What is the elasticity of innovation?

It measures the percentage change in innovation—using the flow of new drugs approvals, or Phase 1, 2, or 3 starts— caused by a percentage change in revenues, typically expected
future revenues.

In practice, it is change in profits that matters, but future revenues are much more observable and predictable than future profits. Thus, the authors focus on the elasticity of innovation with respect to revenue rather than profits.

How much do future revenues impact the likelihood of new drug development?

All the studies conclude that the elasticity is positive—i.e., lower revenues lead to less R&D— but estimates vary widely. However, we argue that a typical long-run elasticity associated with U.S. revenues lies within the range of 0.25 to 1.5, implying that for every 10% reduction in expected revenues, we can expect 2.5% to 15% less pharmaceutical innovation.

What is driving the variability in these estimates?

One key question is why there is such a big range in these estimates? Certainly different study designs matter (see below). The authors also claim that factors such as “the time horizon studied, the size of the price change, cost of drug development, barriers to value-based pricing, and other marketplace factors” all impact the magnitude of the elasticity of innovation.

What methodologies are used in the literature to estimate the elasticity of innovation?

• Cross sectional: exploit variation in revenues across therapeutic classes (or some other unit of analysis) to estimate the elasticity. For instance, they may compare “high-revenue” vs. “low-revenue” classes to infer the elasticity [Examples: Lichtenberg (2005) and Civan and Maloney (2009)].
• Aggregate time series: exploit variation in industry-level revenues over time [Example: Giaccotto, Santerre and Vernon (2005)]
• Panel data approaches: include drug-class “fixed effects” and net out hard-to-measure and persistent differences in class characteristics. In essence, this approach approach focuses on within-class revenue change as a driver of within-class innovation changes. These analyses typically require the use of “natural experiments” that cause a differential change in revenue across different segments of the market. Examples of natural experiments include future demographic changes or the advent of Medicare Part D. [Examples: Acemoglu and Linn (2004); Dubois et al. (2015); Blume-Kohout and Sood (2013)]
• Parameterized computational models (aka structural models): specify firms’ objective functions, strategy sets and features of the business environment, and when the model includes multiple firms, the model typically requires that the market is in equilibrium. Parameters are selected to match those in the real world (e.g., average R&D expenses) and calibrated such that the model outputs also match real-world outcomes (e.g., average flow of new drugs). [Examples: Abbott and Vernon (2007); Filson (2012); Adams (2021)]

The authors argue that panel approaches and parameterized computational models are preferred.

For the studies with the preferred panel or computation approach, which individual elasticity of innovation estimates did they arrive at?

The authors have a nice table summarizing the findings which I pasted below.

Great work by my colleagues at USC! I certainly encourage you to read the full article here.

…the numbers of family caregivers providing help to older adults increased by nearly six million between 2011 and 2022, rising from 18.2 million to 24.1 million. Among older adults receiving care, network size was stable, at about two caregivers per older adult at both points in time.

We can decompose the number of caregivers based on whether or not the patient has dementia as follows:

Of the caregivers in 2022, 62.5% were female, 36.3% were aged <55 years. What is the relationship of the caregiver to the patient? Most–but not a majority–are the adult children of the patient.

Caregiving is most often a long-term relationship with most caregiving episodes spanning 4 years or more.

The paper has much more details on caregivers, their characteristics, their roles, and trends over time. You can read the full article here.

DATA DESCRIPTION

NHATS is a nationally representative survey of US adults ages sixty-five and older that draws on Medicare enrollment files for its sampling frame. Information is collected during in-person interviews about a wide range of characteristics relating to health and functioning. With sampling weights, NHATS is designed to produce nationally representative estimates of the older population. NSOC is administered to up to five relatives and unpaid helpers (hereafter referred to as family caregivers) of older adults receiving assistance with self-care, mobility, or household activities for health or functioning reasons. NSOC was administered by telephone in 2011 and by telephone and online in 2022. In each year, approximately 60 percent of those invited to respond participated; with sampling weights, NSOC represents family caregivers of beneficiaries ages sixty-five and older.

NHS England will be abolished and brought under “democratic control” in an attempt to cut bureaucracy and duplication, Sir Keir Starmer has announced.

The organisation, which oversees the country’s health service, will be brought into the Department of Health, and the PM said the move would free up money for frontline services.

