CCHE Seminar Series: How Risky is that Risk Sharing Agreement? Potential Unintended Consequences of Six Common Pharmaceutical Risk Sharing Agreements

Greg Zaric

Western University

Friday April 9th, 2020, 10Am-12Pm, Zoom


Background: Pharmaceutical risk sharing agreements (RSAs) are commonly used to manage uncertainties in costs and/or clinical benefits when new drugs are added to a formulary. However, existing mathematical models of RSAs ignore the impact of RSAs on clinical and financial risk.

Methods: We develop a model in which the number of patients, total drug consumption per patient, and incremental health benefits per patient are uncertain at the time of the introduction of a new drug. We use the model to evaluate the impact of six common RSAs on total drug costs and total net monetary benefit (NMB).

Results: We show that, relative to not having an RSA in place, each RSA reduces expected total drug costs and increases expected total NMB. Each RSA also improves two measures of risk by reducing the probability that total drug costs exceed any threshold and reducing the probability of obtaining negative NMB. However, the effects on variance in both NMB and total drug costs are mixed. In some cases, relative to not having an RSA in place, implementing an RSA can increase variability in total drug costs or total NMB. We also show that, for some RSAs, when their parameters are adjusted so that they have the same impact on expected total drug cost, they can be rank-ordered in terms of their impact on variance in drug costs.

Conclusions: Although all RSAs reduce expected total drug costs and increase expected total NMB, some RSAs may actually have the undesirable effect of increasing risk. Payers and formulary managers should be aware of these mean-variance tradeoffs and the potentially unintended results of RSAs when designing and negotiating RSAs.

Greg Zaric, Ph.D., is a Professor of Management Science and Academic Director of the MSc program and the MMA program at the Ivey Business School, Western University. He also holds an adjunct appointment in the Department of Epidemiology and Biostatistics at Western. He is the Editor-in-Chief of Health Care Management Science, and has served on the editorial boards of Operations Research and Production and Operations Management. He is currently a member of the Ontario Steering Committee for Cancer Drugs. His research focuses on using mathematical and economic models to address problems in health policy and healthcare operations management. He has published over 100 peer-reviewed papers, as well as one textbook and one edited volume. He holds a B.Sc. from Western University, an M.ASc. from the University of Waterloo, and a Ph.D. from Stanford University.