Pharmaceutical Risk-Sharing Agreements

Increased spending on pharmaceuticals continues to foster debate over healthcare policy. The increasing costs of bringing products to the market, as well as increased utilization of pharmaceuticals contribute to increased pharmaceutical expenditure; however, appropriate pharmaceutical use can, in certain cases, reduce overall healthcare costs. Nevertheless, the perception of high drug prices still puts pressure on pharmaceutical companies to build confidence in the proposition that their products are worth the additional expense. One potential approach to building this confidence, and maintaining investment incentives, is for the pharmaceutical company to share the risk of a situation in which there is uncertainty about whether the product is effective for the consumer and payer. Such risk-sharing arrangements for pharmaceuticals, like warranties, can be used to signal high quality when product quality is not fully observable. While there may be difficulties in devising such schemes for every product, such risk-sharing plans may become a staple feature of the market in the future.