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The strategic interaction between firms and formulary committees: Effects on the prices of new drugs

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  • Garci­a-Alonso, Mari­a D.C.
  • Garci­a-Mariñoso, Begoña

Abstract

We study the strategic interaction between the pricing decisions of a pharmaceutical firm and the reimbursement decisions of a government agency which grants reimbursement rights to patients for whom new drugs are most cost-effective. If the reimbursement decision precedes pricing, the agency only reimburses some patients if the drug's private and public health benefits diverge. This is, there are consumption externalities and the variable cost of the drug exceeds the alternative's. Contrarily, if the firm can commit to a price before reimbursement, a strategic effect implies that by setting a sufficiently high price, the firm can make the agency more willing to reimburse than without commitment.

Suggested Citation

  • Garci­a-Alonso, Mari­a D.C. & Garci­a-Mariñoso, Begoña, 2008. "The strategic interaction between firms and formulary committees: Effects on the prices of new drugs," Journal of Health Economics, Elsevier, vol. 27(2), pages 377-404, March.
    • Handle: RePEc:eee:jhecon:v:27:y:2008:i:2:p:377-404
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    Cited by:

    1. Acharyya, Rajat & García-Alonso, María D.C., 2012. "Income based price subsidies and parallel imports," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 25-41.
    2. Rajat Acharyya & Maria D.C. Garcia-Alonso, 2008. "Income-Based Price Subsidies, Parallel Imports and Markets Access to New Drugs for the Poor," Studies in Economics 0820, School of Economics, University of Kent.
    3. Grepperud, Sverre & Pedersen, Pål Andreas, 2020. "Positioning and negotiations: The case of pharmaceutical pricing," European Journal of Political Economy, Elsevier, vol. 62(C).
    4. Glazer Jacob & Huskamp Haiden A. & McGuire Thomas G., 2012. "A Prescription for Drug Formulary Evaluation: An Application of Price Indexes," Forum for Health Economics & Policy, De Gruyter, vol. 15(2), pages 1-26, March.

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