Risk-sharing contracts for pharmaceutical firms

Health Economics, Policy and Law 
Volume 6 – Issue 03 – 2011 http://journals.cambridge.org/action/displayIssue?jid=HEP&tab=currentissue

Should health authorities offer risk-sharing contracts to pharmaceutical firms? A theoretical approach
Fernando Antonanzas, Carmelo Juarez-Castello and Roberto Rodriguez-Ibeas

In this paper, we characterise the risk-sharing contracts that health authorities can design when they face a regulatory decision on drug pricing and reimbursement in a context of uncertainty. We focus on two types of contracts. On the one hand, the health authority can reimburse the firm for each treated patient regardless of health outcomes (non risk-sharing). Alternatively, the health authority can pay for the drug only when the patient is cured (risk-sharing contract). The optimal contract depends on the trade-off between the monitoring costs, the marginal production cost and the utility derived from treatment. A non-risk-sharing agreement will be preferred by the health authority, if patients who should not be treated impose a relatively low cost to the health system. When this cost is high, the health authority would prefer a risk-sharing agreement for relatively low monitoring costs.