External Price Benchmarking vs. Price Negotiation for Pharmaceuticals
External price benchmarking imposes a price cap for pharmaceuticals based on prices of identical products in other countries. Suppose that a regulatory agency can either directly negotiate drug prices with pharmaceutical manufacturers or implement a benchmarking regime based on foreign prices. Using a model where two countries differ only in their market size, we show that a country prefers benchmarking if its agency has considerably less bargaining power compared to the agency in the other country. Assuming that bargaining power is positively correlated to country size, we find that only small countries might have an incentive to engage in external price benchmarking. This incentive shrinks if population size grows.
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- Begoña Garcia Mariñoso & Izabela Jelovac & Pau Olivella, 2011.
"External referencing and pharmaceutical price negotiation,"
- Begoña Garcia Mariñoso & Izabela Jelovac & Pau Olivella, 2011. "External referencing and pharmaceutical price negotiation," Health Economics, John Wiley & Sons, Ltd., vol. 20(6), pages 737-756, June.
- Begoña Garcia Mariñoso & Izabela Jelovac & Pau Olivella, 2010. "External referencing and pharmaceutical price negotiation," Post-Print halshs-00955856, HAL.
- Guillem López & Jaume Puig, 1999.
"Review of the literature on reference pricing,"
Working Papers, Research Center on Health and Economics
362, Department of Economics and Business, Universitat Pompeu Fabra.
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