The simple economics of risk-sharing agreements between the NHS and the pharmaceutical industry

The Janssen-Cilag proposal for a risk-sharing agreement regarding bortezomib received a welcome signal from NICE. The Office of Fair Trading report included risk-sharing agreements as an available tool for the National Health Service. Nonetheless, recent discussions have somewhat neglected the economic fundamentals underlying risk-sharing agreements. We argue here that risk-sharing agreements, although attractive due to the principle of paying by results, also entail risks. Too many patients may be put under treatment even with a low success probability. Prices are likely to be adjusted upward, in anticipation of future risk-sharing agreements between the pharmaceutical company and the third-party payer. An available instrument is a verification cost per patient treated, which allows obtaining the first-best allocation of patients to the new treatment, under the risk sharing agreement. Overall, the welfare effects of risk-sharing agreements are ambiguous, and care must be taken with their use.

On international cost-sharing of pharmaceutical R&D

Ramsey pricing has been proposed in the pharmaceutical industry as a principle to price discriminate among markets while allowing to recover the (fixed) R&D cost. However, such analyses neglect the presence of insurance or the fund raising costs for most of drug reimbursement. By incorporating these new elements, we aim at providing some building blocks towards an economic theory incorporating Ramsey pricing and insurance coverage. We show how coinsurance affects the optimal prices to pay for the R&D investment. We also show that under certain conditions, there is no strategic incentive by governments to set coinsurance rates in order to shift the financial burden of R&D. This will have important implications to the application of Ramsey pricing principles to pharmaceutical products across countries.

Roaming in the Mobile Internet: when coverage sharing agreements call for regulation

Revised: 2006-06

Non-Commitment and Savings in Dynamic Risk-Sharing Contracts

We characterize the solution to a model of consumption smoothing using financing under non-commitment and savings. We show that, under certain conditions, these two different instruments complement each other perfectly. If the rate of time preference is equal to the interest rate on savings, perfect smoothing can be achieved in finite time. We also show that, when random revenues are generated by periodic investments in capital through a concave production function, the level of smoothing achieved through financial contracts can influence the productive investment efficiency. As long as financial contracts cannot achieve perfect smoothing, productive investment will be used as a complementary smoothing device.

Heterogeneity and the formation of risk - sharing coalitions

We offer a new explanation of partial risk sharing based on coalition formation and segmentation of society in a risky environment, without assuming limited commitment and imperfect information. Heterogenous individuals in a society freely choose with whom they will share risk. A partition belonging to the core of the membership game obtains. Perfect risk sharing does not necessarily arise. Focusing on mutual insurance rule and assuming that individuals only differ with respect to risk, we show that the core partition is homophily-based. The distribution of risk affects the number and size of these coalitions. Individuals may pay a lower risk premium in riskier societies. A higher heterogeneity in risk leads to a lower degree of risk sharing. We discuss how the endogenous partition of society into risk-sharing coalitions may shed light on empirical evidence on partial risk sharing. The case of heterogenous risk aversion leads to similar results.

Risk sharing and the household collective model

When the joint assumption of optimal risk sharing and coincidence of beliefs is added to the collective model of Browning and Chiappori (1998) income pooling and symmetry of the pseudo-Hicksian matrix are shown to be restored. Because these are also the features of the unitary model usually rejected in empirical studies one may argue that these assumptions are at odds with evidence. We argue that this needs not be the case. The use of cross-section data to generate price and income variation is based Oil a definition of income pooling or symmetry suitable for testing the unitary model, but not the collective model with risk sharing. AIso, by relaxing assumptions on beliefs, we show that symmetry and income pooling is lost. However, with usual assumptions on existence of assignable goods, we show that beliefs are identifiable. More importantly, if di:fferences in beliefs are not too extreme, the risk sharing hypothesis is still testable.

Asset pricing when risk sharing is limited by default: a theoretical framework

We study the asset pricing implications of an endowment economy when agents can default on contracts that would leave them otherwise worse off. We specialize and extend the environment studied by Kocherlakota (1995) and Kehoe and Levine (1993) to make it comparable to standard studies of asset pricillg. We completely charactize efficient allocations for several special cases. We illtroduce a competitive equilibrium with complete markets alld with elldogellous solvency constraints. These solvellcy constraints are such as to prevent default -at the cost of reduced risk sharing. We show a version of the classical welfare theorems for this equilibrium definition. We characterize the pricing kernel, alld compare it with the one for economies without participation constraints : interest rates are lower and risk premia can be bigger depending on the covariance of the idiosyncratic and aggregate shocks. Quantitative examples show that for reasonable parameter values the relevant marginal rates of substitution fali within the Hansen-Jagannathan bounds.

