What is pay-for-performance drug pricing model?

This is new approach towards drug pricing which is gaining lot of buzz in pharmaceutical product management presently. This pay-for-performance pricing determine how much drugs should cost, and for setting the price for innovative treatments.

Payment by Use, in which different prices are paid for drugs depending on the specific indication. This is particularly relevant for new cancer drugs and biologics (high cost) for which there can be a four- to five- fold difference in the economic value of a single drug, depending on what it is used to treat.

Outcomes-based Payment, where payment levels for particular drugs are based on the total savings resulting from their use. This approach is especially important for personalized medicines, where drugs not only bring the benefit to the patient but also yield savings to the health system through avoiding use of drugs by non-responders. Big data analysis can be leveraged by payers and providers to measure efficacy, and serve as the basis for negotiating drug prices with manufacturers. It is also called

Conditional Approval/Conditional Pricing, in which conditional regulatory approval is accompanied by conditional pricing for medicines prior to full information of a drug’s value being determined – an approach that can help with the pricing of urgently needed new medicines. Big data can enable the monitoring and assessment of drugs launched with conditional regulatory approval, measuring and tracking de-identified patient use, outcomes and treatment costs in real time.