US-Based Drug Cost Parameter Estimation for Economic Evaluations

Joseph F. Levy, Patrick D. Meek, Marjorie A. Rosenberg

Research output: Contribution to journalArticlepeer-review

4 Scopus citations


Introduction. In the United States, more than 10% of national health expenditures are for prescription drugs. Assessing drug costs in US economic evaluation studies is not consistent, as the true acquisition cost of a drug is not known by decision modelers. Current US practice focuses on identifying one reasonable drug cost and imposing some distributional assumption to assess uncertainty. Methods. We propose a set of Rules based on current pharmacy practice that account for the heterogeneity of drug product costs. The set of products derived from our Rules, and their associated costs, form an empirical distribution that can be used for more realistic sensitivity analyses and create transparency in drug cost parameter computation. The Rules specify an algorithmic process to select clinically equivalent drug products that reduce pill burden, use an appropriate package size, and assume uniform weighting of substitutable products. Three diverse examples show derived empirical distributions and are compared with previously reported cost estimates. Results. The shapes of the empirical distributions among the 3 drugs differ dramatically, including multiple modes and different variation. Previously published estimates differed from the means of the empirical distributions. Published ranges for sensitivity analyses did not cover the ranges of the empirical distributions. In one example using lisinopril, the empirical mean cost of substitutable products was $444 (range = $23-$953) as compared with a published estimate of $305 (range = $51-$523). Conclusions. Our Rules create a simple and transparent approach to creating cost estimates of drug products and assessing their variability. The approach is easily modified to include a subset of, or different weighting for, substitutable products. The derived empirical distribution is easily incorporated into 1-way or probabilistic sensitivity analyses.

Original languageEnglish (US)
Pages (from-to)622-632
Number of pages11
JournalMedical Decision Making
Issue number5
StatePublished - Jul 19 2015
Externally publishedYes


  • cost effectiveness analysis
  • drug costs
  • health technology assessment
  • sensitivity analysis

ASJC Scopus subject areas

  • Health Policy


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