Value-Based Pricing for Patent-Protected Medicines Over the Product Life Cycle: Pricing Anomalies in the "Age of Cures" and Their Implications for Dynamic Efficiency.

OBJECTIVES: Conventional cost-effectiveness analysis (CEA) for the value-based pricing of new medicines largely ignores the implications of limited market exclusivity (ie, patent-protection periods plus any exclusivity granted by regulators). This paper explores the implications of this methodological shortcoming, which produces several pricing anomalies with potentially unintended effects on research and development (R&D) incentives. METHODS: We illustrate these implications by comparing 4 stylized examples of increasing complexity, from short-term cures for acute conditions to long-term cures for rare, health-catastrophic conditions. RESULTS: (1) Conventional-CEA will project a different result than an adjusted CEA that considers generic or biosimilar entry; (2) free and flexible pricing of long-term treatments (eg, statins for hypercholesterolemia) or repeated-dose cures (eg, insulin for type 1 diabetes) for chronic conditions will likely result in predictable price increases at the end of the exclusivity period that may be perceived as unjustified or unsupported; and (3) one-time administration "cures" (eg, gene therapy for spinal muscular atrophy) have the potential to allocate a large share of the social surplus to the manufacturer over the product lifetime, which may or may not be dynamically efficient per se, but may also inadvertently disadvantage the development of valuable long-term treatments or repeated-dose cures for chronic conditions. CONCLUSIONS: We highlight the need for additional research on long-term solutions to these issues that would aim to promote dynamically efficient global R&D. More work is needed on the following: (1) relationships between social surplus allocation and the amount and composition of global R&D, as we may be as likely to be encouraging excessive R&D in some areas as to be undersupplying it in others; and (2) relating the size of the surplus reward to R&D cost and, thus, the return on investment.

The Impact of PCAOB-Type Regulations on Auditors Under Different Legal Systems.

This article analyzes the impact of Public Company Accounting Oversight Board (PCAOB)-type regulatory oversight and legal liability on audit quality and social surplus. We show the conditions under which regulatory oversight can improve audit quality and social surplus, as compared with the impact of legal systems. Moreover, we demonstrate that regulatory oversight is not likely to substitute effectively for a legal system. This is the first study that analyzes the possible effects of an audit regulator on auditors under different legal systems, and our results enhance understanding of the complex relationship between regulatory oversight, a legal system, and social surplus.

The social value of gambling: surplus estimates by gambling types for France.

We estimate the social surplus of gambling in France by adding three components: consumer surplus, producer surplus and taxation revenue. To estimate consumer surplus, we use the rational benchmark approach, which attributes a loss of welfare (i.e. a negative surplus) to problem gamblers depending on their level of excess spending compared with recreational gamblers. Using data for the year 2019 and considering only legal gambling, we find that the consumer surplus is negative for the gambling activity as a whole. When we add the producer surplus and the taxation revenue to the consumer surplus, we find that the social surplus is more likely to be negative, ranging from - 45 billion euros in the pessimistic scenario to + 6 billion euros in the optimistic scenario. There are, however, important differences between gambling types. The social surplus is negative in all scenarios for poker and sports betting. Conversely, it is positive in all scenarios for draw lotteries and scratch cards.

A theory on ICER pricing and optimal levels of cost-effectiveness thresholds: a bargaining approach.

In many health systems around the world, decisions about the reimbursement of-and patient access to-new medicines are based on health technology assessments (HTA) which, in some countries, include the calculation of an incremental cost-effectiveness ratio (ICER). Decision-makers compare the ICER against a pre-specified value for money criterion, known as the cost-effectiveness threshold (CET), to decide in favour of or against reimbursement. We developed a general model of pharmaceutical markets to analyse the relationship between the CET value and the distribution of the health and economic value of new medicines between consumers (payers) and producers (life science industry developers). We added to the existing literature in three ways: including research and development (R&D) cost for developers as a sunk cost; incorporating bargaining using the Nash bargaining solution to model payer bargaining power from regulation and use of competition; and analysing the impact of a non-uniform distribution of developers R&D costs on the supply of innovation. In some circumstances of bargaining power distribution and R&D cost, we found that using a CET value in HTA decision-making higher than the supply-side CET is socially efficient. Decision-makers should consider adjustable levels of the CET or interpretation of ICERs higher than the CET according to the bargaining power effect. The findings of this research pointed to the need for more research on the impact of bargaining power, how R&D investment responds to rewards, i.e. the elasticity of innovation, and pre- and post-patent expiry modelling.

Impact of government subsidy on the remanufacturing industry.

In order to decrease environment pollution and the usage of raw material, some governments use subsidy policy to encourage the Original Equipment Manufacturer (OEM) and the Independent Remanufacturer (IR) to remanufacture. While, how government subsidy affects remanufacturing activity and industry competition is still unclear. In our research, there are an OEM and an IR in the market. And the OEM and the IR have three different choices of remanufacturing: no-remanufacturing, remanufacturing part, and remanufacturing all. This research builds a game-theoretic model to discuss the impact of government subsidy on manufacturing and remanufacturing quantities, consumer surplus, OEM and IR profit, social surplus and environment for each choice of the OEM and the IR. The result shows that the amount of the OEM remanufacturing decreases with government subsidy when the OEM remanufactures all but the IR remanufactures part. OEM and IR profit, and consumer surplus may decrease with government subsidy in some competitive markets. Total social surplus may also decrease in government subsidy when OEM-IR competition exists in a remanufactured market or only the IR remanufactures part. The change of the total environment impact depends on the relative environment impact of unit manufactured and remanufactured product when OEM or IR remanufactures part. Thus, it is not always a great strategy for policy makers to only increase government subsidy in order to decrease environment pollution and improve social surplus. Before increasing government subsidy, policy makers need to more learn about the competitive markets and environment impact per unit product. Finally, numerical study is conducted to confirm these findings, discuss what happens when the willingness-to-pay of consumers for remanufactured products changes, and analyze the impact of different levels of environment impact per remanufactured product on total environment.

Balancing the Budget through Social Exploitation: Why Hard Times Are Even Harder for Some.

In all societies needs and wants regularly exceed resources. Thus societies are always in deficit; demand always exceeds supply and "balancing the budget" is a constant social problem. To make matters somewhat worse, research suggests that need- and want-fulfillment tends to further stimulate the cycle of wantseeking rather than satiating desire. Societies use various resource-allocation mechanisms, including price, to cope with gaps between wants and resources. Social exploitation is a second mechanism, securing labor from population segments that can be coerced or convinced to perform necessary work for free or at below-market compensation. Using practical examples, this article develops a theoretical framework for understanding social exploitation. It then offers case examples of how different segments of the population emerge as exploited groups in the United States, due to changes in social policies. These exploitative processes have been exacerbated and accelerated by the economic downturn that began in 2007.