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Should health authorities offer risk-sharing contracts to pharmaceutical firms? A theoretical approach

Published online by Cambridge University Press:  22 February 2011

Fernando Antonanzas
Affiliation:
Department of Economics, University of La Rioja, Logroño, Spain
Carmelo Juarez-Castello
Affiliation:
Department of Economics, University of La Rioja, Logroño, Spain
Roberto Rodriguez-Ibeas*
Affiliation:
Department of Economics, University of La Rioja, Logroño, Spain
*
*Correspondence to: Roberto Rodríguez-Ibeas, Departamento de Economía y Empresa, Universidad de La Rioja, Cigüeña, 60 26004 Logroño, Spain. Email: roberto.rodriguez@unirioja.es

Abstract

In this paper, we characterise the risk-sharing contracts that health authorities can design when they face a regulatory decision on drug pricing and reimbursement in a context of uncertainty. We focus on two types of contracts. On the one hand, the health authority can reimburse the firm for each treated patient regardless of health outcomes (non risk-sharing). Alternatively, the health authority can pay for the drug only when the patient is cured (risk-sharing contract). The optimal contract depends on the trade-off between the monitoring costs, the marginal production cost and the utility derived from treatment. A non-risk-sharing agreement will be preferred by the health authority, if patients who should not be treated impose a relatively low cost to the health system. When this cost is high, the health authority would prefer a risk-sharing agreement for relatively low monitoring costs.

Type
Articles
Copyright
Copyright © Cambridge University Press 2011

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