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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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    1. Brekke, Kurt R. & Konigbauer, Ingrid & Straume, Odd Rune, 2007. "Reference pricing of pharmaceuticals," Journal of Health Economics, Elsevier, vol. 26(3), pages 613-642, May.
    2. Scherer, F.M., 2000. "The pharmaceutical industry," Handbook of Health Economics,in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 25, pages 1297-1336 Elsevier.
    3. Karl Claxton, 2007. "Oft, Vbp: Qed?," Health Economics, John Wiley & Sons, Ltd., vol. 16(6), pages 545-558.
    4. Simeon Thornton, 2007. "Drug price reform in the UK: debunking the myths," Health Economics, John Wiley & Sons, Ltd., vol. 16(10), pages 981-992.
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    Citations

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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. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. Stefano Capri & Rosella Levaggi, 2008. "Drug pricing and risk sharing agreements," Working Papers 0810, University of Brescia, Department of Economics.

    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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