Paying for On-Patent Pharmaceuticals: Limit Prices and the Emerging Role of a Pay for Outcomes Approach

In this article we propose a new approach to pricing for patent-protected (on-patent) pharmaceuticals. We describe and define limit pricing as a method for drug companies to maximize revenue for their investment by offering budget-neutral pricing to encourage early adoption by payers. Under this approach, payers are incentivized to adopt innovative but expensive drugs more quickly if drug companies provide detailed analyses of the net impact of the new pharmaceutical upon total health budgets. For payers to adopt use of a new pharmaceutical, they would require objective third-party evaluation and pharmaceutical manufacturer accountability for projected outcomes efficacy of their treatments on population health. The pay for outcomes underpinning of this approach falls within the wider aspirations of health reform.