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Evaluation of a pharmaceutical risk‐sharing agreement when patients are screened for the probability of success

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  • Reza Mahjoub
  • Fredrik Ødegaard
  • Gregory S. Zaric

Abstract

We analyze a game‐theoretic model of a risk‐sharing agreement between a payer and a pharmaceutical firm. The drug manufacturer chooses the price while the payer sets the rebate rate and decides which patients are eligible for treatment. The manufacturer provides the payer with a rebate for nonresponding patients. We generalize on the existing literature, by making both price and rebate rate decision variables, allowing the rebate rate to be different from 100%, and incorporating 2 types of administrative costs. We identify a threshold for the expected probability of response for classifying the drug as a mass‐market or niche type and investigate the optimal solutions for both types. We also identify a threshold for the rebate rate at which the net benefits become equal for responding and nonresponding patients. Through numerical examples, we examine how various parameters impact the drug manufacturer's and the payer's optimal solution.

Suggested Citation

  • 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.
    • Handle: RePEc:wly:hlthec:v:27:y:2018:i:1:p:e15-e25
    DOI: 10.1002/hec.3522
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    References listed on IDEAS

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    1. Levaggi, Rosella, 2014. "Pricing schemes for new drugs: A welfare analysis," Social Science & Medicine, Elsevier, vol. 102(C), pages 69-73.
    2. Gregory S. Zaric, 2008. "Optimal drug pricing, limited use conditions and stratified net benefits for Markov models of disease progression," Health Economics, John Wiley & Sons, Ltd., vol. 17(11), pages 1277-1294, November.
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    5. Gregory S. Zaric, 2008. "Optimal drug pricing, limited use conditions and stratified net benefits for Markov models of disease progression," Health Economics, John Wiley & Sons, Ltd., vol. 17(11), pages 1277-1294.
    6. Pedro Pita Barros, 2011. "The simple economics of risk‐sharing agreements between the NHS and the pharmaceutical industry," Health Economics, John Wiley & Sons, Ltd., vol. 20(4), pages 461-470, April.
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    Cited by:

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    3. Barlow, Euan & Morton, Alec & Megiddo, Itamar & Colson, Abigail, 2022. "Optimal subscription models to pay for antibiotics," Social Science & Medicine, Elsevier, vol. 298(C).

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