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The Risk-Based Price: Incorporating Uncertainty and Risk Attitues in Health Technology Pricing

Speaker(s)

Kirwin E1, Paulden M2, McCabe C2, Round J3, Sutton M4, Meacock R5
1University of Manchester, Edmonton, AB, Canada, 2University of Alberta, Edmonton, AB, Canada, 3Institute of Health Economics, Edmonton, AB, Canada, 4University of Manchester, Manchester, AB, Canada, 5University of Manchester, Manchester, UK

Presentation Documents

BACKGROUND: Decision-makers often use value-based decision rules to determine if technologies offer good value for money and should therefore be adopted, comparing cost-effectiveness analysis results to a threshold value. This assumes that decision-makers are indifferent between interventions with the same expected value but different levels of underlying uncertainty. Such indifference is unlikely to hold in practice.

OBJECTIVES: We propose a risk-based price and accompanying decision rules to address this limitation.

METHODS: Risk is characterized as the independent per-patient expected value of perfect information (iEVPI), a modification of a standard output from value of information analysis. The iEVPI estimates the expected value of net benefit losses caused by uncertainty related to a technology, independent of the uncertainty related to alternative treatments. ‘Payer risk tolerance’ is then defined as the monetary value of the maximum per-patient risk of making wrong decisions that payers are willing to accept. The risk-based price is the price at which the iEVPI is equal to the payer risk tolerance

RESULTS: The risk-based decision rules are as follows: (i) a technology is acceptable for adoption if the incremental net benefit of the technology is greater than or equal to zero, and if the iEVPI is less than or equal to the payer risk tolerance, and (ii) the optimal technology has the greatest expected net benefit at the lowest of the sponsor submitted, value-based, or risk-based price at a given cost-effectiveness threshold value.

CONCLUSIONS: The risk-based price incorporates uncertainty and risk attitudes into decision making. We demonstrate that both risk-averse and risk-neutral payers prefer the outcomes of risk-based pricing. Risk-based decision rules improve sponsor incentives for on-market, real-world evidence development. Implementation of the risk-based price improves outcomes for patients by increasing health system net benefits under constrained resources with better alignment to decision-maker risk attitudes.

Code

EE237

Topic

Economic Evaluation, Health Policy & Regulatory

Topic Subcategory

Cost-comparison, Effectiveness, Utility, Benefit Analysis, Pricing Policy & Schemes, Value of Information

Disease

No Additional Disease & Conditions/Specialized Treatment Areas