Improving Access to Rare Disease Treatments: Subsidy, Pricing, and Payment Schemes

Olsder, Wendy; Martagan, Tugçe; Tang, Christopher S.

doi:10.1287/mnsc.2022.4634

Cited by 4 publications

(2 citation statements)

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“…>More recently, Olsder et al. (2020) study the impact of different pricing and payment schemes on government subsidies. In particular, they consider a new initiative where drug prices are set by an “independent consortium,” and analyze its impact on subsidy programs.…”

Section: Literature Reviewmentioning

confidence: 99%

“…In contrast, Olsder et al. (2020) do not capture the underlying trade‐offs of drug conversion (i.e., costs vs. benefits faced by pharmaceutical manufacturers). To our knowledge, our study is one of the first attempts to examine issues arising from drug conversion and its impact on patient welfare, government subsidies, and manufacturers.…”

Section: Literature Reviewmentioning

confidence: 99%

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Converting a drug from off‐label to on‐label use: Government subsidies and patient welfare

2022

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Most rare diseases have no approved treatments available, and doctors often prescribe existing drugs for "off-label" use in the sense that a drug is prescribed for a medical condition that is different from the original condition approved by regulatory authorities. To develop approved treatments for rare diseases quickly without starting from scratch, governments have introduced different subsidy programs to entice pharmaceutical companies to exert extra efforts to "convert" certain drugs from off-label to "on-label" use. However, the impact of this subsidized conversion strategy on patient welfare remains unclear because both efficacy and price can change once a drug is converted from off-label to on-label use. This paper represents an initial attempt to investigate the effectiveness of different types of government subsidies (e.g., offer subsidies to manufacturers, patients, or both) for improving patient welfare through the drug conversion strategy. We present a three-stage Stackelberg game-theoretic model that captures the interactions among the government, manufacturer, and patients, and determine whether it is optimal to subsidize the manufacturer, patients, or both. We identify requisite (market and subsidy) conditions for a manufacturer to convert a drug from off-label to on-label use. We also determine the optimal extra development effort to convert an off-label drug, and the optimal unit selling price for the on-label drug after conversion. Contrary to the generally held public opinions, our analysis reveals that subsidizing pharmaceutical manufacturers is more effective than subsidizing patients. This result implies that subsidies offered to manufacturers would incentivize higher conversion efforts, and subsequently increase the expected patient welfare. Furthermore, we show that this result continues to hold even when the patients are risk-averse or on-label market size is uncertain. Our numerical analysis on the drugs Aralen, Humira, Revlimid, and Zostex reveals that government subsidies are necessary for enticing conversion from off-label to on-label use.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Converting a drug from off‐label to on‐label use: Government subsidies and patient welfare

2022

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Firm decisions and government subsidies in a supply chain with consumer surplus consideration

Xiao,

Zhang,

2024

Naval Research Logistics

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This paper considers a supply chain that consists of a manufacturer and a retailer, who concern their respective profits as well as consumer welfare. Each firm's objective is modelled as a weighted sum of its profit and consumer surplus, with the weight on consumer surplus representing the concern level of the firm. We first examine a push supply chain where the manufacturer determines the wholesale price and the retailer determines the order quantity. We derive the optimal decisions and investigate the impact of the firms' consumer surplus consideration on the interactive decisions of the supply chain members and the overall performance of the supply chain. We show that a higher level of retailer's consumer concern does not necessarily lead to higher consumer surplus because her concern on consumers may be exploited by the manufacturer to improve his objective; and the manufacturer's concern on consumers may not benefit the retailer in terms of her profit, especially when the manufacturer's concern level is relatively low. Nevertheless, compared to the for‐profit supply chain, concern on consumer surplus could be beneficial to both firms' profits as well as consumer surplus, inducing a “win‐win‐win” situation under certain conditions. Furthermore, as a social planner, the government seeks to optimize social welfare by adopting subsidy policies, and we examine two types of intervention policies, that is, subsidizing firms and subsidizing consumers. We show that when subsidizing firms, government's quantity‐based subsidy is always more cost‐effective than sales‐based subsidy. As the firms' concern levels become higher or the demand uncertainty becomes lower, subsidizing consumers can achieve higher social welfare than subsidizing firms. Moreover, we examine the impact of the government's budget constraint and concern level on consumer surplus, and extend the analysis to a pull supply chain to show the robustness of the major findings.

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Conditional Approval and Value-Based Pricing for New Health Technologies

2022

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Improving Access to Rare Disease Treatments: Subsidy, Pricing, and Payment Schemes

Cited by 4 publications

References 36 publications

Converting a drug from off‐label to on‐label use: Government subsidies and patient welfare

Converting a drug from off‐label to on‐label use: Government subsidies and patient welfare

Firm decisions and government subsidies in a supply chain with consumer surplus consideration

Conditional Approval and Value-Based Pricing for New Health Technologies

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