Brown Bag Seminar: Pricing Mechanisms with Equity Considerations for Multi-Indication Drugs

Multi-indication medicines, which treat multiple conditions with a single drug, offer notable therapeutic benefits but pose pricing and reimbursement challenges due to varying clinical value across indications. These challenges include ensuring equitable access, maintaining innovation incentives, and aligning payment with value. While previous work has assessed the efficiency of pricing mechanisms, this paper explores their equity implications—an often underexamined policy aspect. Using a two-dimensional equity framework adapted from existing literature, we analyze vertical and horizontal equity under both efficient (e.g., indication-based pricing [IBP], uniform weighted-average pricing [UWA], and two-part tariffs [TPT]) and inefficient pricing schemes. We consider scenarios with price-insensitive (e.g., insured) and price-sensitive (e.g., co-paying) patients. When patients are price-insensitive, all efficient mechanisms are horizontally equitable, though vertical equity varies: IBP minimizes inclusion of patients with negative net social benefits when its average price exceeds that of UWA; otherwise, UWA is preferable. Under cost-sharing, IBP creates horizontal inequities by assigning different out-of-pocket costs for similar clinical outcomes, whereas UWA preserves horizontal equity but may reduce vertical equity. By explicitly incorporating equity into pricing assessments, this paper offers guidance for developing more socially balanced reimbursement policies for multi-indication medicines.