant to policymakers in considering the pros and cons of different ways forward.

The ASHEcon announcement can be viewed here

 

References (in the order referred to in the blog).

Danzon and Nicholson (2012).  (co-editors) The Handbook on the Economics of the Biopharmaceutical Industry (2012), Oxford University Press

Danzon and Pereira (2011) “Exits from Vaccine Markets in the US: The Role of Competition vs. Regulation” International J. of the Economics of Business

Danzon, Nicholson and Pereira (2005); “Productivity in Pharmaceutical-Biotechnology R&D: The Role of Experience and Alliances” J. of Health Economics.

Nicholson, Danzon and McCulloch (2005) “Biotech-Pharma Alliances as a Signal of Asset and Firm Quality” J. of Business.

Danzon and Kim (1998). International Price Comparisons for Pharmaceuticals: Measurement and Policy Issues. PharmacoEconomics 14(S1): 115-128.

Danzon and Furukawa (2006). “Prices and Availability of Biopharmaceuticals: An International Comparison,” with Michael. Health Affairs 25(5) September/October: 1353-1362.

Danzon and Furukawa (2008). “International Prices and Availability of Pharmaceuticals in 2005” with Health Affairs January-February 27(1) 200: 221-233.

Danzon (2018). Differential Pricing of Pharmaceuticals: Theory, Evidence and Emerging Issues. PharmacoEconomics (2018). https://doi.org/10.1007/s40273-018-0696-4.

Danzon and Chao (2000a). Cross-National Price Differences for Pharmaceuticals: How Large and Why? Journal of Health Economics 19(2) 2000: 159-195.

Danzon and Chao (2000b). Does Regulation Drive out Competition in Pharmaceutical Markets? Journal of Law and Economics 43(2) 2000: 311-357

Danzon, Mulcahy and Towse (2015). Pharmaceutical Pricing in Emerging Markets: Effects of Income, Competition, and Procurement. Health Econ. 24: 238–252

Danzon and Towse (2003). Differential Pricing for Pharmaceuticals: Reconciling Access, R&D, and Patents. International Journal of Health Care Finance and Economics 3(3): 183-205.

Danzon (1998). The Economics of Parallel Trade.” PharmacoEconomics 13(3): 293-304

Danzon (1997). Price Discrimination for Pharmaceuticals: Welfare Effects in the U.S. and the E.U.” International Journal of the Economics of Business 4(3): 301-321.

Danzon, Wang and Wang (2005) The Impact of Price Regulation on the Launch Delay of New Drugs – Evidence from Twenty-Five Major Markets in the 1990s” Health Economics 14(3) 269-292.

Danzon and Epstein (2012) Effects of Regulation on Drug Launch and Pricing in Interdependent Markets In The Economics of Medical Technology: Advances in Health Economics and Health Services Research, Volume 23. Eds. Kristian Bolin and Robert Kaestner. Emerald Books. 2012:  35-71.

Danzon Towse and Mulcahy (2011) “Setting Cost-Effectiveness Thresholds as a Means to Achieve Appropriate Drug Prices in Rich and Poor Countries" with Adrian Andrew. Health Affairs 30(8): 1529-1538.

Danzon, Towse and Mestre-Ferrandiz (2015).  Value-Based Differential Pricing: Efficient Prices for Drugs in a Global Context” Health Econ. 24: 294–301

 

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