Skip to main content
SpringerLink
Log in

Sustainable Financing of Innovative Therapies: A Review of Approaches

  • Review Article
  • Published:
PharmacoEconomics Aims and scope Submit manuscript

Abstract

The process of innovation is inherently complex, and it occurs within an even more complex institutional environment characterized by incomplete information, market power, and externalities. There are therefore different competing approaches to supporting and financing innovation in medical technologies, which bring their own advantages and disadvantages. This article reviews value- and cost-based pricing, as well direct government funding, and cross-cutting institutional structures. It argues that performance-based risk-sharing agreements are likely to have little effect on the sustainability of financing; that there is a role for cost-based pricing models in some situations; and that the push towards longer exclusivity periods is likely contrary to the interests of industry.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  1. Pekarsky BAK. The New Drug Reimbursement Game. Heidelberg: Springer International Publishing; 2015.

    Book  Google Scholar 

  2. Hailey D. Development of the International Network of Agencies for Health Technology Assessment. Int J Technol Assess Health Care. 2009;25(Suppl 1):24–7.

    Article  PubMed  Google Scholar 

  3. Jönsson B. Relative effectiveness and the European pharmaceutical market. Eur J Health Econ. 2011;12(2):97–102.

    Article  PubMed  Google Scholar 

  4. Persson U, Jönsson B. The end of the international reference pricing system? Appl Health Econ Health Policy. 2016;14(1):1–8.

    Article  PubMed  Google Scholar 

  5. Rémuzat C, Urbinati D, Mzoughi O, El Hammi E, Belgaied W, Toumi M. Overview of external reference pricing systems in Europe. J Mark Access Heal Policy. 2015;3:27675.

    Google Scholar 

  6. Maguire PT, Gibson E. The Cancer Drugs Fund and Patient Acces Schemes within the UK: increased access to oncology medicines or reduced value for money? Value Health. 2015;18(7):A484 (Elsevier).

    Article  CAS  PubMed  Google Scholar 

  7. Picavet E, Dooms M, Cassiman D, Simoens S. Orphan drugs for rare diseases: Grounds for special status. Drug Dev Res. 2012;73(3):115–9.

    Article  CAS  Google Scholar 

  8. Sussex J, Towse A, Devlin N. Operationalizing value-based pricing of medicines: a taxonomy of approaches. Pharmacoeconomics. 2013;31(1):1–10.

    Article  PubMed  Google Scholar 

  9. Neumann PJ, Cohen JT, Weinstein MC. Updating Cost-Effectiveness—the curious resilience of the $50,000-per-QALY threshold. N Engl J Med. 2014;371(9):796–7.

    Article  CAS  PubMed  Google Scholar 

  10. Ramsey S, Willke R, Glick H, Reed SD, Federico A, Jonsson B, et al. Cost-effectiveness analysis alongside clinical trials II—an ISPOR good research practives task force report. Value Health. 2015;18:161–72.

    Article  PubMed  Google Scholar 

  11. Brazier JE, Yang Y, Tsuchiya A, Rowen DL. A review of studies mapping (or cross walking) non-preference based measures of health to generic preference-based measures. Eur J Heal Econ. 2010;11(2):215–25.

    Article  Google Scholar 

  12. Chan KKW, Willan AR, Gupta M, Pullenayegum E. Underestimation of uncertainties in health utilities derived from mapping algorithms involving health-related quality-of-life measures: statistical explanations and potential remedies. Med Decis Mak. 2014;34(7):863–72.

    Article  Google Scholar 

  13. Larson EB, Tachibana C, Thompson E, Coronado GD, DeBar L, Dember LM, et al. Trials without tribulations: minimizing the burden of pragmatic research on healthcare systems. Healthcare. 2015. doi:10.1016/j.hjdsi.2015.07.005 (Elsevier).

    Google Scholar 

  14. Kalkman S, Van Thiel GJMW, Grobbee DE, Van Delden JJM. Pragmatic randomized trials in drug development pose new ethical questions: a systematic review. Drug Discov Today. 2015;20(7):856–62 (Elsevier Ltd).

    Article  PubMed  Google Scholar 

  15. Appleby J, Devlin N, Parkin D, Buxton M, Chalkidou K. Searching for cost effectiveness thresholds in the NHS. Health Policy (New York). 2009;91(3):239–45.

