Value-Based Pricing Alternatives for Personalised Drugs: Implications of Asymmetric Information and Competition
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CURRENT OPINION
Value‑Based Pricing Alternatives for Personalised Drugs: Implications of Asymmetric Information and Competition Rosella Levaggi1 · Paolo Pertile2
© Springer Nature Switzerland AG 2019
Abstract The market for new drugs is changing: personalised drugs will increase the heterogeneity in patients’ responses and, possibly, costs. In this context, price regulation will play an increasingly important role. In this article, we argue that personalised medicine opens new scenarios in the relationship between value-based prices, regulation and industry listing strategies. Our focus is on the role of asymmetry of information and competition. We show that, if the firm has more information than the payer on the heterogeneity in patients’ responses and it adopts a profit-maximising listing strategy, the outcome may be independent of the choice of the type of value-based price. In this case, the information advantage that the manufacturer has prevents the payer from using marginal value-based prices to extract part of the surplus. However, in a dynamic setting where competition by a new entrant is possible, the choice of the type of value-based price may matter. We suggest that more research should be devoted to the dynamic analysis of price regulation for personalised medicines.
Key Points for Decision Makers Personalised drugs will increase the heterogeneity in patients’ responses to treatment; this opens new scenarios in the relationship between price regulation and listing strategies by the industry. In a static framework, if the effectiveness differential across patients can be observed only by the manufacturer, the main definitions currently proposed for valuebased prices lead to the same listing strategy. This is no longer true in a dynamic setting where competition by a new entrant is possible. To predict accurately the implications of alternative pricing policies, it is essential for decision makers to adopt a dynamic perspective that takes the role of competition into account.
* Rosella Levaggi [email protected] 1
Department of Economics and Management, University of Brescia, Via San Faustino 74b, 25122 Brescia, Italy
Department of Economics, University of Verona, Verona, Italy
2
1 Introduction Drug expenditure accounts for about a sixth of health spending across OECD countries and is still on the rise. In Europe, where most health systems are publicly financed [1], pharmaceutical expenditure is under close scrutiny and governments have introduced stringent price regulations [2–4], whose desirability is controversial [5]. Another tendency of the pharmaceutical sector that is often discussed is a decrease in the productivity of research and development spending, which in turn may lead to higher prices [6–8]. Several possible determinants of this tendency have been discussed. One explanation is that the natural growth in the quantity and quality of products available in the market raises the hurdle for new approvals [9]. Somewhat related to this point is the idea that those problem
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