ZLC Seminar Series: Gerardo Pelayo

"Analyzing the value of contracts in the joint access and coverage problem in health care"

Abstract
The health care industry has particularities that set it apart from normal economic models such as the randomness both in the disease incidence and the treatment outcome within and across patient categories. These problems often result in the delayed, limited, or no introduction in a health payer’s reimbursement policy of new drug treatments aimed at treating chronic conditions (where uncertainty is highest), raising questions over the validity of the contract scheme and decision-making criteria currently used. We model a single period interaction between a risk neutral pharmaceutical manufacturer who offers to sell a new drug to a risk-averse health-payer and analytically compare contract performance under different constrained maximization problems denoting a health-payer’s different priorities. Specifically, we are interested in the effect of contract design and the health-payer’s decision making criteria on the simultaneous decision of access level (i.e., which patient categories are included in the reimbursement policy) and service level (i.e., how many drugs will be available to meet effective demand).