Risk sharing with Multilateral Financial Institutions in infrastructure and energy project financing : effect on capital relief for commercial banks

(Matsukawa and Habeck, 2007) analyse the main instruments for risk mitigation in infrastructure financing with Multilateral Financial Institutions (MFIs). Their review coincided with the global financial crisis of 2007-08, and is highly relevant in current times considering the sovereign debt crisis, the lack of available capital and the increases in bank regulation in Western economies. The current macroeconomic environment has seen a slowdown in the level of finance for infrastructure projects, as they pose a higher credit risk given their requirements for long term investments. The rationale for this work is to look for innovative solutions that are focused on the credit risk mitigation of infrastructure and energy projects whilst optimizing the economic capital allocation for commercial banks. This objective is achieved through risk-sharing with MFIs and looking for capital relief in project finance transactions. This research finds out the answer to the main question: "What is the impact of risk-sharing with MFIs on project finance transactions to increase their efficiency and viability?", and is developed from the perspective of a commercial bank assessing the economic capital used and analysing the relevant variables for it: Probability of Default, Loss Given Default and Recovery Rates, (Altman, 2010). An overview of project finance for the infrastructure and energy sectors in terms of the volume of transactions worldwide is outlined, along with a summary of risk-sharing financing with MFIs. A review of the current regulatory framework beneath risk-sharing in structured finance with MFIs is also analysed. From here, the impact of risk-sharing and the diversification effect in infrastructure and energy projects is assessed, from the perspective of economic capital allocation for a commercial bank. CreditMetrics (J. P. Morgan, 1997) is applied over an existing well diversified portfolio of project finance infrastructure and energy investments, working with the main risk capital measures: economic capital, RAROC, and EVA. The conclusions of this research show that economic capital allocation on a portfolio of project finance along with risk-sharing with MFIs have a huge impact on capital relief whilst increasing performance profitability for commercial banks. There is an outstanding diversification effect due to the portfolio, which is combined with risk mitigation and an improvement in recovery rates through Partial Credit Guarantees issued by MFIs. A stress test scenario analysis is applied to the current assumptions and credit risk model, considering a downgrade in the rating for the commercial bank (lender) and an increase of default in emerging countries, presenting a direct impact on economic capital, through an increase in expected loss and a decrease in performance profitability. Getting capital relief through risk-sharing makes it more viable for commercial banks to finance infrastructure and energy projects, with the beneficial effect of a direct impact of these investments on GDP growth and employment. The main contribution of this work is to promote a strategic economic capital allocation in infrastructure and energy financing through innovative risk-sharing with MFIs and economic pricing to create economic value added for banks, and to allow the financing of more infrastructure and energy projects. This work suggests several topics for further research in relation to issues analysed. (Matsukawa and Habeck, 2007) analizan los principales instrumentos de mitigación de riesgos en las Instituciones Financieras Multilaterales (IFMs) para la financiación de infraestructuras. Su presentación coincidió con el inicio de la crisis financiera en Agosto de 2007, y sus consecuencias persisten en la actualidad, destacando la deuda soberana en economías desarrolladas y los problemas capitalización de los bancos. Este entorno macroeconómico ha ralentizado la financiación de proyectos de infraestructuras. El actual trabajo de investigación tiene su motivación en la búsqueda de soluciones para la financiación de proyectos de infraestructuras y de energía, mitigando los riesgos inherentes, con el objeto de reducir el consumo de capital económico en los bancos financiadores. Este objetivo se alcanza compartiendo el riesgo de la financiación con IFMs, a través de estructuras de risk-sharing. La investigación responde la pregunta: "Cuál es el impacto de risk-sharing con IFMs, en la financiación de proyectos para aumentar su eficiencia y viabilidad?". El trabajo se desarrolla desde el enfoque de un banco comercial, estimando el consumo de capital económico en la financiación de proyectos y analizando las principales variables del riesgo de crédito, Probability of Default, Loss Given Default and Recovery Rates, (Altman, 2010). La investigación presenta las cifras globales de Project Finance en los sectores de infraestructuras y de energía, y analiza el marco regulatorio internacional en relación al consumo de capital económico en la financiación de proyectos en los que participan IFMs. A continuación, el trabajo modeliza una cartera real, bien diversificada, de Project Finance de infraestructuras y de energía, aplicando la metodología CreditMet- rics (J. P. Morgan, 1997). Su objeto es estimar el consumo de capital económico y la rentabilidad de la cartera de proyectos a través del RAROC y EVA. La modelización permite estimar el efecto diversificación y la liberación de capital económico consecuencia del risk-sharing. Los resultados muestran el enorme impacto del efecto diversificación de la cartera, así como de las garantías parciales de las IFMs que mitigan riesgos, mejoran el recovery rate de los proyectos y reducen el consumo de capital económico para el banco comercial, mientras aumentan la rentabilidad, RAROC, y crean valor económico, EVA. En escenarios económicos de inestabilidad, empeoramiento del rating de los bancos, aumentos de default en los proyectos y de correlación en las carteras, hay un impacto directo en el capital económico y en la pérdida de rentabilidad. La liberación de capital económico, como se plantea en la presente investigación, permitirá financiar más proyectos de infraestructuras y de energía, lo que repercutirá en un mayor crecimiento económico y creación de empleo. La principal contribución de este trabajo es promover la gestión activa del capital económico en la financiación de infraestructuras y de proyectos energéticos, a través de estructuras innovadoras de risk-sharing con IFMs y de creación de valor económico en los bancos comerciales, lo que mejoraría su eficiencia y capitalización. La aportación metodológica del trabajo se convierte por su originalidad en una contribución, que sugiere y facilita nuevas líneas de investigación académica en las principales variables del riesgo de crédito que afectan al capital económico en la financiación de proyectos.

