Economic Evaluation seminar - Pharmaceutical payment mechanisms based on biased and uncertain evidence
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Event details
Abstract:
Health systems require payment mechanisms that align pharmaceutical prices with expected health benefits. However, treatment effects are never directly observed—they are estimated from evidence that is often uncertain or biased. Current frameworks for pharmaceutical pricing, such as value-based pricing (VBP) and those based on calculating the optimal share of value (SOV) to offer to manufacturers, typically assume observed effects are true effects, ignoring uncertainty and bias. This can lead to misaligned incentives: overpayment for ineffective treatments or underpayment for highly effective ones. We develop a theoretical framework linking evidence quality—both uncertainty and bias—to optimal pricing. First, we show analytically that under uncertainty, standard VBP and SOV approaches set prices too high, reducing population health. We also demonstrate that the direction of bias matters: overestimation of effectiveness leads to welfare losses, while underestimation results in gains. We derive price adjustments required to account for both uncertainty and bias. To our knowledge, this is the first work to formally integrate evidence quality into pharmaceutical pricing mechanisms.
If you are not a member of University of York staff and are interested in attending a seminar, please contact alfredo.palacios
