Subscriptions for Prescriptions: Implications and Execution of the "Netflix Model"
38 Pages Posted: 16 Jul 2020 Last revised: 18 Nov 2020
Date Written: September 30, 2020
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 contract horizon. In this paper, we analyze a healthcare provider’s delivery decisions for a community under subscription agreement for drug administration. 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 subscription-based 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 contracting approach.
Keywords: “Netflix Model,” Subscription Agreements, Healthcare Delivery, Health Policy
JEL Classification: I11, C61, H42
Suggested Citation: Suggested Citation