An assessment of innovative pricing schemes for the communication of value: is price discrimination and two-part pricing a way forward?

ABSTRACT

Introduction: With the introduction of new expensive medicines, traditional pricing schemes based on constructs such as price per pill/vial have been challenged. Potential innovative schemes could be either financial-based or performance-based. Within financial-based schemes the use of price discrimination is an emerging option, which we explore in this assessment.

Areas covered: In the short term the price per indication approach is likely to become more prevalent for high cost, high benefit new pharmaceuticals, such as those emerging in oncology (e.g. new combination immunotherapies). ‘Two-Part Pricing’ (2PP) is a frequently used payment method in other industries, which consists of an Entry Fee, giving the buyer the right to use the product, and a Usage Price charged every time the product is purchased. Introducing 2PP into biopharma could have cross-stakeholder benefits including broader patient access, and improvement in budget/revenue predictability. A concern however is the potential complexity of the negotiation between manufacturer and payer.

Expert commentary: We believe ‘price discrimination’ and 2PP in particular can be relevant for some new, expensive specialist medicines. A recommended first step would be to initiate pilots to test to what degree the 2PP approach meets stakeholder objectives and is practical to implement within specialty care.

KEYWORDS:

• Innovative pricing
• price discrimination
• 2PP
• two-part pricing
• pricing scheme
• pharmacoeconomics
• biopharma

Acknowledgement

We would like to acknowledge Emma Boulton, Tolley Health Economics, for her support in the preparation and formatting of the manuscript.

Declaration of interest

The authors have no relevant affiliations or financial involvement with any organization or entity with a financial interest in or financial conflict with the subject matter or materials discussed in the manuscript. This includes employment, consultancies, honoraria, stock ownership or options, expert testimony, grants or patents received or pending, or royalties. Peer reviewers on this manuscript have no relevant financial or other relationships to disclose.

Notes

1. In Europe there are few buyers per country, although there may be national and regional divisions. In Germany, the structure is a bit different with many payers but the system is still highly centralized regarding pricing where AMNOG is a key entity. In the US, the buyers/payers are much more fragmented but with some major players, e.g. Medicare/Medicaid, Blue Cross/Blue Shield .

2. It is reasonable to assume that for a patent protected medicine the actual manufacturing cost is relatively marginal as a proportion of the list price; this assumption is in a way validated by the dramatic price decrease when generics/biosimilars enter the market.

Additional information

Funding

Health Access Agency, Miller Economics Ltd and Tolley Health Economics have all put this paper together but have not received funding from any third party.