Abstract
Results We developed an analytical framework with which to explore the link between reimbursement and investment in research and development (R&D) yielding incremental, substantial, and radical innovations, as well as in novel products that do not offer new therapeutic advantages over existing treatments. This framework posits that there are three ways that reimbursement policies and practices can affect an innovator’s expected return on investment (EROI) directly. The first is by establishing a particular payment level, which in turn affects average sales price in line with the share of the prospective market represented by the payer. The second is by setting a volume of sales at that payment level, as may occur in the case of competitive bidding, for example. The third is by influencing seller costs associated with development, manufacture, or sale. Reimbursement policies also stand to influence EROI indirectly by establishing different incentives for key actors. These incentives, in turn, affect effective price, volume and, in some cases, seller costs.
Highlights
The authors reviewed the research literature to identify hypothetical channels through which policies stand to influence the incentive to invest in development of innovative pharmaceutical products, and developed a conceptual model illustrating direct and indirect channels of influence
We developed an analytical framework with which to explore the link between reimbursement and investment in research and development (R&D) yielding incremental, substantial, and radical innovations, as well as in novel products that do not offer new therapeutic advantages over existing treatments
While researchers have investigated the links between expected return on investment (EROI), ROI, and R&D in the pharmaceutical industry, there is no empirical evidence to directly connect ROI with innovation
Summary
To assist policymakers in evaluating the impact of current and prospective new policies, we developed a framework for analyzing the impact of pharmaceutical reimbursement policies on incentives to innovate. This framework posits that there are three ways that reimbursement policies and practices can affect an innovator’s expected return on investment (EROI) directly. Reimbursement policies stand to influence EROI indirectly by establishing different incentives for key actors. These incentives, in turn, affect effective price, volume and, in some cases, seller costs
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