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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.

Suggested Citation

  • Barros, Pedro Pita, 2007. "The simple economics of risk-sharing agreements between the NHS and the pharmaceutical industry," MPRA Paper 8517, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:8517
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    References listed on IDEAS

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    Cited by:

    1. Wettstein, Dominik J. & Boes, Stefan, 2022. "How value-based policy interventions influence price negotiations for new medicines: An experimental approach and initial evidence," Health Policy, Elsevier, vol. 126(2), pages 112-121.
    2. Jose Martinez-Raga & Francisco Gonzalez-Saiz & Julian Oñate & Itziar Oyagüez & Eliazar Sabater & Miguel Casado, 2012. "Budgetary impact analysis of buprenorphine-naloxone combination (Suboxone ® ) in Spain," Health Economics Review, Springer, vol. 2(1), pages 1-9, December.
    3. Panos Kanavos & Olivier Wouters & Panos Kanavos & Alessandra Ferrario & Giovanni Tafuri & Paolo Siviero, 2017. "Managing Risk and Uncertainty in Health Technology Introduction: The Role of Managed Entry Agreements," Global Policy, London School of Economics and Political Science, vol. 8, pages 84-92, March.
    4. Levaggi, Rosella, 2014. "Pricing schemes for new drugs: A welfare analysis," Social Science & Medicine, Elsevier, vol. 102(C), pages 69-73.
    5. Hui Zhang & Tao Huang & Tao Yan, 2022. "A quantitative analysis of risk-sharing agreements with patient support programs for improving medication adherence," Health Care Management Science, Springer, vol. 25(2), pages 253-274, June.
    6. Ferrario, Alessandra & Kanavos, Panos, 2015. "Dealing with uncertainty and high prices of new medicines: A comparative analysis of the use of managed entry agreements in Belgium, England, the Netherlands and Sweden," Social Science & Medicine, Elsevier, vol. 124(C), pages 39-47.
    7. Elodie Adida, 2021. "Outcome-Based Pricing for New Pharmaceuticals via Rebates," Management Science, INFORMS, vol. 67(2), pages 892-913, February.
    8. Rosella Levaggi & Michele Moretto & Paolo Pertile, 2017. "The Dynamics of Pharmaceutical Regulation and R&D Investments," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(1), pages 121-141, February.
    9. Hui Zhang & Gregory Zaric, 2015. "Using price–volume agreements to manage pharmaceutical leakage and off-label promotion," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(7), pages 747-761, September.
    10. Salar Ghamat & Gregory S. Zaric & Hubert Pun, 2021. "Care‐coordination: Gain‐sharing Agreements in Bundled Payment Models," Production and Operations Management, Production and Operations Management Society, vol. 30(5), pages 1457-1474, May.
    11. Simona Gamba & Paolo Pertile & Sabine Vogler, 2020. "The impact of managed entry agreements on pharmaceutical prices," Health Economics, John Wiley & Sons, Ltd., vol. 29(S1), pages 47-62, October.
    12. Jobjörnsson, Sebastian & Forster, Martin & Pertile, Paolo & Burman, Carl-Fredrik, 2016. "Late-stage pharmaceutical R&D and pricing policies under two-stage regulation," Journal of Health Economics, Elsevier, vol. 50(C), pages 298-311.
    13. A. Carletto & A. Cicchetti & S. Coretti & V. Moramarco & M. Ruggeri, 2019. "Money back guarantee? A cost–benefit framework of performance-based agreements (PBAs) for the reimbursement of pharmaceuticals," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 9(1), pages 89-101, March.
    14. repec:bla:glopol:v:8:y:2017:i:s2:p:84-92 is not listed on IDEAS
    15. Gregory J. Critchley & Gregory S. Zaric, 2019. "The impact of pharmaceutical marketing on market access, treatment coverage, pricing, and social welfare," Health Economics, John Wiley & Sons, Ltd., vol. 28(8), pages 1035-1051, August.
    16. Roy Lothan & Noa Gutman & Dan Yamin, 2022. "Country versus pharmaceutical company interests for hepatitis C treatment," Health Care Management Science, Springer, vol. 25(4), pages 725-749, December.
    17. Barlow, Euan & Morton, Alec & Megiddo, Itamar & Colson, Abigail, 2022. "Optimal subscription models to pay for antibiotics," Social Science & Medicine, Elsevier, vol. 298(C).
    18. Stefano Capri & Rosella Levaggi, 2008. "Drug pricing and risk sharing agreements," Working Papers 0810, University of Brescia, Department of Economics.
    19. 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;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 15(5), pages 553-561, June.
    20. Fernando Antonanzas & Carmelo Juárez-Castelló & Reyes Lorente & Roberto Rodríguez-Ibeas, 2019. "The Use of Risk-Sharing Contracts in Healthcare: Theoretical and Empirical Assessments," PharmacoEconomics, Springer, vol. 37(12), pages 1469-1483, December.
    21. 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 Economia Aplicada, Estudios de Economia Aplicada, vol. 31, pages 359-378, Septiembr.
    22. Stéphane Alcenat & François Maréchal & Florence Naegelen, 2021. "Implementation of personalized medicine in a context of moral hazard and uncertainty about treatment efficacy," International Journal of Health Economics and Management, Springer, vol. 21(1), pages 81-97, March.
    23. Reza Mahjoub & Fredrik Ødegaard & Gregory S. Zaric, 2018. "Evaluation of a pharmaceutical risk‐sharing agreement when patients are screened for the probability of success," Health Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 15-25, January.
    24. 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.
    25. Shuli Brammli-Greenberg & Ira Yaari & Elad Daniels & Ariella Adijes-Toren, 2021. "How Managed Entry Agreements can improve allocation in the public health system: a mechanism design approach," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 22(5), pages 699-709, July.

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    More about this item

    Keywords

    risk sharing agreements; pharmaceutical prices;

    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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