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Implementation of personalized medicine in a context of moral hazard and uncertainty about treatment efficacy

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Abstract

This paper analyzes the decision of a health authority to implement personalized medicine. We consider a model in which the health authority has three possibilities. It can apply either the same treatment (a standard or a new treatment) to the whole population or implement personalized medicine, i.e., use genetic information to offer the most suitable treatment to each patient. We first characterize the drug reimbursement contract of a firm producing a new treatment with a companion genetic test when the firm can undertake an effort to improve drug quality. Then, we determine the conditions under which personalized medicine should be implemented when this effort is observable and when it is not. Finally, we show how the unobservability of effort affects the conditions under which the health authority implements personalized medicine.

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Notes

  1. Some papers highlight their limits and methodological issues, particularly those performing cost benefit analysis (Postma et al. 2011; Annemans et al. 2013).

  2. For example, Tardif et al. (2016) analyze the effects of dalcetrapid, a cardiovascular disease-fighting agent, that depend on the genetic characteristics of individuals. They show that the benefits and side effects of this drug depend on whether patients present an AA or a GG genotype. Dalcetrapid seems to be more beneficial for patients with an AA genotype, whereas it may increase the risk of future cardiovascular events in patients with the GG variant of the ADCY9 gene.

  3. Empirical studies [(Bertucci et al. (2000) and (2006)] show that the probability of patients belonging to the group \(\lambda \) deriving a large health benefit from the new treatment may be higher than the probability of patients amenable to the standard treatment receiving a large health benefit when they are administered their best treatment.

  4. In the following, P(1) will be denoted as \(P_{1}\) and P(0) as \(P_{0}\).

  5. Cf. Faulkner et al. (2012).

  6. See for example Belleflamme and Peitz (2015) for developments on complementary innovations in Industrial Organization.

  7. Cf. e.g. Jørgensen (2019) who recalls that the FDA has, for years, recognized that the codevelopment of companion diagnostics and therapeutic products is critical to the advancement of PM and that both products have to be available at the same time.

  8. See Principles for Codevelopment of an In Vitro Companion Diagnostic Device with a Therapeutic Product. Draft Guidance for Industry and Food and Drug Administration Staff. Document issued on: July 15, 2016.

  9. Danzon and Towse (2003) and Danzon et al. (2015) suggest global differentiated pricing across countries in order to encourage optimal investment in the pharmaceutical industry.

  10. See Barros (2011) for an analysis of risk sharing agreements.

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Authors and Affiliations

  1. Univ. Bourgogne Franche-Comté, CRESE EA3190, 25000, Besançon, France

    Stéphane Alcenat, François Maréchal & Florence Naegelen

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  1. Stéphane Alcenat
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  2. François Maréchal
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  3. Florence Naegelen
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Correspondence to François Maréchal.

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Alcenat, S., Maréchal, F. & Naegelen, F. Implementation of personalized medicine in a context of moral hazard and uncertainty about treatment efficacy. Int J Health Econ Manag. 21, 81–97 (2021). https://doi.org/10.1007/s10754-020-09290-2

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