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.
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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)
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