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Value Based Pricing of Pharmaceuticals in the US and UK: Does Centralized Cost Effectiveness Analysis Matter?

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  • William S. Comanor

    (University of California, Los Angeles
    University of California, Santa Barbara)

  • Stuart O. Schweitzer

    (University of California, Los Angeles)

  • Jon M. Riddle

    (Economic Associates)

  • Frederic Schoenberg

    (University of California, Los Angeles)

Abstract

Increasingly, government policies directed towards limiting pharmaceutical prices have emphasized value-based criteria. This regulatory approach is most clearly formalized in the United Kingdom where the National Institute for Health and Clinical Excellence (NICE) was created within the British National Health Service (NHS), whose function is to apply cost-effectiveness analysis to new drugs. In contrast to Britain, there is no formal regulatory mechanism assuring cost-effectiveness in the United States. Instead, questions of cost effectiveness are left to market processes. In this paper, we examine the pricing implications of these alternate regimes. From our empirical analysis, we conclude that value-based pricing is enforced by both regulatory and market processes, and with similar outcomes.

Suggested Citation

  • William S. Comanor & Stuart O. Schweitzer & Jon M. Riddle & Frederic Schoenberg, 2018. "Value Based Pricing of Pharmaceuticals in the US and UK: Does Centralized Cost Effectiveness Analysis Matter?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 52(4), pages 589-602, June.
    • Handle: RePEc:kap:revind:v:52:y:2018:i:4:d:10.1007_s11151-018-9616-1
    DOI: 10.1007/s11151-018-9616-1
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    References listed on IDEAS

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    1. Scherer, F.M., 2000. "The pharmaceutical industry," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 25, pages 1297-1336, Elsevier.
    2. Z. John Lu & William S. Comanor, 1998. "Strategic Pricing Of New Pharmaceuticals," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 108-118, February.
    3. Jena, Anupam B. & Philipson, Tomas J., 2013. "Endogenous cost-effectiveness analysis and health care technology adoption," Journal of Health Economics, Elsevier, vol. 32(1), pages 172-180.
    4. Reekie, W Duncan, 1978. "Price and Quality Competition in the United States Drug Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 26(3), pages 223-237, March.
    5. Mats Ekelund & Björn Persson, 2003. "Pharmaceutical Pricing in a Regulated Market," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 298-306, May.
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    Cited by:

    1. William S. Comanor, 2022. "Pharmaceutical markets in Japan and the United States," International Journal of Economic Policy Studies, Springer, vol. 16(2), pages 355-370, August.
    2. Dominik J. Wettstein & Stefan Boes, 2019. "Effectiveness of National Pricing Policies for Patent-Protected Pharmaceuticals in the OECD: A Systematic Literature Review," Applied Health Economics and Health Policy, Springer, vol. 17(2), pages 143-162, April.

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