    Article  Google Scholar 

  16. Claxton K, Briggs A, Buxton MJ, Culyer AJ, McCabe C, Walker S, et al. Value based pricing for NHS drugs: an opportunity not to be missed? Br Med J. 2008;336(7638):251–4.

    Article  Google Scholar 

  17. John London A. How should we model rare disease allocation decisions? Hastings Cent Rep [Internet]. 2012;42(1):3–3. Available from: http://doi.wiley.com/10.1002/hast.3.Accessed 30 Apr 2016.

  18. Claxton K, Martin S, Soares M, Rice N, Spackman E, Hinde S, et al. Methods for the estimation of the National Institute for Health and care excellence cost-effectiveness threshold. Health Technol Assess (Rockv). 2015;19(14):1–503.

    Article  Google Scholar 

  19. Jamison DT, Summers LH, Alleyne G, Arrow KJ, Berkley S, Binagwaho A, et al. Global health 2035: A world converging within a generation. Lancet. 2013;382(9908):1898–955 (Elsevier Ltd).

    Article  PubMed  Google Scholar 

  20. Marseille E, Larson B, Kazi DS, Kahn JG, Rosen S. Thresholds for the cost—effectiveness of interventions : alternative approaches. Bull World Health Organ. 2014;2015(93):118–24.

    Google Scholar 

  21. Ochalek J, Lomas J, Claxton K. Cost Per DALY averted thresholds for low- and middle-income countries: evidence from cross-country data. CHE Research Paper 122. 2015. https://www.york.ac.uk/media/che/documents/papers/researchpapers/CHERP122_cost_DALY_LMIC_threshold.pdf. Accessed 30 Apr 2016.

  22. Woods B, Revill P, Sculpher M, Claxton K. Country-level cost-effectiveness thresholds: initial estimates and the need for further research. 2015. https://www.york.ac.uk/media/che/documents/papers/researchpapers/CHERP109_cost-effectiveness_threshold_LMICs.pdf. Accessed 30 Apr 2016.

  23. Stafinski T, McCabe CJ, Menon D. Funding the unfundable. Pharmacoeconomics. 2010;28(2):113–42.

    Article  PubMed  Google Scholar 

  24. Towse A, Garrison LP. Canʼt get no satisfaction? Will pay for performance help? Pharmacoeconomics. 2010;28(2):93–102.

    Article  PubMed  Google Scholar 

  25. Niezen MGH, De Bont A, Busschbach JJV, Cohen JP, Stolk EA. Finding legitimacy for the role of budget impact in drug reimbursement decisions. Int J Technol Assess Health Care. 2009;1:49–55.

    Article  Google Scholar 

  26. Loury G. Market structure and innovation. Q J Econ. 1979;93(3):395–410.

    Article  Google Scholar 

  27. Dimasi JA, Paquette C. The economics of follow-on drug research and development. Pharmacoeconomics. 2004;(22 Suppl.):1–14.

  28. Hollis A. Comment on “The economics of follow-on drug research and development”. Pharmacoeconomics. 2005;23(12):1187–92.

    Article  PubMed  Google Scholar 

  29. Fagnan DE, Gromatzky AA, Stein RM, Fernandez JM, Lo AW. Financing drug discovery for orphan diseases. Drug Discov Today. 2014;19(5):533–8 (Elsevier Ltd).

    Article  CAS  PubMed  Google Scholar 

  30. Garrison LP, Towse A, Briggs A, De Pouvourville G, Grueger J, Mohr PE, et al. Performance-based risk-sharing arrangements—good practices for design, implementation, and evaluation: Report of the ISPOR good practices for performance-based risk-sharing arrangements task force. Value Health. 2013;16(5):703–19 (Elsevier).

    Article  PubMed  Google Scholar 

  31. Carlson JJ, Sullivan SD, Garrison LP, Neumann PJ, Veenstra DL. Linking payment to health outcomes: A taxonomy and examination of performance-based reimbursement schemes between healthcare payers and manufacturers. Health Policy (New York). 2010;96(3):179–90 (Elsevier Ireland Ltd).

    Article  Google Scholar 

  32. De Pouvourville G. Risk-sharing agreements for innovative drugs: A new solution to old problems? Eur J Heal Econ. 2006;7(3):155–7.

    Article  Google Scholar 

  33. Hutton J, Trueman P, Henshall C. Coverage with evidence development: an examination of conceptual and policy issues. Int J Technol Assess Health Care. 2007;23(4):425–32.

