Cover: Three Essays in Health Economics

Three Essays in Health Economics

Towards Alternative Payment Models for High-Value, High-Cost Medical Treatments

Published Dec 17, 2018

by Jakub P. Hlavka

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The emergence of high-cost treatments has accelerated the pace of discussions about alternative payment models that would simultaneously enable rapid patient access while ensuring sustainable health care spending. However, limited empirical research exists on the magnitude of the problem and the expected performance of such payment models.

The first paper presents a pipeline analysis of regenerative treatments in clinical trials. It finds that there are nearly 50 late-stage clinical trials that could produce regenerative drugs with potentially high prices. Alzheimer's disease poses the largest budget impact risk for U.S. payers, with new spending likely to exceed $50 billion annually. Spending on several other regenerative treatments, including treatments for traumatic brain injury, X-linked retinoschisis and congestive heart failure, could each exceed $5 billion annually.

The second paper studies a novel payment model linking a drug's performance to pre-negotiated price levels. Drawing on the Future Elderly Model (FEM), it estimates the clinical benefits of PCSK9 inhibitors under three different efficacy scenarios. It shows that an adaptive pricing approach has the potential to lower the cost per event avoided under a low-efficacy scenario, thus avoiding unnecessary spending, should the drug not meet clinical trial efficacy in the real world.

The third paper studies deferred payment in a gene therapy for congestive heart failure. It draws on a simulation of more than 91,000 Medicare fee-for-service beneficiaries over a period of 3 years and finds that deferred payment results in a 26.1% reduction of cardiovascular admissions and a 23.3% reduction of deaths over a three-year period, both relative to status quo payment and assuming a fixed budget constraint. Financial gains to payers and manufacturers are relatively minimal, with savings on avoided admissions amounting to just 0.3% of total spending, primarily due to the small share of expected cost savings on the total cost of therapy.

The dissertation finds that large budget pressures resulting from regenerative treatments will be driven by several specific indications, and tests how two different payment models could help address the uncertainty about clinical benefits and the high upfront cost of some emerging therapies.

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This document was submitted as a dissertation in September 2018 in partial fulfillment of the requirements of the doctoral degree in public policy analysis at the Pardee RAND Graduate School. The faculty committee that supervised and approved the dissertation consisted of Soeren Mattke (Chair), Sarah Nowak, and Dana Goldman.

This publication is part of the RAND dissertation series. Pardee RAND dissertations are produced by graduate fellows of the Pardee RAND Graduate School, the world's leading producer of Ph.D.'s in policy analysis. The dissertations are supervised, reviewed, and approved by a Pardee RAND faculty committee overseeing each dissertation.

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