Improving Access to Rare Disease Treatments: Optimal Subsidies, Pricing, and Payment

Abstract

There are more than 7,000 known rare diseases, but pharmaceutical manufacturers developed treatments for only 500 of them. To improve the availability and accessibility of treatments for rare diseases, governments have introduced several programs including subsidies, innovative pricing schemes, and outcome-based payment schemes. However, there is no consensus as to whether these programs would improve patient access to these treatments. Inspired by ongoing pilot programs in the United States and Europe, we analyze innovative pricing and payment schemes suggested for rare diseases. In particular, we consider an exogenous pricing strategy that delegates the pricing decision to an independent consortium. We also examine an outcome-based Pay No Cure payment scheme, which offers the drug for free if it is not efficacious for a patient. We formulate a 4-stage Stackelberg game to determine whether it is optimal to subsidize the pharmaceutical manufacturer, the patients, or both under different pricing and payment schemes. Our results reveal several insights: when the government's objective is to maximize patient welfare, it is optimal to offer subsidies to the manufacturer only. Also, we find that this result is robust even when the drug's efficacy is uncertain and patients are risk-averse. In addition, we show that delegating the pricing decision to an independent consortium can improve patient welfare and maintain profitability for manufacturers. Finally, we conclude that outcome-based payment does not necessarily improve patient welfare and may result in higher prices.