The government said it expected around 50% of the jobs at NHS England, which as of December had 14,400 staff, and the Department of Health, which has 3,500 staff, to go.
In a speech in Hull, Sir Keir said for too long politicians had “chosen to hide behind vast arrays of quangos” – organisations funded by taxpayers but not directly controlled by the government.

What do health care providers think? NHS Confederation and NHS Providers released a statement which said:

“This is the end of an era for the NHS and marks the biggest reshaping of its national architecture in a decade…. History tells us this will cause disruption while the transition is taking place.”

UNISON, the UK’s largest union, is concerned about staffing, the transition, and the future of current workers.

Put simply the health service needs thousands more staff and to be able to hold on to experienced employees. At the moment, it’s struggling to do that. Giving staff a decent pay rise would help no end.
But this announcement will have left NHS England staff reeling. Just days ago they learned their numbers were to be slashed by half, now they discover their employer will cease to exist.
The way the news of the axing has been handled is nothing short of shambolic. It could surely have been managed in a more sympathetic way.
Thousands of expert staff will be left wondering what their future holds. Wherever possible, their valuable skills must be redeployed and used to the benefit of the reformed NHS and patients.

The King’s Fund is an independent charitable organization and think tank focused on improving health and care in England. Sarah Woolnough, Chief Executive of The King’s Fund, reacted to the NHS England abolishment with the following statement:

‘Today’s announcement lands on the same day that NHS stats show people continue to wait days in A&E and many patients remain stuck in hospital beds despite being well enough to leave. The most important question is how will the abolition of NHS England make it easier for people to get a GP appointment, shorten waits for planned care and improve people’s health? That hasn’t yet been set out – ministers will need to explain how the prize will be worth the price.

‘It is absolutely right that democratically elected politicians must have clear oversight of how the NHS delivers for patients and spends hundreds of billions of taxpayer money. It is also reasonable to want to deliver better value by reducing duplication and waste between two national bodies where they are performing a similar role. It is true that over its just over a decade of existence, NHS England has been asked to take on a lot more additional power, functions and therefore staff, than it was originally designed to do.

A balanced view is offered by Professor Azeem Majeed, head of the Department of Primary Care & Public Health at Imperial College London:

‘The Government’s decision to abolish NHS England and integrate its functions into the Department of Health and Social Care has implications for patients, NHS England, and staff. Patients could benefit from improved care delivery through reduced bureaucracy and redirected resources to frontline clinical services, though there is a risk of temporary disruption that will require careful management.

‘NHS staff may face uncertainty around job security and morale issues during restructuring, but increased local autonomy may empower leaders to innovate and respond more effectively to local health needs.

‘Efficiency savings are expected through reduced administrative duplication and significant workforce reductions, although essential expertise and organisational memory must be preserved. Throughout the transition, maintaining uninterrupted essential operational functions will be critical.’

Stay tuned to see how this change will impact health care in the UK.

…to address the serious shortage of medicines and healthcare products, reduce external dependence on critical medicines and ingredients — especially from Asia — and guarantee the supply of affordable medicines in the European Union.

My colleague Antoine Miahle was quoted in Politico giving his thoughts on CMA:

Antoine Mialhe, senior managing director and head of health care and life sciences at FTI Consulting, said the Act is “an earthquake in the way drugs have been historically purchased in the EU.” “Building on the experience gained during the COVID-19 pandemic, the [European Commission] now wants to open widely the door to jointly procure a wide range of medicines, including innovative ones.”

As Mr. Mialhe mentioned, the need for CMA was driven initially by COVID-19 pandemic-related supply disruptions of life-saving, high-quality medicines. Additionally, ongoing geopolitical instability in recent years has lead to further threats to the global supply chains of essential medications and shortages in Europe

The European Commission characterizes CMA’s key features as follows:

• Strategic Projects for critical medicines or their ingredients can be designated, so that they benefit from easier access to funding and fast-tracked procedures.
• Public procurement to incentivise the resilience of supply chains of critical medicines or to improve access to other medicines of common interest.
• Collaborative procurement among different member states will be supported by the Commission at the request of member states, to address availability and access disparities of critical medicines and other medicines of common interest.
• International partnerships with likeminded countries/regions will be explored, to broaden the supply chain and reduce dependencies on single suppliers.
• State aid guidelines to assist member states in financially supporting such strategic projects.

Ropes & Gray notes that The European Commission fast-tracked the CMA, which means they have opted not to conduct a dedicated impact assessment or public consultation. Of particular note is that CMA aims to make greater use of procurement requirements other than price (e.g., supply chain resiliency) which selecting suppliers.

