Developing shortcut algorithms for value-based pricing of pharmaceuticals

Value-based pricing (VBP) involves regulating the reimbursement or pricing of pharmaceuticals based on their therapeutic value. We adopt VBP as the policy context for this study. Unlike alternative approaches, VBP depends on an explicit relationship between price and incremental health outcomes and costs. This dependence makes VBP decisions especially sensitive to uncertainty about downstream costs and outcomes. A central question is whether—and how far—these components must be modeled beyond the trial period. A key gap is that the literature provides limited, generalizable conditions for when extrapolation is necessary for pricing conclusions versus when trial-period evidence is sufficient. This paper demonstrates the conditions under which it is possible to forgo modeling downstream costs beyond the clinical trial period for VBP purposes. It provides a series of specific mathematical proofs to support this approach. The proposed shortcuts reduce the burden and time required to produce evaluations. Furthermore, the shortcuts validate the robustness of decision models by allowing modelers to test whether applying these assumptions yields consistent results, enhancing the reliability of VBP methodologies.