Counterplan replaces a bureaucratic prize process with value-based prizes---creates the same incentives as a free market
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, !
WTP = Willingness to Pay
As implied above and discussed by [32], cost-effectiveness thresholds are not only a means to control prices but also to reward innovation. Hence, reimbursement prices derived from the cost-effectiveness threshold could be considered a form of a monetary reward (prize) for marginal health benefits created by the drug [11].
Our proposal is to determine the prize based on total population health benefits. To determine the latter, we propose using sales data but adjust them for treatment overuse. Furthermore, sales data need to be combined with information on incremental health benefits of a unit of sales (i.e., the individual health benefit). To provide a real-world estimate of the latter, the comparator of the new drug has to be the current treatment pattern.
The approach we suggest sets a maximum WTP for research activities based on the maximum WTP for a health gain. Hence, we suggest rewarding an innovator for the full social value which is in line with [52] as well as . If drug prices are increased beyond societal WTP, further research activities may be stimulated, but these additional activities, even if they lead to great discoveries, are, by definition, not acceptable pricewise. On the other hand, if drug prices are reduced below societal WTP, it may decrease research activities and may prevent discoveries that society is actually willing to pay for.
Varying WTP for R&D across industries (biomedical, energy, agriculture, etc.) to provide differential incentives and maximize overall research activities presupposes that the public has more information on where research yields a higher return for society than the market. Assuming that no such information is available (on which areas of investment yield a higher return) which corresponds to the assumption that each field has the same return, WTP per health gain is set equal across industries.
By pricing new drugs according to the outlined principle the meaning of patents is changed. Patents would no more reward medical innovation by profits from monopoly pricing, but rather represent a claim for getting a prize based on a monetary valuation of the incremental health benefits created.
VBP allows a more exact assessment of social value created by the drug over time than one-time fixed prizes and patent buyouts schemes. In the latter the government or a wealthy non-profit foundation purchases patents and turn over the rights to the public for free. However, it is difficult for a purchasing agency to estimate all future benefits ex-ante given changing market conditions (such as the appearance of other innovative drugs), changing health needs of the public [28], and new indications for the drug. Hence, ex-ante inducement prizes and patent buyouts can under/overestimate future benefits. When payment is based on real sales, there is no need for the purchasing agency to foresee at one moment all future benefits and discount them to present value. The VBP approach allows a refinement of the reward size as additional information flows to the purchasing agency, e.g., from post-marketing drug trials and .