Subscriptions for Prescriptions: Implications and Execution of the “Netflix Model”

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See all articles by Ali Fattahi

Ali Fattahi

Johns Hopkins University - Carey Business School

Maqbool Dada

Johns Hopkins University - Carey Business School

Tinglong Dai

Johns Hopkins University - Carey Business School

Date Written: June 23, 2020

Abstract

Health policymakers across the U.S. and around the globe have explored a Netflix-like subscription model for prescription drugs crucial for public health. Under this “Netflix model,” a government entity agrees to pay a fixed subscription fee to a pharmaceutical manufacturer for an unlimited supply of a prescription drug for a targeted population over a given contract horizon. In this paper, we analyze a healthcare provider’s delivery decisions for a community under this innovative contracting approach. Administering prescription drugs requires the delivery of both products and services. In a public-health setting in which service delivery is commonly contracted out using a capitation system (e.g., a prison), the “Netflix model” additionally contracts out product delivery, leading to a situation in which the administration of the drug is subject to a global budget cap. Thus, pressures to minimize costs can lead to the rationing of care despite the promise of unlimited drug supply. We characterize the provider’s optimal delivery decisions in the presence of an intertemporal tradeoff due to the evolution of the target population’s health states. We show increasing the subscription fee does not change the propensity for rationing of caring. Next, we analyze a case in which the provider faces multiple objectives (e.g., maximizing the number of cured patients and minimizing the number of deaths) subject to a budget constraint and develop a novel approach to characterize the efficient frontier. Remarkably, we show such an efficient frontier can be achieved through a variety of performance-based incentive schemes complementing the “Netflix model.”

Keywords: “Netflix model,” subscription agreements, healthcare delivery, health policy

JEL Classification: I11,C61,H42

Suggested Citation

Fattahi, Ali and Dada, Maqbool and Dai, Tinglong, Subscriptions for Prescriptions: Implications and Execution of the “Netflix Model” (June 23, 2020). Available at SSRN: https://ssrn.com/abstract=

Ali Fattahi

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Maqbool Dada

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Tinglong Dai (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://carey.jhu.edu/faculty/tinglong-dai-phd

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