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Pricing Personalised Drugs: Comparing Indication Value Based Prices with Performance Based Schemes

Author

Listed:
  • Levaggi Laura

    (Faculty of Engineering, 230271 Free University of Bozen Bolzano, Piazza Università, 1, Bolzano, Italy)

  • Levaggi Rosella

    (Department of Economics and Management, 9297 University of Brescia, Via San Faustino 74b, Brescia, Italy)

Abstract

Price strategies are essential to balance timely access to drugs with expenditure containment. This is especially true for personalised drugs, whose effectiveness is heterogeneous across patients. For these drugs, some authors suggest to use Indication Based Price schemes (IBPs), while others argue that Performance-Based managed entry Agreements (PBAs) are more appropriate. We develop a theoretical model to compare the welfare properties of IBPs and PBAs in an environment where effectiveness is uncertain. The manufacturer observes heterogeneity in patients responses, but this information may be non verifiable. By contrast, the regulator can only observe data presented for listing purposes. We show that IBPs may allow to treat the efficient number of patients only if the social value of the drug is entirely appropriated by the manufacturer. PBAs may allow a fairer distribution of the social value, but their success depends on the contract rules and on the degree of uncertainty.

Suggested Citation

  • Levaggi Laura & Levaggi Rosella, 2024. "Pricing Personalised Drugs: Comparing Indication Value Based Prices with Performance Based Schemes," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 24(2), pages 501-535, April.
    • Handle: RePEc:bpj:bejeap:v:24:y:2024:i:2:p:501-535:n:7
    DOI: 10.1515/bejeap-2023-0150
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