Value-Based Pricing of New Technologies

Health insurance companies and governments use strong financial and administrative barriers to manage the utilization of new technologies. Cost-sharing (co-insurance or co-payments), prior authorization, clinical panel reviews, therapeutic reference pricing, and new technology appraisals are designed to manage the incremental uptake of new technologies. These technologies, for example, PCSK-9 inhibitors and enzyme replacement therapies, are either funded privately through employer and employee premium contributions or publically financed through national/regional tenders or national health insurance systems. Patients are sometimes able to access new technologies when all other treatment options have proven unsuccess, but it depends on the strength of the health financing system and the price of the new technology.

VBPHigh prices incentivize the research and development of new technologies; however, the list prices of some new technologies are increasingly unaffordable for health financing systems undergoing rapid change. For example, the Department of Health in Abu Dhabi has recently introduced a new reference reimbursement pricing system and mandated the dispensing of generic medicines for patients with health insurance. In South Africa, the National Department of Health recently published for comment the National Health Insurance Bill that will drastically remodel the health financing system and increased the uncertainty of private funding for new technologies.

High prices represent a systematic failure in policies to incentivize R&D and improve the affordability of new technologies. An alternative approach is needed to stitch together these competing economic and social priorities, respectively. Value-based pricing aims to reward the owners of new technologies for investments that result in sustained improvements in patient quality of life or a measurable net economic benefit for society. Value-based pricing must be based on internationally accepted standards in new technology assessments and undertaken by agencies independent of government or political institutions. The results of a value-based pricing analysis will determine whether the current list price is an overvaluation of the new technology and therefore the price should decrease, or an undervaluation and consequently the price should increase. Value-based pricing is a critical price-finding mechanism in healthcare markets that evolve in complexity and where fixed pricing policies implemented by government curtails price negotiation.

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