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Value‐Based Differential Pricing: Efficient Prices for Drugs in a Global Context
Author(s) -
Danzon Patricia,
Towse Adrian,
MestreFerrandiz Jorge
Publication year - 2015
Publication title -
health economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.55
H-Index - 109
eISSN - 1099-1050
pISSN - 1057-9230
DOI - 10.1002/hec.3021
Subject(s) - reimbursement , economics , willingness to pay , context (archaeology) , price discrimination , value (mathematics) , drug prices , per capita , actuarial science , product (mathematics) , public economics , microeconomics , health care , population , economic growth , medicine , paleontology , geometry , mathematics , environmental health , machine learning , computer science , biology
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. © 2013 The Authors. Health Economics published by John Wiley & Sons Ltd.