Saturday, July 14, 2007

Pay-for-Performance....for Pharma

One of the toughest jobs in pricing has got to be in the pharmaceutical industry. This is no simple B2B or B2C pricing challenge. To cut a long story short, it goes something like this…

- The Government is the major purchaser, but it is not a provider. The question it has to ask itself is “Should I reimburse payment for this product?”

- The providers (clinicians) act as agents for the patients, and bear little if any of the financial responsibility for the purchase of the treatment (drugs). The question they face is “Should I prescribe this drug?”

- And then there is the patients, who don’t have adequate knowledge about their health care needs and treatment (for most, it is a ‘credence product’). The question they have to grapple with is “Should I accept this prescription?”

In many parts of the world, “Big Pharma” is thought of as “Big Price Gouger”, but the costs of finding and bringing to market are astronomical (anywhere between $US500mill - $US2bill).

So is there an alternative pricing paradigm for the pharmaceutical industry? Well, according to Andrew Pollock, writing in the New York Times this Bastille Day, yes there is. Its called pay-for-performance pricing and you can read the story here.
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