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External referencing and pharmaceutical price negociation

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Author Info

  • Garcia Marinoso, Begona
  • Jelovac, Izabella
  • Olivella, Pau

Abstract

External referencing (ER) imposes a price cap for pharmaceuticals, based on prices of identical or comparable products in foreign countries. Suppose a foreign country (F) negotiates prices with a pharmaceutical firm, whereas a home country (H) can either negotiate prices independently or implement ER, based on the foreign price. We show that country H prefers ER if copayments in H are relatively high. This preference is reinforced when H's population is small. Irrespective of relative country sizes, ER by country H harms country F. Our model is inspired by the wide European experience with this cost-containment policy. Namely, in Europe, drug authorization and price negotiations are carried out by separate agencies. We confirm our main results in two extensions. The first one allows for therapeutic competition between drugs. In the second one, drug authorization and price negotiation take place in a single agency.

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File URL: http://basepub.dauphine.fr/xmlui/bitstream/123456789/5987/1/External_referencing.PDF
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Bibliographic Info

Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/5987.

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Date of creation: 2011
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Publication status: Published in Health Economics, 2011, Vol. 20, no. 6. pp. 737-756.Length: 19 pages
Handle: RePEc:dau:papers:123456789/5987

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Keywords: pharmaceuticals; external referencing; price negotiation;

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References

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Citations

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Cited by:
  1. Philipp Ackermann, 2010. "External Price Benchmarking vs. Price Negotiation for Pharmaceuticals," Diskussionsschriften dp1004, Universitaet Bern, Departement Volkswirtschaft.
  2. Ahmet Ozkardas & Agnieszka Rusinowska, 2014. "On equilibrium payoffs in wage bargaining with discount rates varying in time," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00971403, HAL.
  3. Ahmet Ozkardas & Agnieszka Rusinowska, 2013. "An application of wage bargaining to price negotiation with discount factors varying in time," Documents de travail du Centre d'Economie de la Sorbonne 13066, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.

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