Outcome-Based Reimbursement: The Solution to High Drug Spending?
Speaker：Liang XU（University of Nebraska - Lincoln, College of Business，Assistant Professor）
Host：HUANG Teng（Assistant Professor, Lingnan College）
Time and Date： 14:00-16:00, June 11, 2021
Venue：Wang Daohan Conference Room, Lingnan Hall; Online
Language： Chinese + English
Link: https://meeting.tencent.com/s/hRO2c9ZABYLm
Meeting ID：883 303 466
Abstract：
The continuously soaring prices of new drugs and their uncertain effectiveness in clinical practices have put substantial risks on insurers/payers. To induce insurer coverage of their new drugs, manufacturers start to propose an innovative outcome-based reimbursement (OBR) scheme, under which manufacturers will refund insurers (and possibly patients) if the drugs fail to achieve the pre-specified treatment target. While OBR sounds intuitively appealing, its true impact is under much debate. The answer boils down to the design of the OBR: specifically, how the insurer could leverage its formulary design (assignment of each drug to a co-payment level) to influence the drug demand and rebate and how the manufacturer could leverage OBR for a favorable formulary position.
To shed light on the optimal design of OBR and the debate around OBR, we develop a Stackelberg game under which the manufacturer designs a rebate scheme for its drug, either Non-OBR or OBR, considering the tradeoff between a favorable formulary position and the rebate provided. The insurer subsequently determines its formulary for the drug as well as other alternative drugs within the same disease category considering the tradeoff between its spending and patient health benefits. Using data on 14 drugs treating a common disease, hyperlipidemia, we estimate through a Multinomial Logit (MNL) model the demand of the 14 drugs and conduct counterfactual analyses on the impact of OBR. We find that under the optimal OBR improves the access to the drug which may otherwise not be covered or placed on a formulary position with high copay.
However, while the manufacturer provides outcome-based rebate to insurer to eliminate insurer’s risk, it meanwhile inflates its wholesale price as risk premium. Thus the insurer spending will not decrease under OBR. In addition, rebates to insurer and patients affect demand through different mechanisms. Including patient rebate in OBR lowers patient expense and increases the drug demand, benefiting both patients and the manufacturer, but results in higher insurer spending further. We thus caution insurers/payers who are seeking OBR to reduce their spending.
Profile of the speaker：
Liang (Leon) is an Assistant Professor of Supply Chain Management and Analytics in the College of Business at the University of Nebraska - Lincoln. Prior to joining UNL, he earned his Ph.D. in Supply Chain Management from Smeal College of Business, Pennsylvania State University in 2019. His research addresses the important and urgent issues facing the U.S. healthcare system, such as exorbitant drug prices, drug shortages, drug development and approval, and opioid epidemic. He leverages a versatile set of methods including analytical modeling, empirical methods, data analytics, and experimental methods to provide insights and policy implications to address these issues. His research has been published in top OM journals such as Manufacturing & Service Operations Management. He also serves as reviewers for Manufacturing & Service Operations Management, Production and Operations Management and Decision Sciences.
