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PRICING OF MEDICAL DEVICES UNDER COVERAGE UNCERTAINTY—A MODELLING APPROACH
Author(s) -
Girling Alan J.,
Lilford Richard J.,
Young Terry P.
Publication year - 2012
Publication title -
health economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.55
H-Index - 109
eISSN - 1099-1050
pISSN - 1057-9230
DOI - 10.1002/hec.1807
Subject(s) - vendor , revenue , revenue management , economics , product (mathematics) , value (mathematics) , reference price , function (biology) , set (abstract data type) , point (geometry) , price setting , microeconomics , econometrics , actuarial science , business , computer science , marketing , finance , geometry , machine learning , evolutionary biology , programming language , biology , mathematics
SUMMARY Product vendors and manufacturers are increasingly aware that purchasers of health care will fund new clinical treatments only if they are perceived to deliver value‐for‐money. This influences companies' internal commercial decisions, including the price they set for their products. Other things being equal, there is a price threshold, which is the maximum price at which the device will be funded and which, if its value were known, would play a central role in price determination. This paper examines the problem of pricing a medical device from the vendor's point of view in the presence of uncertainty about what the price threshold will be. A formal solution is obtained by maximising the expected value of the net revenue function, assuming a Bayesian prior distribution for the price threshold. A least admissible price is identified. The model can also be used as a tool for analysing proposed pricing policies when no formal prior specification of uncertainty is available. Copyright © 2011 John Wiley & Sons, Ltd.