The challenge of paying for cost-effective cures

In this article, we consider the problem of financing highly effective and cost-effective prescription drugs within a value-based pricing system. Precisely because these drugs are highly effective, their value-based prices may be quite expensive; and moreover, the value-based price of a cure ought to be set high enough to create incentives for innovation, otherwise these beneficial therapies may be underdeveloped. However, in our fragmented health insurance system, where patients move frequently between payers, these payers generally lack the incentives to pay value-based prices for cures because they cannot ensure that they will reap the long-term economic benefits. Therefore, we argue that there is a need for mechanisms to spread the burden of financing of cures across payers to maximize patient access and the public good. We suggest that risk adjustment, reinsurance, and risk corridors are familiar policy options that merit consideration to address the problem and create incentives for value-based pricing.