The impact of two pharmaceutical risk-sharing agreements on pricing, promotion, and net health benefits.
OBJECTIVE
Health insurers are increasingly making use of risk-sharing agreements with drug manufacturers to manage uncertainties regarding the costs and effectiveness of new drugs. Several risk-sharing models exist including those based on sales volume, achievement of clinical thresholds, and achievement of cost-effectiveness thresholds. The objective of this article is to compare two risk-sharing arrangements and to investigate conditions under which each is preferable from the perspective of the payer and the manufacturer.


METHODS
We develop two two-period models to compare two risk-sharing arrangements between a payer and a drug manufacturer in which there is uncertainty about the effectiveness of the new drug. In the first risk-sharing agreement, the drug is listed on a formulary in the first period but delisted in the second period if the net monetary benefit in the first period is negative. In the second risk-sharing agreement, the manufacturer pays a rebate in each period if the net monetary benefit in that period is negative.


RESULTS
We show that the relative performance of the two arrangements depends on several factors and that neither arrangement is always preferred. Additionally, we are able to identify situations in which a payer and a manufacturer would prefer the same plan and other situations in which the two parties would disagree on which plan was most desirable.


CONCLUSIONS
Because neither risk-sharing arrangement is always preferred, payers and manufacturers must carefully consider the characteristics of their individual situation when entering into such contracts.
Zaric
Gregory S
GS
Richard Ivey School of Business, University of Western Ontario, London, ON, Canada. gzaric@ivey.uwo.ca
Xie
Bin
B
D000329:Advertising / Q000191:economics; D032982:Contracts / Q000191:economics; D003362:Cost-Benefit Analysis / Q000191:economics / Q000379:methods; D016527:Drug Costs; D004345:Drug Industry / Q000191:economics / Q000458:organization & administration; D005382:Financing, Personal / Q000191:economics; D006801:Humans; D007348:Insurance, Health / Q000191:economics* / Q000458:organization & administration; D018803:Models, Economic; D020414:Risk Sharing, Financial / Q000191:economics / Q000379:methods / Q000458:organization & administration