Conditional Approval and Value-Based Pricing for New Health Technologies

Conditional-approval schemes, which postpone a new health technology’s ultimate pricing and reimbursement decisions until after the collection of post-market-approval data, can mitigate uncertainty regarding the technology’s health-economic value. Analytical work that evaluates these schemes rarely considers the strategic behavior of payers and health technology providers, with a few notable exceptions, and does not explicitly evaluate mechanisms for reimbursement during the post-marketing data collection period. We develop a stylized model of cooperative bargaining that captures that behavior, and we characterize the interim prices that arise during conditional approval of a new treatment. We assume a risk-neutral company presents a new health technology to a risk-neutral payer and model two types of conditional approval that vary in the level of access to treatment during additional data collection. We show that the interim price obtained via Nash bargaining is always higher than the immediate-approval price and reflects the cost-sharing of data collection. We illustrate the potentially negative impact of policy constraints regarding interim pricing and offer a new risk-sharing mechanism to mitigate those constraints’ potentially adverse consequences. While recent literature suggests that price reductions at immediate approval can act as an alternative to conditional approval, our results also imply that such price differences would be due to increases associated with conditional-approval schemes, rather than discounts at immediate approval. We complement our analytical results and comparative statics with a case study calibrated to data from a UK-based conditional approval agreement for an oncology drug