The risk-based price: incorporating uncertainty and risk attitudes in health technology pricing

Abstract

Decision-makers often determine if technologies are good value for money and should therefore be adopted through value-based decision rules that compare cost-effectiveness analysis results to a threshold value. This decision rule assumes that decision-makers are indifferent between interventions with the same expected value but different underlying uncertainty. Such indifference is unlikely to hold in practice. We propose a risk-based price and accompanying decision rules to address this limitation. Risk is characterized as the independent per-patient expected value of perfect information (iEVPI), a modification of standard EVPI. The iEVPI estimates the expected value of net benefit losses caused by uncertainty related to a technology, independent of the uncertainty related to alternative treatments. ‘Payer risk tolerance’ is the maximum per-patient risk of making wrong decisions that payers are willing to accept, expressed in monetary terms. The risk-based price is the price at which the iEVPI is equal to the payer risk tolerance. The risk-based decision rules are as follows: (i) a technology is acceptable for adoption if the incremental net benefit of the technology is greater than or equal to zero, and if the iEVPI is less than or equal to the payer risk tolerance, and (ii) the optimal technology has the greatest expected net benefit at the lower of the sponsor submitted or risk-based price at a given cost-effectiveness threshold value. We demonstrate both risk-averse and risk-neutral payers prefer risk-based pricing outcomes. Risk-based pricing improves incentives for evidence development. Its implementation would increase health system net benefits.