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Drug Price Differentials Caused by Formularies and Price Caps

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  • Joan-Ramon Borrell

Abstract

This paper analyses the behaviour of drug firms facing the threat of having their drugs excluded from the formulary of health care providers. The paper obtains two main results. One is that drug firms offer discounts to health care providers to avoid going off-list when competing in a free-entry monopolistically competitive setting, and that discounts obtained by health care providers do not cause prices to rise outside managed care. The second result is that price caps affect how prices evolve over time. Drug firms set higher introductory prices, but raise these less dramatically over time, when health care providers find it increasingly difficult to off-list older drugs.

Suggested Citation

  • Joan-Ramon Borrell, 2003. "Drug Price Differentials Caused by Formularies and Price Caps," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(1), pages 35-48.
    • Handle: RePEc:taf:ijecbs:v:10:y:2003:i:1:p:35-48
    DOI: 10.1080/1357151032000043311
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    Citations

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    Cited by:

    1. García-Alonso, M. D. C. & Garcia-Marinoso, B., 2007. "The strategic interaction between firms and formulary committees: effects on the prices of new drugs," Working Papers 07/16, Department of Economics, City University London.
    2. 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.
    3. Aidan Hollis & Stephen Law, 2004. "A National Formulary for Canada," Canadian Public Policy, University of Toronto Press, vol. 30(4), pages 445-452, December.
    4. García-Alonso, M. D. C. & Mariñoso, B. G., 2005. "The relationship of drug reimbursement with the price and the quality of pharmaceutical innovations," Working Papers 05/02, Department of Economics, City University London.
    5. Iván Moreno-Torres & Jaume Puig-Junoy & Josep Raya, 2011. "The impact of repeated cost containment policies on pharmaceutical expenditure: experience in Spain," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 12(6), pages 563-573, December.
    6. Ivan Moreno-Torres, 2011. "What if there was a stronger pharmaceutical price competition in Spain? When regulation has a similar effect to collusion," Working Papers XREAP2011-02, Xarxa de Referència en Economia Aplicada (XREAP), revised May 2011.
    7. Ivan Moreno-Torres, 2011. "Generic drugs in Spain: price competition vs. moral hazard," Working Papers XREAP2011-04, Xarxa de Referència en Economia Aplicada (XREAP), revised May 2011.
    8. 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.
    9. Iván Moreno-Torres & Jaume Puig-Junoy & Joan-Ramon Borrell, 2009. "Generic Entry into the Regulated Spanish Pharmaceutical Market," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 34(4), pages 373-388, June.

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