    Article  PubMed  Google Scholar 

  34. Garber AM, McClellan MB. Satisfaction guaranteed—“payment by results” for biologic agents. N Engl J Med. 2007;16(357):1575–7.

    Article  Google Scholar 

  35. Cook JP, Vernon JA, Manning R. Risk-sharing agreements. Pharmacoeconomics. 2008;26(7):551–6.

    Article  PubMed  Google Scholar 

  36. Navarria A, Drago V, Gozzo L, Longo L, Mansueto S, Pignataro G, et al. Do the current performance-based schemes in Italy really work? “success fee”: a novel measure for cost-containment of drug expenditure. Value Health. 2015;18(1):131–6 (Elsevier).

    Article  PubMed  Google Scholar 

  37. Edlin R, Hall P, Wallner K, McCabe C. Sharing risk between payer and provider by leasing health technologies: An affordable and effective reimbursement strategy for innovative technologies? Value Health. 2014;17(4):438–44 (Elsevier).

    Article  PubMed  Google Scholar 

  38. Claxton K. OFT, VBP: QED? Health Econ. 2007;16(6):545–58.

    Article  PubMed  Google Scholar 

  39. Kanavos P, Mills M. Options for the sustainable financing of innovative therapies. 2015.

  40. Gallini N, Scotchmer S. Intellectual property: when is it the best incentive system? Innovation Policy and the Economy, vol. 2. Cambridge: MIT Press; 2002. p. 51–78.

    Google Scholar 

  41. Sachs J. Rational Drug Pricing. Huffington Post [Internet]. 2015; Available from: http://www.huffingtonpost.com/jeffrey-sachs/rational-drug-pricing_b_8188790.html. Accessed 30 Apr 2016.

  42. Fellows GK, Hollis A. Funding innovation for treatment for rare diseases: adopting a cost-based yardstick approach. Orphanet J Rare Dis [Internet]. Orphanet J Rare Dis. 2013;8(1):180. Available from: http://ojrd.biomedcentral.com/articles/10.1186/1750-1172-8-180. Accessed 30 Apr 2016.

  43. Office of Fair Trading. Pharmaceutical price regulation scheme, annexe H [Internet]. 2007. Available from: http://webarchive.nationalarchives.gov.uk/20140402142426/http://www.oft.gov.uk/shared_oft/reports/comp_policy/oft885.pdf. Accessed 30 Apr 2016.

  44. Averch H, Johnson LL. Behavior of the firm under regulatory constraint. Am Econ Rev. 1962;52(5):1052–69.

    Google Scholar 

  45. DiMasi JA, Hansen RW, Grabowski HG. The price of innovation: New estimates of drug development costs. J Health Econ. 2003;22(2):151–85.

    Article  PubMed  Google Scholar 

  46. DiMasi JA, Grabowski HG, Hansen RW. Innovation in the pharmaceutical industry: new estimates of R&D costs. J Health Econ. 2016;47:20–33 (Elsevier B.V.).

    Article  PubMed  Google Scholar 

  47. Chiu S. Pharmaceutical cost transparency act of 2016. California Assembly AB-463;2016.

  48. Wyden R, Grassley C. The price of Sovaldi and its impact on the US Health Care System [Internet]. 2015. Available from: http://www.finance.senate.gov/download/the-price-of-sovaldi-and-its-impact-on-the-us-health-care-system-full-report. Accessed 30 Apr 2016.

  49. Danzon PM, Towse A. Differential pricing for pharmaceuticals: reconciling access, R&D and patents. Int J Health Care Financ Econ. 2003;3(3):183–205.

    Article  Google Scholar 

  50. Smith A. Lectures on jurisprudence. In: Meek RL, Raphael DD, Stein PG, editors. The glasgow edition of the works and correspondence of Adam Smith. Oxford: Oxford University Press; 1978.

  51. Azoulay P, Zivin JSG, Li D, Sampat BN. Public R&D investments and private-sector patenting: evidence from NIH funding rules. Natl Bur Econ Res Work Pap Ser [Internet]. 2015; No. 20889. Available from: http://www.nber.org/papers/w20889\nhttp://www.nber.org/papers/w20889.pdf. Accessed 30 Apr 2016.

