We use a simple model to study the static and dynamic efficiency of alternative regulation regimes for the reimbursement of medical innovations when responses to a new treatment (effectiveness) are heterogeneous across the eligible population. When the rational behavior of profit-maximizing firms is taken into account, only average value-based prices can ensure both static and dynamic efficiency, but they imply higher expenditure and lower consumer surplus. Ignoring dynamic efficiency, if patients' responses are sufficiently homogeneous, marginal value-based prices may dominate from the payer's perspective. We also present a refinement of average value-based prices that could reverse this result. Overall, the cost of ensuring static and dynamic efficiency is increasing in the degree of heterogeneity. A real-world example is used to illustrate these results.

Which valued-based price when patients are heterogeneous?

Pertile, Paolo
2020-01-01

Abstract

We use a simple model to study the static and dynamic efficiency of alternative regulation regimes for the reimbursement of medical innovations when responses to a new treatment (effectiveness) are heterogeneous across the eligible population. When the rational behavior of profit-maximizing firms is taken into account, only average value-based prices can ensure both static and dynamic efficiency, but they imply higher expenditure and lower consumer surplus. Ignoring dynamic efficiency, if patients' responses are sufficiently homogeneous, marginal value-based prices may dominate from the payer's perspective. We also present a refinement of average value-based prices that could reverse this result. Overall, the cost of ensuring static and dynamic efficiency is increasing in the degree of heterogeneity. A real-world example is used to illustrate these results.
2020
personalized medicine
precision medicine
static and dynamic efficiency
value-based prices
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11562/1020031
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