Health-based pharmaceutical pay-for-performance risk-sharing agreements

Reza Mahjoub, Fredrik Odegaard and Gregory S Zaric
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Reza Mahjoub: Ivey Business School, Western University, London, ON, Canada
Fredrik Odegaard: Ivey Business School, Western University, London, ON, Canada
Gregory S Zaric: 1] Ivey Business School, Western University, London, ON, Canada[2] Department of Epidemiology and Biostatistics, Western University, London, ON, Canada

Journal of the Operational Research Society, 2014, vol. 65, issue 4, 588-604

Abstract: Many new drugs, such as biologics and cancer drugs, are very costly. However, their effectiveness outside of clinical trial settings is often uncertain at the time they gain market approval. This uncertainty may reflect a lack of real-world outcomes data, as opposed to clinical trials data, for a typical patient population. A risk-sharing agreement is a contract between a drug manufacturer and a healthcare payer to help manage uncertainties regarding the cost and effectiveness of those drugs. In this paper, we model a risk-sharing agreement in which a proportion of total sales is rebated. We model disease progression using a continuous time Markov chain with uncertain transition rates. We examine the performance of this risk-sharing agreement from the manufacturer’s perspective and investigate the conditions under which the manufacturer will make a profit. We illustrate with a numerical model parameterized using data from a Phase 2 clinical trial of an oncology drug that was subjected to a risk-sharing agreement in the UK.

Date: 2014
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