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Faculty & Research


Conditional Approval and Value-Based Pricing for New Health Technologies

Working Paper
Conditional-approval schemes postpone pricing and reimbursement decisions for new health technologies until after the collection of post-market-approval data and can mitigate uncertainty regarding a technology’s health-economic value. Related analytical work rarely considers the strategic behavior of public payers, such as the UK’s National Health Service, or of health technology providers, and it does not explicitly evaluate mechanisms for reimbursement during post-marketing data-collection. To fill this gap, the authors develop a stylized model of cooperative bargaining in which a risk-neutral company presents a new health technology to a risk-neutral payer. The players consider two types of conditional approval scheme that vary in patients’ level of access to the new treatment during the collection of additional data. They characterize the interim prices that arise during the schemes’ data-collection processes and the expected prices obtained when the treatment is approved for reimbursement after data collection is complete. Interim prices obtained via Nash bargaining reflect the sharing of data-collection costs and are often higher than immediate-approval prices. For broad-access schemes with high “reversal” costs – associated with the decision after data collection not to reimburse – interim prices may be driven below those at initial submission. The authors illustrate the potentially negative impact of payer policies that constrain interim prices and identify a new risk-sharing mechanism to mitigate the adverse consequences of those constraints. They complement analytical results and comparative statics with a case study motivated by a UK-based conditional approval agreement for an oncology drug and with results about the probability of agreements’ cost effectiveness.

Professor of Technology and Operations Management