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Personalized Medicine and Pay for Performance: Should Pharmaceutical Firms be Fully Penalized when Treatment Fails?

Author

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  • Fernando Antoñanzas

    (University of La Rioja)

  • Roberto Rodríguez-Ibeas

    (University of La Rioja)

  • Carmelo A. Juárez-Castelló

    (University of La Rioja)

Abstract

In this article, we model the behavior of a pharmaceutical firm that has marketing authorization for a new therapy believed to be a candidate for personalized use in a subset of patients, but that lacks information as to why a response is seen only in some patients. We characterize the optimal outcome-based reimbursement policy a health authority should follow to encourage the pharmaceutical firm to undertake research and development activities to generate the information needed to effectively stratify patients. Consistent with the literature, we find that for a pharmaceutical firm that does not undertake research and development activities, when the treatment fails, the total price of the drug must be returned to the healthcare system (full penalization). By contrast, if the firm undertakes research and development activities that make the implementation of personalized medicine possible, treatment failure should not be fully penalized. Surprisingly, in some cases, particularly for high-efficacy drugs and small target populations, the optimal policy may not require any penalty for treatment failure. To illustrate the main results of the analysis, we provide a numerical simulation and a graphical analysis.

Suggested Citation

  • Fernando Antoñanzas & Roberto Rodríguez-Ibeas & Carmelo A. Juárez-Castelló, 2018. "Personalized Medicine and Pay for Performance: Should Pharmaceutical Firms be Fully Penalized when Treatment Fails?," PharmacoEconomics, Springer, vol. 36(7), pages 733-743, July.
    • Handle: RePEc:spr:pharme:v:36:y:2018:i:7:d:10.1007_s40273-018-0619-4
    DOI: 10.1007/s40273-018-0619-4
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    References listed on IDEAS

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    1. 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.
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    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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