IDEAS home Printed from https://ideas.repec.org/p/cty/dpaper/05-02.html
   My bibliography  Save this paper

The relationship of drug reimbursement with the price and the quality of pharmaceutical innovations

Author

Listed:
  • García-Alonso, M. D. C.
  • Mariñoso, B. G.

Abstract

This paper studies the strategic interaction between pharmaceutical firms' pricing decisions and government agencies' reimbursement decisions which discriminate between patients by giving reimbursement rights to patients for whom the drug is most effective. We show that if the reimbursement decision preceeds the pricing decision, the agency only reimburses some patients if the private and public health benefits from the new drug diverge. That is, when (i) there are large externalities of consuming the drug and (ii) the difference in costs between the new drug and the alternative treatment is large. Alternatively, if the firm can commit to a price in advance of the reimbursement decision, we identify a strategic effect which implies that by committing to a high price ex ante, the firm can force a listing outcome and make the agency more willing to reimburse than in the absence of commitment.

Suggested Citation

  • 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.
  • Handle: RePEc:cty:dpaper:05/02
    as

    Download full text from publisher

    File URL: https://openaccess.city.ac.uk/id/eprint/1437/1/0502_garciaalonso-garciamarinoso.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Antonio Cabrales, 2003. "Pharmaceutical generics, vertical product differentiation and public policy," Economics Working Papers 662, Department of Economics and Business, Universitat Pompeu Fabra.
    2. Hoel, Michael & Saether, Erik Magnus, 2003. "Public health care with waiting time: the role of supplementary private health care," Journal of Health Economics, Elsevier, vol. 22(4), pages 599-616, July.
    3. Laux, Fritz L., 2000. "Addiction as a market failure: using rational addiction results to justify tobacco regulation," Journal of Health Economics, Elsevier, vol. 19(4), pages 421-437, July.
    4. Francis, Peter J., 1997. "Dynamic epidemiology and the market for vaccinations," Journal of Public Economics, Elsevier, vol. 63(3), pages 383-406, February.
    5. Olmstead, Todd & Zeckhauser, Richard, 1999. "The menu-setting problem and subsidized prices: drug formulary illustration," Journal of Health Economics, Elsevier, vol. 18(5), pages 523-550, October.
    6. 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.
    7. Krieg, Randall G., 2002. "The need for policy direction in the provision of care to the mentally ill: an interdisciplinary view," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 31(2), pages 105-113.
    8. Mark Duggan & Fiona M. Scott Morton, 2006. "The Distortionary Effects of Government Procurement: Evidence from Medicaid Prescription Drug Purchasing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(1), pages 1-30.
    9. Calcott, Paul, 2000. "Health care evaluation, utilitarianism and distortionary taxes," Journal of Health Economics, Elsevier, vol. 19(5), pages 719-730, September.
    10. Michael Dickson & Jeremy Hurst & Stephane Jacobzone, 2003. "Survey of Pharmacoeconomic Assessment Activity in Eleven Countries," OECD Health Working Papers 4, OECD Publishing.
    Full references (including those not matched with items on IDEAS)

    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. 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.
    2. Juan Pablo Atal & José Ignacio Cuesta & Felipe González & Cristóbal Otero, 2024. "The Economics of the Public Option: Evidence from Local Pharmaceutical Markets," American Economic Review, American Economic Association, vol. 114(3), pages 615-644, March.
    3. Roger Bate & Ginger Zhe Jin & Aparna Mathur, 2012. "In Whom We Trust: The Role of Certification Agencies in Online Drug Markets," NBER Working Papers 17955, National Bureau of Economic Research, Inc.
    4. Karl Ove Aarbu, 2010. "Demand Patterns for Treatment Insurance in Norway," CESifo Working Paper Series 3021, CESifo.
    5. David Madden, 2002. "Do Tobacco Taxes Influence Starting and Quitting Smoking? A Discrete Choice Approach Using Evidence from a Sample of Irish Women," Working Papers 200205, School of Economics, University College Dublin.
    6. Panos Pashardes & Nicoletta Pashourtidou, 2011. "Consumer welfare from publicly supplemented private goods: age and income effects on demand for health care," Empirical Economics, Springer, vol. 41(3), pages 865-885, December.
    7. Toxvaerd, Flavio, 2010. "Recurrent Infection and Externalities in Prevention," CEPR Discussion Papers 8112, C.E.P.R. Discussion Papers.
    8. Brandyn F. Churchill & Laura E. Henkhaus & Emily C. Lawler, 2025. "Effect of vaccine recommendations on consumer and firm behavior," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 44(1), pages 125-150, January.
    9. Nancy L. Rose, 2014. "Learning from the Past: Insights for the Regulation of Economic Activity," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 1-23, National Bureau of Economic Research, Inc.
    10. Ridley, David B. & Zhang, Su, 2017. "Regulation of price increases," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 186-213.
    11. Hugh Gravelle & Luigi Siciliani, 2009. "Third degree waiting time discrimination: optimal allocation of a public sector healthcare treatment under rationing by waiting," Health Economics, John Wiley & Sons, Ltd., vol. 18(8), pages 977-986, August.
    12. Laura Levaggi & Rosella Levaggi, 2017. "Rationing in health care provision: a welfare approach," International Journal of Health Economics and Management, Springer, vol. 17(2), pages 235-249, June.
    13. Thomas Wein, 2021. "Ist eine Impfpflicht gegen das Coronavirus nötig? [Is Mandatory Vaccination Against the Coronavirus Necessary?]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 101(2), pages 114-120, February.
    14. Alpert, Abby & Duggan, Mark & Hellerstein, Judith K., 2013. "Perverse reverse price competition: Average wholesale prices and Medicaid pharmaceutical spending," Journal of Public Economics, Elsevier, vol. 108(C), pages 44-62.
    15. Darius Lakdawalla & Wesley Yin, 2015. "Insurers’ Negotiating Leverage and the External Effects of Medicare Part D," The Review of Economics and Statistics, MIT Press, vol. 97(2), pages 314-331, May.
    16. Klingler, Corinna & Shah, Sara M.B. & Barron, Anthony J.G. & Wright, John S.F., 2013. "Regulatory space and the contextual mediation of common functional pressures: Analyzing the factors that led to the German Efficiency Frontier approach," Health Policy, Elsevier, vol. 109(3), pages 270-280.
    17. Cristina Pardo-Garcia & Jose J. Sempere-Monerris, 2018. "Mixed provision of health care services with double coverage," Journal of Economics, Springer, vol. 123(1), pages 49-70, January.
    18. Javier Coronado & Sergi Jiménez-Martín & Pedro L. Marín, 2007. "Multimarket contact in pharmaceutical markets," Economics Working Papers 1033, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2007.
    19. Matthew Goodkin-Gold & Michael Kremer & Christopher M. Snyder & Heidi L. Williams, 2020. "Optimal Vaccine Subsidies for Endemic and Epidemic Diseases," Working Papers 2020-162, Becker Friedman Institute for Research In Economics.
    20. 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.

    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:cty:dpaper:05/02. 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: Research Publications Librarian (email available below). General contact details of provider: https://edirc.repec.org/data/decituk.html .

    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.