Health Care Management Papers

Document Type

Journal Article

Date of this Version

3-2015

Publication Source

Health Economics

Volume

24

Issue

3

Start Page

294

Last Page

301

DOI

10.1002/hec.3021

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. Improving pricing efficiency in these self-pay countries includes improving regulation and consumer information about product quality and enabling firms to price discriminate within and between countries.

Keywords

differential pricing, ICER thresholds, value-based pricing

Download

Share

COinS
 

Date Posted: 27 November 2017

This document has been peer reviewed.