An assessment of innovative pricing schemes for the communication of value: is price discrimination and two-part pricing a way forward?

Abstract

With the introduction of new expensive medicines, traditional pricing schemes based on constructs such as price per pill/vial have been challenged. Potential innovative schemes could be either financial-based or performance-based. Within financial-based schemes the use of price discrimination is an emerging option, which we explore in this assessment. Areas covered: In the short term the price per indication approach is likely to become more prevalent for high cost, high benefit new pharmaceuticals, such as those emerging in oncology (e.g. new combination immunotherapies). 'Two-Part Pricing' (2PP) is a frequently used payment method in other industries, which consists of an Entry Fee, giving the buyer the right to use the product, and a Usage Price charged every time the product is purchased. Introducing 2PP into biopharma could have cross-stakeholder benefits including broader patient access, and improvement in budget/revenue predictability. A concern however is the potential complexity of the negotiation between manufacturer and payer. Expert commentary: We believe 'price discrimination' and 2PP in particular can be relevant for some new, expensive specialist medicines. A recommended first step would be to initiate pilots to test to what degree the 2PP approach meets stakeholder objectives and is practical to implement within specialty care.

Evidence Underlying Policy Proposals for Sustainable Anticancer Drug Prices

“…It describes a subscription method that consists of an entry fee and a use fee. 41,42 Manufacturers and payers agree on an entry fee to treat a (sub)population with a drug. For every treatment, the manufacturer additionally receives a small user fee.…”

“…For every treatment, the manufacturer additionally receives a small user fee. 41,42 This method is associated with increased access assuming that there is an unmet need in the existing system. Therefore, it is associated with reduced average prices but most likely not with reduced total expenditure.…”

“…The authors of these studies specifically discussed improving R&D efficiency 52,53 and decreasing the regulatory burden 52,54 to reduce prices. Similarly, installing an agency to conduct public clinical trials has been suggested to improve efficiency by reducing duplications and in- [34][35][36] No articles with quantitative data; studies on the effect on low-income countries Low Value-based pricing: set prices according to health outcomes and their potential economic consequences; subtype: risk sharing [37][38][39][40] Without risk sharing, the benefits of value-based pricing are shifted to industry profits; the share of surplus depends on the rebate 39 ; risk sharing might lead to overuse and price increases 37 ; welfare gain depends on the tradeoff among monitoring costs, production costs, treatment utility, and success 37,38 ; risk sharing leads to reduced prices and profits; it may increase the probability of listing and increase ex ante profit and consumer surplus 40 Low 2-Part pricing: pay medicines with a subscription method that consists of a (relatively high) entry fee and a (relatively low) fee per patient use 41,42 No relevant quantitative articles Medium…”

Estimating the Clinical Pipeline of Cell and Gene Therapies and Their Potential Economic Impact on the US Healthcare System

“…In the United States today, there are known to be several proposed and implemented payment models and risk-sharing schemes. 2,[11][12][13] The current clinical pipeline, however, is deeper than the small number of products currently on the market. Even allowing for trial failures, access restrictions, and so forth, there is a fear that enough new products, for enough patients, at highenough list prices, will challenge the financial status quo in the United States and elsewhere.…”

The Price of Substitute Technologies

“…Only a small share of new drugs are truly innovative; 85% to 90% of all innovations have little or no advantage over existing therapeutic alternatives. 33,[36][37][38][39] Conceptually, "me-too" or "follow-on" drugs are new entrants in a therapeutic class that has been defined by an innovative drug or a drug with the same mechanism of action. 36,[40][41][42] Critics argue that me-too drugs add little or no value to the therapeutic arsenal, make clinical decisions more difficult, increase healthcare costs, and waste billions of dollars annually on marketing and advertising, which could be better spent on R&D of orphan drugs.…”