  52. Hemel DJ, Ouellette LL. Beyond the patents—prizes debate. Tex Law Rev. 2013;92:303–82.

    Google Scholar 

  53. Seoane-Vazquez E, Rodriguez-Monguio R, Szeinbach SL, Visaria J. Incentives for orphan drug research and development in the United States. Orphanet J Rare Dis. 2008;3:33.

    Article  PubMed  PubMed Central  Google Scholar 

  54. Moran M, Guzman J, Ropars AL, Illmer A. The role of product development partnerships in research and development for neglected diseases. Int Health. 2010;2(2):114–22.

    Article  CAS  PubMed  Google Scholar 

  55. DNDi. Business plan 2015–2023 [Internet]. 2015. Available from: http://www.dndi.org. Accessed 30 Apr 2016.

  56. Bishai DM, Champion C, Steele ME, Thompson L. Product development partnerships hit their stride: Lessons from developing a meningitis vaccine for Africa. Health Aff. 2011;30(6):1058–64.

    Article  Google Scholar 

  57. Flynn S, Hollis A, Palmedo M. An economic justification for open access to essential medicine patents in developing countries. J Law Med Ethics. 2009;37(2):184–208.

    Article  PubMed  Google Scholar 

  58. Servick K. The drug push. Science. 2015;348(6237):850–3.

    Article  CAS  PubMed  Google Scholar 

  59. Sanders B. Medical innovation prize fund act [Internet]. 2007. p. 1–23. Available from: https://www.govtrack.us/congress/bills/113/s627. Accessed 30 Apr 2016.

  60. Banerjee A, Hollis A, Pogge T. The health impact fund: incentives for improving access to medicines. Lancet. 2010;375(9709):166–9.

    Article  PubMed  Google Scholar 

  61. Wang B, Liu J, Kesselheim AS. Variations in time of market exclusivity among top-selling prescription drugs in the United States. JAMA Intern Med. 2015;175(4):635–7.

    Article  PubMed  Google Scholar 

  62. Liu M, La Croix S. A cross-country index of intellectual property rights in pharmaceutical inventions. Res Policy. 2015;44(1):206–16 (Elsevier B.V.).

    Article  Google Scholar 

  63. Liu J. Compulsory Licensing and Anti-Evergreening: interpreting the TRIPS flexibilities in sections 84 and 3 (d) of the Indian Patents Act. Harv Int’l LJ. 2015;56:207.

    Google Scholar 

  64. Chatterjee C, Kubo K, Pingali V. The consumer welfare implications of governmental policies and firm strategy in markets for medicines. J Health Econ. 2015;44:255–73 (Elsevier B.V).

    Article  PubMed  Google Scholar 

  65. Harrington SE. Cost of capital for pharmaceutical, biotechnology, and medical device firms. In: Danzon PM, Nicholson S, editors. The Oxford handbook of the economics of the biopharmaceutical industry 2012. Oxford: Oxford University Press; 2009.

    Google Scholar 

  66. Gleeson DH, Neuwelt P, Monasterio E, Lopert R. How the transnational pharmaceutical industry pursues its interests through international trade and investment agreements: a case study of the Trans Pacific Partnership [Internet]. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2668576. Accessed 30 Apr 2016.

Download references

Acknowledgments

The comments of the editor and two referees, Chris McCabe and Brita Pekarsky, considerably improved the paper. The author takes responsibility for remaining errors.

Author information

Authors and Affiliations

  1. Department of Economics, O’Brien Institute for Public Health, University of Calgary, Calgary, AB, Canada

    Aidan Hollis

Authors
  1. Aidan Hollis
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Aidan Hollis.

Ethics declarations

Funding

The author acknowledges support from a Canadian Institutes of Health Research Emerging Team Grant on Developing Effective Policies for Managing Technologies for Rare Diseases and the European Research Council under the European Union’s Seventh Framework Programme (FP/2007-2013)/ERC Grant Agreement no. 339239.

Conflicts of interest

The author has been an expert witness in litigation for Apotex, Teva, Sandoz, TearLab, and Cobalt and has received honoraria from the OECD, the Competition Bureau, and the government of Ecuador.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Hollis, A. Sustainable Financing of Innovative Therapies: A Review of Approaches. PharmacoEconomics 34, 971–980 (2016). https://doi.org/10.1007/s40273-016-0416-x

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s40273-016-0416-x

Keywords

Search

Navigation