A theoretical and empirical investigation into the willingness-to-pay function for new innovative drugs by Germany's health technology assessment agency (IQWiG)

Under the recently enacted pharmaceutical price and reimbursement regulation in Germany, new drugs are subject to a rapid assessment to determine whether there is sufficient evidence of added clinical benefits compared with the existing standard of treatment. If such added benefits are confirmed, manufacturers and representatives of the Statutory Health Insurance (SHI) are expected to negotiate an appropriate reimbursement price. If parties fail to reach an agreement, a final decision on the reimbursement price will be made by an arbitration body. If one of the parties involved wishes so, then the Institute for Quality and Efficiency in Health Care (Institut fur Qualitat and Wirtschaftlichkeit im Gesundheitswesen, IQWiG) will be commissioned with a formal evaluation of costs and benefits of the product in question. IQWiG will make a recommendation for a reimbursement price based on the 'efficiency frontier' in a therapeutic area. The purpose of the assessments is to provide support for decision-making bodies that act on behalf of the SHI insurants. To determine the willingness to pay for new drugs, IQWiG uses the following decision rule: the incremental cost-effectiveness ratio of a new drug compared with the next effective intervention should not be higher than that of the next effective intervention compared with its comparator. The purpose of this paper was to investigate the theoretical and empirical relationship between the willingness to pay for drugs and their health benefits. The analysis shows that across disease areas IQWiG has a curvilinear relationship between willingness to pay and health benefits. Future research may address the validity of the willingness-to-pay function from the viewpoint of the individual SHI insurants.