The simple economics of risk-sharing agreements between the NHS and the pharmaceutical industry
AbstractThe Janssen-Cilag proposal for a risk-sharing agreement regarding bortezomib received a welcome signal from NICE. The Office of Fair Trading report included risk-sharing agreements as an available tool for the National Health Service. Nonetheless, recent discussions have somewhat neglected the economic fundamentals underlying risk-sharing agreements. We argue here that risk-sharing agreements, although attractive due to the principle of paying by results, also entail risks. Too many patients may be put under treatment even with a low success probability. Prices are likely to be adjusted upward, in anticipation of future risk-sharing agreements between the pharmaceutical company and the third-party payer. An available instrument is a verification cost per patient treated, which allows obtaining the first-best allocation of patients to the new treatment, under the risk sharing agreement. Overall, the welfare effects of risk-sharing agreements are ambiguous, and care must be taken with their use.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 8517.
Date of creation: Dec 2007
Date of revision:
risk sharing agreements; pharmaceutical prices;
Other versions of this item:
- Pedro Pita Barros, 2011. "The simple economics of risk‐sharing agreements between the NHS and the pharmaceutical industry," Health Economics, John Wiley & Sons, Ltd., vol. 20(4), pages 461-470, April.
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-05-05 (All new papers)
- NEP-HEA-2008-05-05 (Health Economics)
- NEP-IAS-2008-05-05 (Insurance Economics)
- NEP-REG-2008-05-05 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brekke, Kurt R. & Konigbauer, Ingrid & Straume, Odd Rune, 2007.
"Reference pricing of pharmaceuticals,"
Journal of Health Economics,
Elsevier, vol. 26(3), pages 613-642, May.
- Kurt R. Brekke & Ingrid Königbauer & Odd Rune Straume, 2006. "Reference Pricing of Pharmaceuticals," CESifo Working Paper Series 1825, CESifo Group Munich.
- Brekke, Kurt R & Königbauer, Ingrid & Straume, Odd Rune, 2005. "Reference Pricing of Pharmaceuticals," Working Papers in Economics 19/05, University of Bergen, Department of Economics.
- Karl Claxton, 2007. "Oft, Vbp: Qed?," Health Economics, John Wiley & Sons, Ltd., vol. 16(6), pages 545-558.
- Scherer, F.M., 2000. "The pharmaceutical industry," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 25, pages 1297-1336 Elsevier.
- Simeon Thornton, 2007. "Drug price reform in the UK: debunking the myths," Health Economics, John Wiley & Sons, Ltd., vol. 16(10), pages 981-992.
- Antoñanzas, Fernando & Juárez-Castelló, Carmelo & Rodríguez-Ibeas, Roberto, 2013. "Risk-Sharing Agreements in Pharmaceutical Markets/Los acuerdos de riesgo compartido en mercados farmacéuticos," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 31, pages 359-378, Septiembr.
- Rosella Levaggi & Michele Moretto & Paolo Pertile, 2013. "The dynamics of pharmaceutical regulation and R&D investments," Working Papers 13/2013, University of Verona, Department of Economics.
- Stefano Capri & Rosella Levaggi, 2008. "Drug pricing and risk sharing agreements," Working Papers 0810, University of Brescia, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.