Electronic Thesis and Dissertation Repository

Thesis Format

Integrated Article

Degree

Doctor of Philosophy

Program

Business

Supervisor

Zaric, Gregory S.

2nd Supervisor

Pun, Hubert

Joint Supervisor

Abstract

Health care decision-makers face several uncertainties regarding pharmaceutical products. For new and expensive drugs, the performance outside of clinical trials could be uncertain. For old and low-profit pharmaceutical products, the supply could be uncertain, causing drug shortages. In three essays, I study mitigating strategies to deal with different types of uncertainties associated with pharmaceutical products.

In the first essay, I compare two types of pharmaceutical reimbursement contracts to mitigate the uncertainties associated with new and expensive drugs. I construct a game-theoretic model to analyze the interactions between a pharmaceutical manufacturer and a payer. The payer’s reimbursement of a drug is either related to the cost-effectiveness or the sales volume of the drug in the two contracts, respectively. I find key factors that determine the two parties’ preferences for the two contracts. I also find conditions under which each type is preferred by both parties and can achieve a Pareto improvement.

In the second essay, I study mitigating strategies for drug shortage, which has become a serious problem in many countries in recent years. I construct a multi-period supply chain model to analyze the interactions between a representative hospital and an unreliable pharmaceutical manufacturer. The hospital owns an in-house manufacturer and can procure the drug from the two manufacturing facilities. I also assume that the hospital can make emergency production. I study the two parties’ procurement and production decisions and examine the impacts of the hospital’s optimal decisions on the external manufacturer’s profit.

In the third essay, I study mitigating strategies for drug shortages from the governments’ perspective. I construct a game-theoretic model consisting of a pharmaceutical manufacturer, a wholesaler, and a government. I compare two types of mitigating strategies that the government can implement: providing subsidies to the wholesaler, or using a government-owned manufacturer. I identify key factors for the government’s preference over the two strategies and examine the impact on the private sector.

The three essays have theoretical contributions to game theory and supply chain risk management literature and have policy implications for policymakers to manage drug supply and patient access to drugs.

Summary for Lay Audience

Health care decision-makers face several uncertainties regarding pharmaceutical products when making decisions. For new and expensive drugs, their performance in the real-world could be uncertain. For old and low-price drugs, there could be manufacturing problems, which may cause drug shortages. In this thesis, I study strategies to deal with different types of uncertainties associated with pharmaceutical products.

In the first essay, I compare two types of drug reimbursement contracts. I assume a drug company is selling a new and expensive drug to treat patients with a disease. A payer (e.g., government drug benefit programs or insurance companies) is considering covering the drug so that patients do not need to pay from their own pockets. However, the payer may have two concerns: 1) the health benefit that the drug can provide to the general patients may be lower than that in the clinical trials; and 2) more drugs may be sold than originally estimated, causing a higher expenditure to the payer. Therefore, the payer is considering two reimbursement contracts in which the payment to the manufacturer is linked to either the health benefit or the sales volume of the drug. We identify circumstances in which both the manufacturer and the payer prefer the same type of contract, which can achieve a win-win situation.

In the second essay, I study mitigating strategies for drug shortages, which has become a serious problem in many countries in recent years. Due to the prevalence of drug shortages of many common drugs, several US hospitals allied and established a manufacturer to produce certain generic drugs to make the drugs more available for patients. Motivated by this initiative, I analyze when the hospitals would benefit from owning a drug manufacturer, and what are the impacts on the external manufacturers.

In the third essay, I study government interventions on mitigating drug shortages. I compare two types of government interventions: providing subsidies or using a public manufacturer. I find that the government should provide subsidies to inexpensive but critical generic drugs without alternatives, and it should use a public manufacturing facility to produce expensive lifesaving drugs.

Download

Share

COinS