Medopi

Pharmaceutical Risk Sharing Agreements

2009-07-11T13:19:00.000-07:00

Gandjour's reviews the nature of pricing as reflected in pharmaceutical risk sharing agreements incorporating the incremental cost effectiveness ratio (1). A medical option is a mechanism whereby such risk sharing agreements might be struck between all stakeholders in a health care market, not limited to pharmaceutical and payer organizations. How, for example, might a physician enter a risk sharing agreement with a health plan is the subject of the following brief review.

Suppose a physician managed the care of one hundred patients on behalf of a health plan. Suppose the cost of a certain treatment for these patients is $1. Suppose this physician were to promise a warrantee of the treatment's outcome such that they would pay for the cost of hospitalization from its failure. Suppose from clinical trials this treatment promises to prevent hospitalization for all of but two of these patients and that the cost of hospitalization is $100.

To make such a warrantee would require this physician to have in its reserve $200. In dividing the cost of such hospitalization risk among all the patients would require $2 from each patient. Therefore, the total cost of treatment such that the physician could potentially break even and provide this warrantee is $3 per patient.

The Medopi scheme provides value in that the physician could anonymously post this scheme in a soon to be developed clearinghouse in the form of an options contract. As stated, the cost of such a contract for each patient would be $3, if this physician were to be as successful as preventing all but 2 patients from being hospitalized.

Suppose a population of competing physicians were only as good as preventing 4 out of 100 patients from hospitalization. They would therefore have to charge $5 per contract ($1 for the treatment + 4 x $100 over 100 patients). Since our original physician performed with a better outcome (2 out of a hundred hospitalizations) they are able to compete on the basis of price. Thus, we immediately have the coupling of price with outcome.

References

1. Gandjour A.. Pharmaceutical risk-sharing agreements. PharmacoEconomics. 2009;27:431-432.

Actonel Using a Medical Option (of Sorts)

2009-04-14T18:02:00.000-07:00

The makers of Actonel (risedronate), P&G, as reported in reuters (see article), recently set up a deal whereby patients under the plan Health Alliance will receive payment for hip fractures. The move is more of a strategic one in competition with its Merck rival and maker of Fosamax (alendronate). This is an example of a medical option of sorts, but with some significant failures.

First, the drug maker will not cover spinal fractures. This is notably the most common type of fracture. Second, the price tag on the coverage is marked at average costs. The following illustrates the problem with the use of averages and show how medical options solves this problem.

The problem with averages is that they represent only the most likely cost of a fracture, if costs are normally distributed. Many studies of medical costs show the deviation of such from normal. The consequence would either be an over-payment from the drug maker or a loss to the health plan. Either way the appropriate allocation of funds does not match what it should for an individual patient. Herein is the problem of the health care system as a whole.

Medical options capitalizes on the network of local interactions between providers. Individual entities may right the rules and know the reflective costs of their own provision of a product or service in a termed accounting period. The value of medical options is the ability to set the cost of such provision on the cost of the product or service itself plus the local probability and cost of treatment failure. The following illustrates as an example:

Introduction to Medical Options from Damon Douglas on Vimeo.

Medopi Launched

2008-12-02T19:30:00.000-08:00

Medopi stands for Medical Options Product Insurance, a new way of looking at health insurance and health care in general. Medical Options allows for medical practices to insure each other toward health outcomes through the creation and trading of medical options contracts in a free and local market.