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16.03.2021 | Original Paper

The economics of alternative payment models for pharmaceuticals

verfasst von: Jakub P. Hlávka, Jeffrey C. Yu, Dana P. Goldman, Darius N. Lakdawalla

Erschienen in: The European Journal of Health Economics | Ausgabe 4/2021

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Abstract

Pharmaceuticals are priced uniformly by convention, but vary in their degree of effectiveness for different disease indications. As more high-cost therapies have launched, the demand for alternative payment models (APMs) has been increasing in many advanced markets, despite their well-documented limitations and challenges to implementation. Among policy justifications for such contracts is the maximization of value given scarce resources. We show that while uniform pricing rules can handle variable effectiveness in efficient markets, market inefficiencies of other kinds create a role for different value-based pricing structures. We first present a stylized theoretical model of efficient interaction among drug manufacturers, payers, and beneficiaries. In this stylized setting, uniform pricing works well, even when treatment effects are variable. We then use this framework to define market failures that result in obstacles to uniform pricing. The market failures we identify include: (1) uncertainty of patient distribution, (2) asymmetric beliefs, (3) agency imperfection by payer, (4) agency imperfection by provider, and (5) patient behavior and treatment adherence. We then apply our insights to real-world examples of alternative payment models, and highlight challenges related to contract implementation.
Fußnoten
1
By uniform pricing, we refer to a lack of price variation occuring between most individual payers and drug manufacturers for the majority of products they trade with.
 
2
Our argument builds on the insight that price-bargaining can mitigate or eliminate monopoly losses in healthcare [18].
 
3
It is straightforward to show that all our results obtain with positive marginal costs.
 
4
The assumption of Nash-bargaining is not entirely innocuous. For example, Nash-bargaining fails to cover cases in which one or both players find it optimal to walk away from the negotiation without a deal [19]. More complex sequential bargaining models are needed to study such contexts.
 
5
Notice there are no copayments in this model. This is without loss of generality, as we can simply redefine \({P}_{i}\) as the price net of the copayment.
 
6
Note that a risk-neutral payer focuses only on expected consumer surplus and does not care independently about the actual realization of variance in the treatment effect. This is why the expression is independent of \({\epsilon }_{i}\).
 
7
If the drug were costly to manufacture, this production cost would appear within the left-hand side expression for profits.
 
8
It is not obvious that bargaining will always make consumers better off. While price-bargaining increases the total amount of gross consumer surplus, \(\sum_{i=1}^{{i}^{*}}n(i){G}_{i}\left({\Delta }_{i},{\sigma }_{i}^{2}\right)\), insurers with market power may extract these gains in the form of higher premiums. Governments may wish to return some surplus to consumers via taxes on firms and transfers to consumers. We leave the analysis of optimal redistribution policy to future work.
 
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Metadaten
Titel
The economics of alternative payment models for pharmaceuticals
verfasst von
Jakub P. Hlávka
Jeffrey C. Yu
Dana P. Goldman
Darius N. Lakdawalla
Publikationsdatum
16.03.2021
Verlag
Springer Berlin Heidelberg
Erschienen in
The European Journal of Health Economics / Ausgabe 4/2021
Print ISSN: 1618-7598
Elektronische ISSN: 1618-7601
DOI
https://doi.org/10.1007/s10198-021-01274-4