Abstract

http://ssrn.com/abstract=2186322
 
 

References (22)



 


 



Value-Based Differential Pricing: Efficient Prices for Drugs in a Global Context


Patricia M. Danzon


University of Pennsylvania - Health Care Systems Department; National Bureau of Economic Research (NBER)

Adrian Towse


Office of Health Economics

Jorge Mestre-Ferrandiz


Office of Health Economics

December 2012

NBER Working Paper No. w18593

Abstract:     
This paper analyzes pharmaceutical pricing between and within countries to achieve second best static and dynamic efficiency. We distinguish countries with and without universal insurance, because insurance undermines patients’ price sensitivity, potentially leading to prices above second-best efficient levels. In countries with universal insurance, if each payer unilaterally sets an incremental cost effectiveness ratio (ICER) threshold based on its citizens’ willingness to pay for health; manufacturers price to that ICER threshold; and payers limit reimbursement to patients for whom a drug is cost-effective at that price and ICER, then the resulting price levels and use within each country and price differentials across countries are roughly consistent with second best static and dynamic efficiency. These value-based prices are expected to differ cross-nationally with per capita income and be broadly consistent with Ramsey Optimal Prices. Countries without comprehensive insurance avoid its distorting effects on prices but also lack financial protection and affordability for the poor. Conditions for efficient pricing in these self-pay countries include that consumers are well-informed about product quality and firms can price discriminate between rich and poor subgroups within and between countries.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Number of Pages in PDF File: 23

working papers series


Date posted: December 7, 2012  

Suggested Citation

Danzon, Patricia M. and Towse, Adrian and Mestre-Ferrandiz, Jorge, Value-Based Differential Pricing: Efficient Prices for Drugs in a Global Context (December 2012). NBER Working Paper No. w18593. Available at SSRN: http://ssrn.com/abstract=2186322

Contact Information

Patricia M. Danzon (Contact Author)
University of Pennsylvania - Health Care Systems Department ( email )
3641 Locust Walk
Colonial Penn Center
Philadelphia, PA 19104-6358
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Adrian Towse
Office of Health Economics ( email )
12 Whitehall
London, SW1A 2DY
United Kingdom
+44 207 747 1407 (Phone)
+44 207 747 1419 (Fax)
HOME PAGE: http://www.ohe.org
Jorge Mestre-Ferrandiz
Office of Health Economics ( email )
12 Whitehall
London, SW1A 2DY
United Kingdom
Feedback to SSRN


Paper statistics
Abstract Views: 195
Downloads: 26
References:  22

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.422 seconds