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Pricing Of Medical Devices Under Coverage Uncertainty—A Modelling Approach

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  • Alan J. Girling
  • Richard J. Lilford
  • Terry P. Young

Abstract

Product vendors and manufacturers are increasingly aware that purchasers of health care will fund new clinical treatments only if they are perceived to deliver value‐for‐money. This influences companies' internal commercial decisions, including the price they set for their products. Other things being equal, there is a price threshold, which is the maximum price at which the device will be funded and which, if its value were known, would play a central role in price determination. This paper examines the problem of pricing a medical device from the vendor's point of view in the presence of uncertainty about what the price threshold will be. A formal solution is obtained by maximising the expected value of the net revenue function, assuming a Bayesian prior distribution for the price threshold. A least admissible price is identified. The model can also be used as a tool for analysing proposed pricing policies when no formal prior specification of uncertainty is available. Copyright © 2011 John Wiley & Sons, Ltd.

Suggested Citation

  • Alan J. Girling & Richard J. Lilford & Terry P. Young, 2012. "Pricing Of Medical Devices Under Coverage Uncertainty—A Modelling Approach," Health Economics, John Wiley & Sons, Ltd., vol. 21(12), pages 1502-1507, December.
    • Handle: RePEc:wly:hlthec:v:21:y:2012:i:12:p:1502-1507
    DOI: 10.1002/hec.1807
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    References listed on IDEAS

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    1. Gregory S. Zaric, 2008. "Optimal drug pricing, limited use conditions and stratified net benefits for Markov models of disease progression," Health Economics, John Wiley & Sons, Ltd., vol. 17(11), pages 1277-1294, November.
    2. Takashi Kikuchi & John Gittins, 2010. "A behavioural Bayes approach for sample size determination in cluster randomized clinical trials," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 59(5), pages 875-888, November.
    3. Gregory S. Zaric, 2008. "Optimal drug pricing, limited use conditions and stratified net benefits for Markov models of disease progression," Health Economics, John Wiley & Sons, Ltd., vol. 17(11), pages 1277-1294.
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    Cited by:

    1. Gregory S. Zaric, 2016. "Cost Implications of Value-Based Pricing for Companion Diagnostic Tests in Precision Medicine," PharmacoEconomics, Springer, vol. 34(7), pages 635-644, July.

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