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External referencing and pharmaceutical price negotiation

  • Begoña Garcia Mariñoso

    (CMT - Comisión del Mercado de las Telecomunicaciones - Comisión del Mercado de las Telecomunicaciones)

  • Izabela Jelovac

    (GATE - Groupe d'analyse et de théorie économique - CNRS - UL2 - Université Lumière - Lyon 2 - Ecole Normale Supérieure Lettres et Sciences Humaines)

  • Pau Olivella

    (CODE - Center for the study of the Organizations and Decisions in Economics - Universitat Autónoma de Barcelona)

External referencing (ER) imposes a price cap for pharmaceuticals based on prices of identical products in foreign countries. Suppose a foreign country (F) negotiates prices with a pharmaceutical firm while a home country (H) can either negotiate independently or implement ER based on the foreign price. We show that country H always prefers ER if (i) it can condition ER on the drug being subsidized in the foreign country and (ii) copayments are higher in H than in F. H's preference isreinforced when the difference between country copayments is large and/or H's population is small. External referencing by H always harms F if (ii) holds, but less so if (i) holds.

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Paper provided by HAL in its series Post-Print with number halshs-00303682.

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Date of creation: 2011
Date of revision:
Publication status: Published in Health Economics, Wiley, 2011, 20 (6), pp. 737-756. <10.1002/hec.1630>
Handle: RePEc:hal:journl:halshs-00303682
DOI: 10.1002/hec.1630
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