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The Right PriceA Value-Based Prescription for Drug Costs$
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Peter J. Neumann, Joshua T. Cohen, and Daniel A. Ollendorf

Print publication date: 2021

Print ISBN-13: 9780197512883

Published to Oxford Scholarship Online: May 2021

DOI: 10.1093/oso/9780197512883.001.0001

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Aligning Prices With Value

Aligning Prices With Value

(p.213) 10 Aligning Prices With Value
The Right Price

Neumann Peter J.

Cohen Joshua T.

Ollendorf Daniel A

Oxford University Press

Value-based pricing aims to optimize incentives for pharmaceutical companies making drug development investment decisions. To promote alignment of prices and value, this chapter recommends that Medicare, Medicaid, and commercial insurers build value assessment into their coverage decisions. Before doing so, it explores alternatives that purport to make this alignment unnecessary. The first, cost-recovery pricing, reimburses drug companies for only their costs, rather than for value. While cost-recovery prices can be low, they reward high internal costs rather than better drugs. Prizes and subscription plans pay a lump sum, rather than paying for each treated patient, but they still require value assessment to set the size of the prize or subscription fee. Radical alternatives suggest having the government develop new drugs. Whether the government would be effective remains unknown. Nonetheless, it would, like private companies, have to prioritize investments, requiring something like value assessment to do so.

Keywords:   drug innovation prizes, drug subscription models, drug access, Medicare, Medicaid

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