OBJECTIVES

Several state governments (e.g. Louisiana and Washington) recently entered into Netflix-style contracts with drug manufactures (Gilead and AbbVie), where the state Medicaid programs make a fixed lump-sum payment to a drug manufacturer in exchange for unlimited access of hepatitis C virus (HCV) drugs for its Medicaid patients. We analyzed this novel Netflix-style payment model for pharmaceutical treatments and characterized the conditions under which such a contract would be beneficial to manufacturer or payer.

METHODS

We formulated a game-theoretical model to analyze the Netflix-style contract from a mechanism design perspective. Specifically, this mechanism solves for the optimal subscription price of the pharmaceutical company, which simultaneously minimizes the total cost of care of the state governments and ensures their participations. Model was populated with data from all 50 states on HCV epidemiology and patient demographics, and we simulated the disease progression using a validated microsimulation model.

RESULTS

Our results showed that a comprehensive screening program is the key to the success of Netflix-style contracts, which implied that only those states with comprehensive screening programs in place should switch to Netflix-style contracts, while the rest would be better-off with the traditional volume-based contracts. Furthermore, by offering both Netflix-style contracts and volume-based contracts, pharmaceutical companies can tailor their pricing decisions to states with different screening programs. Consequently, introducing Netflix-style contracts into the pharmaceutical market leads to higher treatment rates at lower costs. The simulation section of this study provided further numerical evidence in support of these findings, as well as a ranking indicating the readiness of 50 states to adopt Netflix-style contracts.

CONCLUSIONS

This study shows that the emergence of Netflix-style contracts improves the overall efficiency of pharmaceutical market. However, only those states with comprehensive HCV screening programs in place should considering switching to Netflix-style contracts.