Projected Health Expenditures of Precision Medicine Under a Value-Based Pricing Framework

Abstract Precision medicine (PM) has the potential to improve healthcare by tailoring treatments to individual genetic, environmental, and lifestyle factors. However, its high initial costs pose challenges for achieving cost neutrality within healthcare budgets. This study investigates the cost implications of PM through a value-based pricing (VBP) framework. A mathematical model was used to evaluate the economic impact of PM, specifically considering three major cost factors: the optimization of existing therapies through the application of new biomarkers, which can reduce ineffective treatments by better identifying patient subgroups; the development of targeted drugs designed to interact with specific biomarkers, offering higher efficacy but often at premium pricing; and the costs associated with early disease detection and diagnosis, where PM’s emphasis on proactive screening aims to identify conditions at earlier, more treatable stages but introduces additional diagnostic expenditures. The model incorporated drug pricing and market dynamics relevant to the German social health insurance context. Although PM may generate savings under favorable assumptions, the analysis indicates that, in the German base case, the transition to PM is projected to increase annual healthcare costs by approximately €2.6 billion over the next 10 to 20 years. Sensitivity analysis shows substantial uncertainty around this estimate: In the best-case scenario, PM is projected to yield annual net savings of €1.6 billion, whereas in the worst-case scenario total annual PM expenditures rise to €34.7 billion. The findings therefore suggest that the budget impact of PM depends strongly on treatment effectiveness, competition among drug and biomarker producers, and pricing dynamics for new targeted therapies. However, under the current German base case assumptions, PM is not cost neutral and is projected to increase expenditures. Its economic sustainability depends critically on effective competition, pricing discipline for new targeted drugs and biomarkers, and policy measures that support efficient implementation.