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The simple economics of risk-sharing agreements between the NHS and the pharmaceutical industry

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  • Barros, Pedro Pita

Abstract

The 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 Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8517.

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Date of creation: Dec 2007
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Handle: RePEc:pra:mprapa:8517

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Keywords: risk sharing agreements; pharmaceutical prices;

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  1. Kurt R. Brekke & Ingrid Königbauer & Odd Rune Straume, 2006. "Reference Pricing of Pharmaceuticals," CESifo Working Paper Series 1825, CESifo Group Munich.
  2. Simeon Thornton, 2007. "Drug price reform in the UK: debunking the myths," Health Economics, John Wiley & Sons, Ltd., vol. 16(10), pages 981-992.
  3. Scherer, F.M., 2000. "The pharmaceutical industry," Handbook of Health Economics, Elsevier, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 25, pages 1297-1336 Elsevier.
  4. Karl Claxton, 2007. "Oft, Vbp: Qed?," Health Economics, John Wiley & Sons, Ltd., vol. 16(6), pages 545-558.
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Cited by:
  1. Levaggi, Rosella, 2014. "Pricing schemes for new drugs: A welfare analysis," Social Science & Medicine, Elsevier, vol. 102(C), pages 69-73.
  2. 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.
  3. Stefano Capri & Rosella Levaggi, 2008. "Drug pricing and risk sharing agreements," Working Papers, University of Brescia, Department of Economics 0810, University of Brescia, Department of Economics.
  4. 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.
  5. Arieh Gavious & Dan Greenberg & Ariel Hammerman & Ella Segev, 2014. "Impact of a financial risk-sharing scheme on budget-impact estimations: a game-theoretic approach," The European Journal of Health Economics, Springer, vol. 15(5), pages 553-561, June.

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