Affiliation:
1. School of Business, University of California Riverside, Riverside, California 92521
Abstract
The price of new brand-name prescription drugs has been rising fast in the United States. For example, the Amgen cholesterol drug Repatha had an initial list price of $14,523 per year. Patients, even with insurance coverage, must pay out of pocket a significant portion of this price. The treatment might not be successful, and this possibility reduces risk-sensitive patients’ incentives to purchase the drug. The high price together with the chance of negative treatment outcomes may lead payers to deny coverage for the drug. Outcome-based pricing has been proposed as a way to reallocate the risks and improve both payer resource allocation and patient access to drugs. According to an outcome-based rebate contract between Amgen and Harvard Pilgrim Healthcare, if a patient on Repatha suffers a heart attack or a stroke, both patient and insurer are refunded the cost of the drug. We use a stylized model to analyze the effect of outcome-based pricing via rebates. Our model captures the interaction between heterogenous, price-sensitive, risk-sensitive patients who decide whether to purchase the drug; a payer deciding whether to provide coverage for the drug; and a price-setting pharmaceutical firm seeking to maximize expected profits. We find that, in many cases, a pharmaceutical firm and payer cannot simultaneously benefit from outcome-based pricing, and who will benefit is determined by the probability of treatment success. Outcome-based pricing thus appears unlikely to solve the issues of high drug prices and high payer expenditures. However, supplementing outcome-based pricing with a transfer payment from firm to payer can make payer and firm (but not necessarily the patients) better off than under uniform pricing when the drug has a low chance of success. This paper was accepted by Stefan Scholtes, healthcare management.
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Subject
Management Science and Operations Research,Strategy and Management
Cited by
14 articles.
订阅此论文施引文献
订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献
1. Indication-Based Pricing for Multi-Indication Drugs;Management Science;2023-12-29
2. Pharmaceutical Supply Chains and Drug Shortages;Tutorials in Operations Research: Advancing the Frontiers of OR/MS: From Methodologies to Applications;2023-10
3. Primary Care First Initiative: Impact on Care Delivery and Outcomes;Manufacturing & Service Operations Management;2023-07
4. Outcome-Based Pricing for Precision Agriculture Services;SSRN Electronic Journal;2023
5. Price Management Strategies;Active Price Management;2023