The CP solves pharmaceutical and life sciences innovation without altering intellectual property.
Ganjour and Chernyak 11 – Afschin Gandjour is a medical doctor, health economist, and Gandjour received an M.D. from Hannover Medical School in Germany, an M.B.A. from Duke University, a Ph.D. in health economics from the University of Cologne in Germany, and an M.A. in philosophy from the University of Düsseldorf in Germany. He held faculty positions at the University of Cologne Medical School, Baylor College of Medicine, and Louisiana State University Pennington. Nadja Chernyak, Department of Public Health, Center of Health and Society, Heinrich-Heine University Düsseldorf, Düsseldorf, Germany.
Afschin Gandjour and Nadja Chernyak, October 2011, “A new prize system for drug innovation,” Health Policy, !
VBP = Value based pricing
In this paper we propose a new prize system for drug innovation, where public authority (e.g., a third party payer) is committed to pay a price based on the value of health benefits accrued over time. We define a minimum WTP for health benefits based on the cost-effectiveness of palliative or nursing care and provide a formal method to adjust the price upward based on the severity of disease. The proposed methodology allows us to overcome the lack of a formal method to determine reward size which is inherent in some other proposals linking prize payment to the value of health benefits.9 Furthermore, we suggest a formal method to adjust prizes downward for imperfect information on health benefits, including information on potential drug overuse. Therefore, our approach does not presuppose perfect information on health benefits. The proposed reward mechanism enables refinement of a reward size by periodic reassessment of health benefits of a drug on the basis of newly available information, e.g., from post-marketing drug trials, pragmatic trials and . The proposal is envisaged as a non-voluntary alternative to the current patent system. In this system approval of bioequivalent drugs including generics is abolished.
The proposed prize scheme can improve allocative efficiency of drug spending compared to the current patent system because no unrealized social benefits (deadweight loss) are created, as long as the threshold value reflects the real WTP for health gains. This prize system also provides strong incentives for innovation because the innovator reaps the full social surplus. Furthermore, the system prevents welfare loss from excessive marketing of the innovator and firms producing copycat drugs (me-too drugs with no proven additional benefit and generics). While producers may still market their production capability to the innovator, the corresponding marketing effort seems small compared to that for the general population under the current system.