Title

Sustainable Reimbursements: Towards a Unified Framework for Pricing Drugs with Significant Uncertainties

Author(s)

Sylvain Chassang Sylvain Chassang (New York University)

Valentina Mantua Valentina Mantua (The Italian Medicines Agency and European Medicines Agency)

Erik Snowberg Erik Snowberg (California Institute of Technology, University of British Columbia, and National Bureau of Economic Research)

Entela Xoxi Entela Xoxi (The Italian Medicines Agency)

Luca Pani Luca Pani (European Medicines Agency and University of Miami)

Abstract

Recent political events have thrust the bulk negotiation of drug prices by Medicare and Medicaid back into the spotlight. Yet, even if politically feasible, there is no clear framework for negotiating prices of new drugs with uncertain target populations — for example, due to imprecise estimates or off-label use — or uncertain clinical effects — for example, due to heterogeneous patient response. We create such a framework using two-price programs developed in the economics of procurement literature. This framework delivers new payment strategies, and unifying them with theoretical advances in pharmaceutical reimbursement like capitation and value-based pricing. Two-price programs substantially reduce uncertainty for both payers and pharmaceutical companies, while still creating financial incentives for those companies that innovate and create value for patients.

Creation Date

2018-01

Section URL ID

Paper Number

2018-14

URL

https://www.sylvainchassang.org/assets/papers/sustainable_reimbursements.pdf

File Function

Jel

H51, I11, I18

Keyword(s)

Drugs, Economic policy, Government, Health care policy

Suppress

false

Series

13