IDEAS home Printed from https://ideas.repec.org/a/kap/revind/v52y2018i4d10.1007_s11151-018-9616-1.html
   My bibliography  Save this article

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11151-018-9616-1
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11151-018-9616-1?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    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. 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.
    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. 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.
    5. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hostenkamp, Gisela, 2013. "Do follow-on therapeutic substitutes induce price competition between hospital medicines? Evidence from the Danish hospital sector," Health Policy, Elsevier, vol. 111(1), pages 68-77.
    2. Ben van Hout & Jolian McHardy & Aki Tsuchiya, 2015. "Patent Purchase as a Policy for Pharmaceuticals," Working Papers 2015007, The University of Sheffield, Department of Economics.
    3. Ali Shajarizadeh & Aidan Hollis, 2015. "Price‐cap Regulation, Uncertainty and the Price Evolution of New Pharmaceuticals," Health Economics, John Wiley & Sons, Ltd., vol. 24(8), pages 966-977, August.
    4. Michael Mueller & Alexander Frenzel, 2015. "Competitive pricing within pharmaceutical classes: evidence on “follow-on” drugs in Germany 1993–2008," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(1), pages 73-82, January.
    5. Cabiedes Miragaya, Laura, 2013. "Nuevas perspectivas sobre el precio de los medicamentos: El caso español/New Perspectives on Drug Pricing: The Spanish Case," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 31, pages 397-416, Septiembr.
    6. Puig-Junoy, Jaume & López-Valcárcel, Beatriz González, 2014. "Launch prices for new pharmaceuticals in the heavily regulated and subsidized Spanish market, 1995–2007," Health Policy, Elsevier, vol. 116(2), pages 170-181.
    7. Ridley, David B. & Zhang, Su, 2017. "Regulation of price increases," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 186-213.
    8. Le, Son & Sukhatme, Neel U., 2020. "Reaching for mediocrity: Competition and stagnation in pharmaceutical innovation," International Review of Law and Economics, Elsevier, vol. 64(C).
    9. Kurt R. Brekke & Dag Morten Dalen & Odd Rune Straume, 2022. "The price of cost-effectiveness thresholds," NIPE Working Papers 5/2022, NIPE - Universidade do Minho.
    10. Ekelund, Mats, 2000. "Nya förutsättningar för svensk läkemedelsmarknad," SSE/EFI Working Paper Series in Economics and Finance 404, Stockholm School of Economics.
    11. Patricia M. Danzon & Eric L. Keuffel, 2014. "Regulation of the Pharmaceutical-Biotechnology Industry," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 407-484, National Bureau of Economic Research, Inc.
    12. Verniers, Isabel & Stremersch, Stefan & Croux, Christophe, 2011. "The global entry of new pharmaceuticals: A joint investigation of launch window and price," International Journal of Research in Marketing, Elsevier, vol. 28(4), pages 295-308.
    13. Simona Gamba & Paolo Pertile & Sabine Vogler, 2020. "The impact of managed entry agreements on pharmaceutical prices," Health Economics, John Wiley & Sons, Ltd., vol. 29(S1), pages 47-62, October.
    14. Antonio Cabrales & Sergi Jiménez‐Martín, 2013. "The Determinants Of Pricing In Pharmaceuticals: Are Us Prices Really So High?," Health Economics, John Wiley & Sons, Ltd., vol. 22(11), pages 1377-1397, November.
    15. Brekke, Kurt R. & Kuhn, Michael, 2006. "Direct to consumer advertising in pharmaceutical markets," Journal of Health Economics, Elsevier, vol. 25(1), pages 102-130, January.
    16. Kurt R. Brekke & Odd Rune Straume, 2008. "Pharmaceutical Patents: Incentives for R&D or Marketing?," CESifo Working Paper Series 2433, CESifo.
    17. Boone, Jan, 2013. "Does the market choose optimal health insurance coverage?," CEPR Discussion Papers 9420, C.E.P.R. Discussion Papers.
    18. Boone, J., 2013. "Does the Market Choose Optimal Health Insurance Coverage," Other publications TiSEM f7691fbf-f770-4714-b1b4-1, Tilburg University, School of Economics and Management.
    19. Antonio Cabrales & Sergi Jiménez-Martín, 2007. "The determinants of pricing in pharmaceuticals: Are U.S. prices really higher than those of Canada?," Economics Working Papers 1032, Department of Economics and Business, Universitat Pompeu Fabra.
    20. Moshe Levy & Adi Rizansky Nir, 2014. "The Pricing of Breakthrough Drugs: Theory and Policy Implications," PLOS ONE, Public Library of Science, vol. 9(11), pages 1-12, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:revind:v:52:y:2018:i:4:d:10.1007_s11151-018-9616-1. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.