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Shifting the risk in pricing and reimbursement schemes. A new model of risk-sharing agreements for innovative drugs

Risk sharing is becoming increasingly an increasingly popular instrument to regulate the price of new drugs. In the recent past, forms of risk-sharing agreements between the public regulator and the industry have been proposed and implemented, but their effects on price and profits are still controversial. Methods: We develop a model aimed at studying the effects on price and expected pro.t of several risk-sharing agreement between a regulator and the industry, based on the ex post effectiveness of the drug. We assume that the probability of being listed depends on the relative performance of the new drug in terms of effectiveness and budget required. The price is set according to the declared effcacy of the new drug, but if ex post the effectiveness falls short of what declared, several forms of penalties may be used by the regulator. Results: We show that the number of patients that are treated is not necessarily affected by risk-sharing/risk-shifting mechanisms; the price for which the drug is listed may be higher than without risk-sharing, but the expected profit of the industry is: a) always lower for risk-shifting schemes; b) for true risk-sharing it depends on the bargaining power of the company. Conclusions. Our model shows the difference between risk-sharing and risk shifting. The .rst mechanism could be used by the regulator to reduce uncertainty while the second is used to reduce the expected price of the drug. In the presence of risk sharing the listing price is not a good proxy for value for money.

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Paper provided by Cattaneo University (LIUC) in its series LIUC Papers in Economics with number 234.

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Length: 16 pages
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:liu:liucec:234
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