The simple economics of risk-sharing agreements between the NHS and the pharmaceutical industry
Pedro Barros ()
MPRA Paper from University Library of Munich, Germany
The Janssen-Cilag proposal for a risk-sharing agreement regarding bortezomib received a welcome signal from NICE. The Office of Fair Trading report included risk-sharing agreements as an available tool for the National Health Service. Nonetheless, recent discussions have somewhat neglected the economic fundamentals underlying risk-sharing agreements. We argue here that risk-sharing agreements, although attractive due to the principle of paying by results, also entail risks. Too many patients may be put under treatment even with a low success probability. Prices are likely to be adjusted upward, in anticipation of future risk-sharing agreements between the pharmaceutical company and the third-party payer. An available instrument is a verification cost per patient treated, which allows obtaining the first-best allocation of patients to the new treatment, under the risk sharing agreement. Overall, the welfare effects of risk-sharing agreements are ambiguous, and care must be taken with their use.
Keywords: risk sharing agreements; pharmaceutical prices (search for similar items in EconPapers)
JEL-codes: I11 I18 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hea, nep-ias and nep-reg
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Journal Article: The simple economics of risk‐sharing agreements between the NHS and the pharmaceutical industry (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:8517
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