Strategic Delay and Bargaining Over Public Insurance Coverage for Drugs in Australia

Abstract

Public funding for pharmaceuticals often follows repeated negotiation between manufacturers and a public agency, yet little empirical work examines how the timing of agreement reflects the economic structure of these interactions. Using a duration model of negotiations in Australia from 2005 to 2018, we assess whether observed patterns of delay and agreement align with dynamic bargaining theory under incomplete information. Agreements from 634 submissions for 400 therapies required a median of 16 months, and 71% of negotiation rounds ended without agreement. Therapies with lower expected value to the agency-reflected in higher incremental cost per QALY, greater budget impact, or evidence uncertainty-experienced longer delays and lower agreement rates, while those with strong clinical importance, perceived need, or elevated public interest were listed more quickly. Delays also varied across therapeutic classes and with a therapy's position in the sequencing of available treatments. The observed patterns point to a systematic listing rule in which therapies are funded when expected health gains justify their opportunity costs. They also support the view that the timing of agreement reflects strategic negotiation under uncertainty, not simply procedural delay.