The Use of Pay-for-Performance for Drugs: Can It Improve Incentives for Innovation?

Abstract

Interest is growing in schemes that involve “paying for pills by results” (Pollock, 2007), i.e. “paying for performance” rather than merely “paying for pills”. Hard-pressed health care payers want to know that they are getting what they are paying for health interventions and other benefits for patients. Pharmaceutical companies are not prepared to accept prices that they believe do not reflect the innovative value that their expensive R&D investments are bringing to patients, the health care system and the broader economy. Paying for the outcomes delivered is a way of “squaring the circle.” Payers know they are getting value; companies receive a return that incentivises future innovation.

Yet this approach is highly controversial and is disliked by many health care providers, policy makers, and pharmaceutical companies. One scheme in particular – the UK National Health Service (NHS) Multiple Sclerosis (MS) Risk Sharing Scheme (RSS) – has attracted fierce criticism (McCabe et al., 2010; Raftery, 2010).

This paper accomplishes the following: • Defines pay-for-performance and the related terms used in discussions about these schemes • Sets out a framework for understanding and interpreting these schemes • Explores existing schemes, providing examples • Discusses the benefits and weaknesses of the schemes • Considers the value of such schemes as an incentive for innovation