Impfung gegen humane Papillomaviren (HPV) zur Prävention HPV 16/18 induzierter Zervixkarzinome und derer Vorstufen

Einleitung: Notwendige Voraussetzung für die Entstehung von Zervixkarzinomen ist eine persistierende Infektion mit humanen Papillomaviren (HPV). Die HPV-Typen 16 und 18 verursachen mit etwa 70% den überwiegenden Teil der Zervixkarzinome. Seit 2006/2007 stehen zwei Impfstoffe gegen HPV 16 und 18 zur Verfügung. Fragestellung: Wie effektiv ist die HPV-Impfung hinsichtlich der Reduktion von Zervixkarzinomen bzw. ihren Vorstufen (CIN)? Stellt die HPV-Impfung eine kosteneffektive Ergänzung zur derzeitigen Screeningpraxis dar? Gibt es Unterschiede bezüglich der Kosten-Effektivität zwischen den beiden verfügbaren Impfstoffen? Sollte aus gesundheitsökonomischer Perspektive eine Empfehlung für den Einsatz der HPV-Impfung gegeben werden? Falls ja, welche Empfehlungen bezüglich der Ausgestaltung einer Impfstrategie lassen sich ableiten? Welche ethischen, sozialen und juristischen Implikationen sind zu berücksichtigen? Methoden: Basierend auf einer systematischen Literaturrecherche werden randomisierte kontrollierte Studien zur Wirksamkeit der HPV-Impfungen für die Prävention von Zervixkarzinomen bzw. deren Vorstufen, den zervikalen intraepithelialen Neoplasien, identifiziert. Gesundheitsökonomische Modellierungen werden zur Beantwortung der ökonomischen Fragestellungen herangezogen. Die Beurteilung der Qualität der medizinischen und ökonomischen Studien erfolgt mittels anerkannter Standards zur systematischen Bewertung wissenschaftlicher Studien Ergebnisse: Bei zu Studienbeginn HPV 16/18 negativen Frauen, die alle Impfdosen erhalten haben, liegt die Wirksamkeit der Impfungen gegen HPV 16/18-induzierten CIN 2 oder höher bei 98% bis 100%. Nebenwirkungen der Impfung sind vor allem mit der Injektion assoziierte Beschwerden (Rötungen, Schwellungen, Schmerzen). Es gibt keine signifikanten Unterschiede für schwerwiegende unerwünschte Ereignisse zwischen Impf- und Placebogruppe. Die Ergebnisse der Basisfallanalysen der gesundheitsökonomischen Modellierungen reichen bei ausschließlicher Berücksichtigung direkter Kostenkomponenten von ca. 3.000 Euro bis ca. 40.000 Euro pro QALY (QALY = Qualitätskorrigiertes Lebensjahr), bzw. von ca. 9.000 Euro bis ca. 65.000 Euro pro LYG (LYG = Gewonnenes Lebensjahr). Diskussion: Nach den Ergebnissen der eingeschlossenen Studien sind die verfügbaren HPV-Impfstoffe wirksam zur Prävention gegen durch HPV 16/18 verursachte prämaligne Läsionen der Zervix. Unklar ist derzeit noch die Dauer des Impfschutzes. Hinsichtlich der Nebenwirkungen ist die Impfung als sicher einzustufen. Allerdings ist die Fallzahl der Studien nicht ausreichend groß, um das Auftreten sehr seltener Nebenwirkungen zuverlässig zu bestimmen. Inwieweit die HPV-Impfung zur Reduktion der Inzidenz und Mortalität des Zervixkarzinoms in Deutschland führen wird, hängt nicht allein von der klinischen Wirksamkeit der Impfstoffe ab, sondern wird von einer Reihe weiterer Faktoren wie der Impfquote oder den Auswirkungen der Impfungen auf die Teilnahmerate an den bestehenden Screeningprogrammen determiniert. Infolge der Heterogenität der methodischen Rahmenbedingungen und Inputparameter variieren die Ergebnisse der gesundheitsökonomischen Modellierungen erheblich. Fast alle Modellanalysen lassen jedoch den Schluss zu, dass die Einführung einer Impfung mit lebenslanger Schutzdauer bei Fortführung der derzeitigen Screeningpraxis als