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External Price Benchmarking vs. Price Negotiation for Pharmaceuticals

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  • Philipp Ackermann
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    Abstract

    External price benchmarking imposes a price cap for pharmaceuticals based on prices of identical products in other countries. Suppose that a regulatory agency can either directly negotiate drug prices with pharmaceutical manufacturers or implement a benchmarking regime based on foreign prices. Using a model where two countries differ only in their market size, we show that a country prefers benchmarking if its agency has considerably less bargaining power compared to the agency in the other country. Assuming that bargaining power is positively correlated to country size, we find that only small countries might have an incentive to engage in external price benchmarking. This incentive shrinks if population size grows.

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    File URL: http://www.vwl.unibe.ch/papers/dp/dp1004.pdf
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    Bibliographic Info

    Paper provided by Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number dp1004.

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    Date of creation: Feb 2010
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    Handle: RePEc:ube:dpvwib:dp1004

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    Keywords: Pharmaceuticals; price negotiation; administered prices; external reference pricing;

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    1. Begoña Garcia Mariñoso & Izabela Jelovac & Pau Olivella, 2011. "External referencing and pharmaceutical price negotiation," Health Economics, John Wiley & Sons, Ltd., vol. 20(6), pages 737-756, June.
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