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Personalized Medicine and Pay for Performance: Should Pharmaceutical Firms be Fully Penalized when Treatment Fails?

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Abstract

In this article, we model the behavior of a pharmaceutical firm that has marketing authorization for a new therapy believed to be a candidate for personalized use in a subset of patients, but that lacks information as to why a response is seen only in some patients. We characterize the optimal outcome-based reimbursement policy a health authority should follow to encourage the pharmaceutical firm to undertake research and development activities to generate the information needed to effectively stratify patients. Consistent with the literature, we find that for a pharmaceutical firm that does not undertake research and development activities, when the treatment fails, the total price of the drug must be returned to the healthcare system (full penalization). By contrast, if the firm undertakes research and development activities that make the implementation of personalized medicine possible, treatment failure should not be fully penalized. Surprisingly, in some cases, particularly for high-efficacy drugs and small target populations, the optimal policy may not require any penalty for treatment failure. To illustrate the main results of the analysis, we provide a numerical simulation and a graphical analysis.

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Notes

  1. Implicitly, it is assumed that a physician, given the available information, prescribes the drug if the expected health benefits are positive.

  2. Alternatively, we may think of a treatment that has been commercialized for some time, and with which we have observed the proportion of responders who are cured (\(h\pi\)), the proportion of responders not fully cured (\(h\left( {1 - \pi } \right)\)), and the proportion of non-responders (\(1 - h\)). We assume that these parameters remain constant for the population of patients with the disease.

  3. In fact, there may be several laboratories competing in the market and offering the same test or similar tests.

  4. The drug panitumumab together with a co-developed companion diagnostic test for patients with metastatic colorectal cancer and epidermal growth factor receptor overexpression was approved in 2006. A year later, an additional test developed by an independent diagnostic company showed that the drug was ineffective in a subset of the subpopulation. Prices did not rise to reflect the higher efficacy in the smaller selected subpopulation. See Trusheim et al. [25].

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Acknowledgments

Financial support from MINECO (Project ECO2016-78685-R) is gratefully acknowledged. We thank Paul Overton from Beacon Medical Communications (UK) for the English editing of this manuscript. We thank the editor and two anonymous referees for their comments and suggestions.

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Authors and Affiliations

  1. Department of Economics, University of La Rioja, La Ciguena 60, 26006, Logroño, Spain

    Fernando Antoñanzas, Roberto Rodríguez-Ibeas & Carmelo A. Juárez-Castelló

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  1. Fernando Antoñanzas
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  2. Roberto Rodríguez-Ibeas
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  3. Carmelo A. Juárez-Castelló
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Contributions

RR-I acted as a health economist on this article, developed the model analytical results, and contributed to the writing of the text. CAJ-C acted as a health economist on this article, programmed and ran the numerical simulations, and designed the figures. FA acted as a health economist on this article, conceptualized the research problem, contributed to the writing of the test, and acted as the overall guarantor for the overall content of this article. All authors contributed to the conception and planning of the work, and critically revised and approved the final submitted version of the manuscript.

Corresponding author

Correspondence to Fernando Antoñanzas.

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Funding

This study was funded by the Spanish Ministry of Economics, MINECO (Project ECO2016-78685-R).

Conflict of interest

Fernando Antoñanzas, Carmelo A. Juárez-Castelló, and Roberto Rodríguez-Ibeas have no conflicts of interest directly relevant to the content of this article.

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Antoñanzas, F., Rodríguez-Ibeas, R. & Juárez-Castelló, C.A. Personalized Medicine and Pay for Performance: Should Pharmaceutical Firms be Fully Penalized when Treatment Fails?. PharmacoEconomics 36, 733–743 (2018). https://doi.org/10.1007/s40273-018-0619-4

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