Limitations of CBO’s Simulation Model of New Drug Development as a Tool for Policymakers

Cookson, G. and Hitch, J.

Consulting Report
December 2021

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In recent years, US policymakers have been considering reforms to reduce drug spending, including allowing the government to directly limit prices and price growth for branded medicines. By reducing prices, such policies will negatively impact incentives for innovation, but the magnitudes and timings of these impacts are unclear.

To inform policymaking in this area, the Congressional Budget Office (CBO) have developed an economic simulation model which can, in theory, be applied to any policy that affects expected costs and/or returns from new drug development. A version of this model has recently been applied to evaluating the drug pricing provisions in the Build Back Better Act (BBBA). CBO estimate that the policy will have small negative effects on numbers of new drugs coming to market in the three decades following implementation.

However, as we detail in this report, there is significant uncertainty in the estimates and the modelling is oversimplified. Beyond this, CBO restrict attention to numbers of new drugs coming to market, but it is the value not the volume of innovation that matters most for patients. For these reasons and others which we expand upon in this report, policymakers should exercise caution when relying on these findings to evaluate real-world policy changes.