Sustainable Reimbursements: Towards a Unified Framework for Pricing Drugs with Significant Uncertainties

24 Pages Posted: 13 Mar 2018

See all articles by Sylvain Chassang

Sylvain Chassang

New York University (NYU) - Department of Economics

Valentina Mantua

The Italian Medicines Agency (AIFA)

Erik Snowberg

California Institute of Technology - Division of the Humanities and Social Sciences; National Bureau of Economic Research (NBER)

Entela Xoxi

The Italian Medicines Agency (AIFA)

Luca Pani

University of Miami

Date Written: January 30, 2018

Abstract

Recent political events have thrust the bulk negotiation of drug prices by Medicare and Medicaid back into the spotlight. Yet, even if politically feasible, there is no clear framework for negotiating prices of new drugs with uncertain target populations — for example, due to imprecise estimates or off-label use — or uncertain clinical effects — for example, due to heterogeneous patient response. We create such a framework using two-price programs developed in the economics of procurement literature. This framework delivers new payment strategies, and unifying them with theoretical advances in pharmaceutical reimbursement like capitation and value-based pricing. Two-price programs substantially reduce uncertainty for both payers and pharmaceutical companies, while still creating financial incentives for those companies that innovate and create value for patients.

JEL Classification: H510, I110, I180

Suggested Citation

Chassang, Sylvain and Mantua, Valentina and Snowberg, Erik and Xoxi, Entela and Pani, Luca, Sustainable Reimbursements: Towards a Unified Framework for Pricing Drugs with Significant Uncertainties (January 30, 2018). CESifo Working Paper Series No. 6846. Available at SSRN: https://ssrn.com/abstract=3138425

Sylvain Chassang

New York University (NYU) - Department of Economics ( email )

19 West 4th Street
New York, NY 10012
United States

Valentina Mantua

The Italian Medicines Agency (AIFA) ( email )

Rome
Italy

Erik Snowberg

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
Pasadena, CA 91125
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Entela Xoxi

The Italian Medicines Agency (AIFA)

Rome
Italy

Luca Pani (Contact Author)

University of Miami ( email )

Coral Gables, FL 33124
United States

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