Managing the risk of antibiotic resistance

Bacterial resistance to antibiotics and resulting difficulties in treating and controlling infectious diseases can lead to longer hospital stays and increased mortality rates. In the long term, an increase in antibiotic resistance could result in more people becoming seriously ill or dying from routine illnesses and the ability to perform routine medical procedures could be compromised.

To date, drug innovation and development have not kept pace with antibiotic resistance. The need to conduct large trials involving acutely ill patients who are difficult to identify can make antibiotic development prohibitively costly and complex. Antibiotics also offer limited opportunities to generate returns as they are relatively cheap and the newest and most powerful antibiotics are reserved for patients who do not respond to first-line treatment. As a result, there are only a handful of companies currently in the market and the development pipeline is very thin.

In the context of antibiotic resistance, de-linkage of profit and volume through the use of an “insurance model” has been proposed as a potential strategy to stimulate innovation and curb antibiotic resistance through the availability of novel products. In this paper, Milliman’s Tanya Hayward and Emma Hutchinson discuss how actuarial risk management and insurance principles can be applied when considering the de-linkage of price and volume.