Discounts for Drugs

Here are some questions to consider as you read the article. Does asymmetric information afflict the markets for prescription drugs? If so, who knows the most, the drug company, the patient, the doctor, or the health insurance company? Does a "claw-back" clause that gives an after-the-fact discount to the health insurance company if the drug fails to deliver as much as expected be a possible solution to problems created by asymmetric information? Who can determine whether the drug fails to deliver as much as expected and how? Health Insurers Push to Tie Drug Prices to Outcomes by: Peter Loftus and Anna Wilde Mathews May 11, 2016 Click here to view the full article on WSJ.com TOPICS: Contracts, Pricing SUMMARY: Health insurer Cigna will get extra price discounts from drugmakers if new cholesterol medications don't help patients as much as expected, a significant step in a broader push to tie the cost of drugs to how well they work. CLASSROOM APPLICATION: The article raises interesting issues about contracts: the costs of enforcing contracts (tracking patient experiences) and the reliability of drug trials as indicators of general experience with drugs. QUESTIONS:  1. (Advanced) Are drug trials perfect predictors of drug efficacy in large populations? 2. (Introductory) Why are health insurers and pharmacy-benefit managers pushing to tie drug prices to efficacy? 3. (Advanced) How does the ownership of data about drug efficacy affect the negotiation of value-based contracts? Reviewed By: James Dearden, Lehigh University