The European Federation of Pharmaceutical Industries and Associations (EFPIA) noted general support for more robust supply chains and insuring access to critical medicines, but also voiced some skepticism that collaborative procurement would be optimal. There was also some risk of increased administrative costs as well.

…while these options may be appropriate under very specific circumstances where they accelerate patient access to critical medicines, a systematic application could create more harm than offering a more permanent solution to access related issues. Therefore, clarity is required to identify those circumstances where collaborative procurement options would improve access beyond existing national pricing and reimbursement pathways…

EFPIA believes that the Act needs to go further and provide an effective response to fragmented national contingency stock requirements that disrupt the functionality of the single market. 

With respect to obligations for market actors to provide information, we urge authorities to make use of existing data systems to avoid the duplication of reporting requirements. The information already stored in the European Medicines Verification System provides timely intelligence on the number of packs for all prescription products being supplied in the various Member States

A Politico article notes that while Belgium was one of the key drivers of implementing the CMA, some Belgian politicians are not happy with the final results.

“It lacks the urgency required to safeguard our health care and security,” Frank Vandenbroucke, who is also Belgium’s deputy prime minister, told POLITICO.

While he acknowledged the act is an “important step forward,” he added that the “proposed funding is insufficient, and there is no common strategy for stockpiling essential medicines.” Belgium has called for the act to be partly funded by Europe’s defense strategy.

The Politico article also has perspectives from a variety of perspectives on CMA.

What do patients think? The European Patients’ Forum (EPF) stated that it:

,,,welcomes the European Commission’s proposal for the Critical Medicines Act as an important step toward improving medicine security, availability as well as accessibility across the EU for ALL patients. 

However, additional efforts and complementary political measures are strongly needed to ensure that the Act effectively meets its objectives of strengthening the security of supply, ensuring the availability of critical medicinal products for all EU patients, and upholding a high level of public health protection. 
We are very concerned about how these initiatives will be financed in the short and longer term…

From our standpoint, there is insufficient focus on structured cooperation and involvement of civil society, particularly patient organisations, in the decision-making processes at the national and European level, for example on definition of public procurement criteria

Many commenters noted while CMA’s objectives for secure supply chain and reliable access to medicines are a laudable goal, sufficient funding and concrete actions are needed for CMA’s promise to become a reality.

The authors categorized the evidence cited in the coverage policy decisions into 7 categories:

1. Clinical or treatment guidelines,
2. Systematic review and/or meta-analyses,
3. Randomized controlled trials (RCTs)
4. Other clinical studies,
5. Real-world evidence (ie, studies related to the effectiveness of an intervention conducted in a real-world setting),
6. Health technology assessments (HTA),
7. Economic evaluations that otherwise did not qualify as HTAs

Overall, clinical evidence (e.g., clinical guidelines, RCTs) were most frequently cited relative to HTA and other economic evidence.

Nevertheless, most US commercial payers (78.8%) did consider cost effectiveness analysis (CEA) in their evaluation. 

The most commonly cited HTA body evidence came from NICE in the UK (30.7%), ICER in the US (17.7%), and the Canadian Drugs Agency (CDA) (13.4%).

The authors summarize their findings as follows:

Unlike in other countries, where HTA bodies often play a determining role in patient access to drugs, US payers are not bound by such bodies, leaving the role of HTA in US decision-making less defined…Although coverage decisions cited HTAs less frequently than other types of evidence, our findings show that US commercial health plans cite HTA evidence, thus suggesting that they may consider HTA recommendations when formulating coverage.

Why do commercial payers seek out HTA evidence?

HTAs, which are often released around the time of a treatment’s approval, provide timely information for coverage decisions, particularly for complex treatments and orphan drugs, for which initially available evidence may be limited (eg, relying on studies that are not randomized or have small sample sizes)…most HTAs in our sample addressed cost-effectiveness, potentially a key consideration for payers evaluating expensive therapies, such as gene therapies…. Although some health plans may conduct their own technology assessments, others may lack the resources to do so.

You can read the full study here.

