Sustainable Financing of Innovative Therapies: A Review of Approaches

The process of innovation is inherently complex, and it occurs within an even more complex institutional environment characterized by incomplete information, market power, and externalities. There are therefore different competing approaches to supporting and financing innovation in medical technologies, which bring their own advantages and disadvantages. This article reviews value- and cost-based pricing, as well direct government funding, and cross-cutting institutional structures. It argues that performance-based risk-sharing agreements are likely to have little effect on the sustainability of financing; that there is a role for cost-based pricing models in some situations; and that the push towards longer exclusivity periods is likely contrary to the interests of industry.