Drug Innovation, Prices and Health

UPF Economics and Business Working Paper No. 807

20 Pages Posted: 6 Oct 2009

See all articles by Vicente Ortun

Vicente Ortun

Universitat Pompeu Fabra - Department of Economics and Business

Jaume Puig-Junoy

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Maria Callejon

University of Barcelona

Date Written: January 1, 2005

Abstract

This article tries to reconcile economic-industrial policy with health policy when dealing with biomedical innovation and welfare state sustainability. Better health accounts for an increasingly large proportion of welfare improvements. Explanation is given to the welfare losses coming from the fact than industrial and health policy tend to ignore each other.

Drug's prices reflecting their relative effectiveness send the right signal to the industry - rewarding innovation with impact on quantity and quality of life - and to the buyers of health care services.

The level of drug's public reimbursement indicates the social willingness to pay of the different national health systems, not only by means of inclusion, or rejection, in the basket of services covered, but especially establishing the proportion of the price that is going to be financed publicly.

Reference pricing for therapeutic equivalents - as the upper limit of the social willingness to pay- and two-tiered co-payments for users (avoidable and inversely related with the incremental effectiveness of de drug) are deemed appropriate for those countries concerned at the same time with increasing their productivity and maintaining its welfare state. Profits drive R&D but not its location. There is no intrinsic contradiction between high productivity and a consolidated National Health Service (welfare state) as the European Nordic Countries are telling us every day.

Keywords: Biomedical R&D, Industrial Policy, Drug's Price Regulation, Health Policy, Welfare State, Health Economics

JEL Classification: D45, I18, P35, K23

Suggested Citation

Ortun, Vicente and Puig-Junoy, Jaume and Callejón, Maria, Drug Innovation, Prices and Health (January 1, 2005). UPF Economics and Business Working Paper No. 807, Available at SSRN: https://ssrn.com/abstract=843707 or http://dx.doi.org/10.2139/ssrn.843707

Vicente Ortun (Contact Author)

Universitat Pompeu Fabra - Department of Economics and Business ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
(34) 93 542 18 57 (Phone)
(34) 93 542 17 46 (Fax)

HOME PAGE: http://www.econ.upf.edu/~ortun/

Jaume Puig-Junoy

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

Maria Callejón

University of Barcelona ( email )

Av. Diagonal, 690
Barcelona, 08034
Spain
+34934020435 (Phone)

HOME PAGE: http://www.ub.edu/graap/callejon.htm

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