SVI is calculated from 16 social determinants of health (SDoH) variables that are grouped into 4 themes: socioeconomic status, household characteristics, racial and ethnic minority status, and housing type & transportation (see my blog post on SVI for more details).  The ACS data is available at the county and the ZIP code tabulation area (ZCTA) levels.  The authors created crosswalks to estimate SVI at the 3-digit and 5-digit ZIP code levels. The methodology is explained in more detail as follows:

The ZCTA numerator (e.g., people in a geographic unit below 150% of the poverty line) and denominator (e.g., people residing in the geographic unit) values were aggregated to the ZIP-5 and ZIP-3 level to obtain totals representative of the geography of interest. With all numerators and denominators now representing the correct geography, the percentages of each of the 16 variables were calculated for counties, ZIP-5s, and ZIP-3s by dividing each numerator by the corresponding denominator. Each of the 16 variables were then ranked by percentile across all geographies, resulting in a number between 0 and 1 for each geographic area and SDoH variable, which aligns with the scale used to report the SVI (ranging from 0 [least vulnerable] to 1 [most vulnerable]).

This approach was validated against published SVI estimates from 2014 CDC data at the census tract and county levels.

The authors then demonstrate the utility of this data by linking SVI estimates at 3-digit ZIP code level to health insurance claims data.  They summarize the utility this offers as follows:

…SVI at the ZIP-3 level can be used with a large US health plan claims database, which has a variable for patient ZIP-3. If health plan claims are linked with a specific disease cohort, SVI enrichment could also be used to explore differences between patients living in more vulnerable areas vs. less vulnerable areas, such as the types of treatments prescribed, treatment adherence, and healthcare resource utilization. Crucially, this approach can be used for any kind of data that include a geographic identifier for patients.

You can read the full paper here.

The paper by Jiao et al. (2025) provides the theoretical foundations for why this three-part pricing approach is so sensible. At a high level, the approach combines expected utility theory with value of information (VOI) metrics to inform value-based prices (VBP) of new medical technologies. To implement this approach, the authors rely on a five step methodology. First, the authors apply a standard, CEA-based approach which assumes that payers are risk neutral and pay based on the value-based price of the new therapy (VBP_NT). Second, the authors loosen the assumption that payers are risk neutral. One would think that most payers are risk neutral, but the authors justify potential payer risk aversion as follows:

Current policies reflect a prevailing risk aversion among policymakers toward AA [accelerated approval] drugs. For example, Medicaid requires higher rebates for AA drugs to counterbalance uncertainty (Rome and Kesselheim 2021).

Third, the authors apply the expected value of perfect information (EVPI) in a way that incorporates potential payer risk aversion to create a risk‐adjusted value‐based price (rVBP). Fourth, the author recognize that there is no such thing as perfect information. In the real world, even large clinical trials still leave some uncertainty. Thus, in a fourth step the authors argue for the use of Expected Value of Sample Information (EVSI). EVSI assesses the expected value of conducting a future study with a finite sample size; the larger the sample size, the closer EVSI comes to EVPI. Finally, in the fifth step, rVBP is set based on the following decision rule:

…the insurance payer applies the decision rule that the VBP_NT should be set so that the expected utility in this scenario equals the expected utility in the benchmark scenario. In other words, the expected utility with current uncertainty should align with the utility without uncertainty.

The authors also conduct a case study for a hypothetical treatment that would receive accelerated approval for the treatment of triple‐negative breast cancer (TNBC). The case study showed that drug prices would receive a material price reduction when confirmatory trials are not yet available.

For the hypothetical AA [accelerated approval] drug, the traditional VBP was calculated at $2000 per month, based on the drug’s expected cost‐effectiveness without accounting for uncertainties in its clinical benefits. However, when applying rVBP with the idealized benchmark of no uncertainty, the rVBP was set at $1900, $1400,and $1000 for [absolute] risk aversion coefficients (α) of 0.0001, 0.0005, and 0.001, respectively. These adjusted prices reflect the need to lower the price as decision‐makers’ risk aversion increases, compensating for the uncertainty they face. When the uncertainty level was based on the expected results of a future confirmatory trial, the rVBP was slightly higher, with adjusted prices of $1900, $1700, and $1500 per month for the same [absolute] risk aversion coefficients.

For more details, including all the mathematical derivations and more details on the case study, you can read the paper here.

Here is a quote from his editorial:

As healthcare providers, community leaders, and policymakers, we have a shared responsibility to protect public health. This includes ensuring that accurate information about vaccine safety and efficacy is disseminated. We must engage with communities to understand their concerns, provide culturally competent education, and make vaccines readily accessible for all those who want them…

Vaccines not only protect individual children from measles, but also contribute to community immunity, protecting those who are unable to be vaccinated due to medical reasons.

Perhaps RFK Jr. will turn into a vaccine advocate after all.