Pharmaceutical Prices with Insurance Coverage and Formularies
In this paper, the author evaluates the success of formulary pricing. Formulary pricing is a price-tendering system used to generate competition among drug suppliers. The paper develops a model of pricing in an uncertain auction from the point of view of a typical firm. The ability to make side-payments in the form of kickbacks to pharmacists segments the transaction into two stages. After the first-stage bidding, the second stage involves a renegotiation between pharmacists and the supplying firm. An econometric test for this model is developed and the empirical evidence is found to support the model well.
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Volume (Year): 25 (1992)
Issue (Month): 2 (May)
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