When Do Annuity-Based Payments Help to Address the Affordability Challenge of Funding Advanced Therapies? Insights from a Budget Impact Simulation

Spreading payments over time by means of annuities has been proposed as a means to address the affordability challenge of funding very expensive advanced therapies, especially within managed entry agreements. This study aims to examine when annuities (in contrast with a single upfront payment) offer a viable solution for both healthcare payers and manufacturers to fund one-time advanced therapies. We put forward four conditions under which annuity-based payments can be considered an acceptable payment strategy: (1) excessive budget impact, (2) cost equivalence with upfront payment, (3) compensation for financial risk and (4) a limited annuity period. We develop an exploratory model that simulates how the budget impact of annuity-based payments for advanced therapies meets these conditions across several economic and epidemiological scenarios. Given our model parameter values, results suggest that annuity-based payments are most suitable when the initial patient volume (prevalence) significantly exceeds annual new cases (incidence), and when the financial risk premium for the annuity-based payment scheme does not exceed the social discount rate. While further refinement of the model is needed, this study demonstrates that annuity-based payments can only help control the annual budget need when the focus is on a high-prevalence disease, and the therapy is financed through health impact bonds issued by a governmental payer. This arrangement ensures a low-risk premium, which is typically only available to public payers.