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Incentives to implement personalized medicine under second-best pricing
Michel Mougeot1, Florence Naegelen1
1CRESE, UBFC, Besancon, France.
Health Economics
|August 26, 2022
Summary
This study explores optimal pricing for personalized medicine, finding that higher quality treatments lead to higher prices and increased social welfare. It details policies for health authorities to encourage tailored medical investments.
Area of Science:
- Health Economics
- Pharmaceutical Policy
- Personalized Medicine
Background:
- Personalized medicine offers tailored treatments but faces implementation challenges.
- Existing policies may not adequately incentivize personalized treatment development and adoption.
- Understanding optimal pricing is crucial for balancing innovation and accessibility.
Purpose of the Study:
- To characterize the socially optimal pricing policy for implementing personalized medicine.
- To analyze benchmark allocation and optimal policies for single treatments.
- To determine policies that incentivize firms to invest in personalized treatment R&D.
Main Methods:
- Economic modeling of optimal pricing strategies.
- Analysis of first-best and second-best allocation scenarios.
- Characterization of Health Authority policies for investment incentives.
Main Results:
- Optimal prices increase with treatment quality and effectiveness.
- Personalized medicine pricing can yield higher social welfare than benchmark cases.
- Specific pricing policies can induce firms to invest in optimal treatment effectiveness.
Conclusions:
- Socially optimal pricing is key to enabling personalized medicine.
- Health authorities can design policies to foster investment in tailored treatments.
- Effective pricing strategies enhance both treatment quality and overall social welfare.
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