kosteneffektiv zu bewerten ist. Eine Gegenüberstellung der beiden verschiedenen Impfstoffe ergab, dass die Modellierung der tetravalenten Impfung bei der Berücksichtigung von QALY als Ergebnisparameter in der Regel mit einem niedrigeren (besseren) Kosten-Effektivitäts-Verhältnis einhergeht als die Modellierung der bivalenten Impfung, da auch Genitalwarzen berücksichtigt werden. In Sensitivitätsanalysen stellten sich sowohl die Schutzdauer der Impfung als auch die Höhe der Diskontierungsrate als wesentliche Einflussparameter der Kosten-Effektivität heraus. Schlussfolgerung: Die Einführung der HPV-Impfung kann zu einem verringerten Auftreten von Zervixkarzinomen bei geimpften Frauen führen. Jedoch sollten die Impfprogramme von weiteren Evaluationen begleitet werden, um die langfristige Wirksamkeit und Sicherheit beurteilen sowie die Umsetzung der Impfprogramme optimieren zu können. Von zentraler Bedeutung sind hohe Teilnahmeraten sowohl an den Impfprogrammen als auch - auch bei geimpften Frauen - an den Früherkennungsuntersuchungen. Da die Kosten-Effektivität entscheidend von der Schutzdauer, die bislang ungewiss ist, beeinflusst wird, ist eine abschließende Beurteilung der Kosten-Effektivität der HPV-Impfung nicht möglich. Eine langfristige Schutzdauer ist eine bedeutende Vorraussetzung für die Kosten-Effektivität der Impfung. Der Abschluss einer Risk-Sharing-Vereinbarung zwischen Kostenträgern und Herstellerfirmen stellt eine Option dar, um die Auswirkungen der Unsicherheit der Schutzdauer auf die Kosten-Effektivität zu begrenzen.

Application of a policy framework for the public funding of drugs for rare diseases

BACKGROUND: In many countries, decisions about the public funding of drugs are preferentially based on the results of randomized trials. For truly rare diseases, such trials are not typically available, and approaches by public payers are highly variable. In view of this, a policy framework intended to fairly evaluate these drugs was developed by the Drugs for Rare Diseases Working Group (DRDWG) at the request of the Ontario Public Drug Programs. OBJECTIVE: To report the initial experience of applying a novel evaluation framework to funding applications for drugs for rare diseases. METHODS: Retrospective observational cohort study. MEASURES: Clinical effectiveness, costs, funding recommendations, funding approval. KEY RESULTS: Between March 2008 and February 2013, eight drugs were evaluated using the DRDWG framework. The estimated average annual drug cost per patient ranged from 28,000 to 1,200,000 Canadian dollars (CAD). For five drugs, full evaluations were completed, specific funding recommendations were made by the DRDWG, and funding was approved after risk-sharing agreements with the manufacturers were negotiated. For two drugs, the disease indications were determined to be ineligible for consideration. For one drug, there was insufficient natural history data for the disease to provide a basis for recommendation. For the five drugs fully evaluated, 32 patients met the predefined eligibility criteria for funding, and five were denied based on predefined exclusion criteria. CONCLUSIONS: The framework improved transparency and consistency for evaluation and public funding of drugs for rare diseases in Ontario. The evaluation process will continue to be iteratively refined as feedback on actual versus expected clinical and economic outcomes is incorporated. © 2014 Society of General Internal Medicine.