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Drug innovation, prices and health

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This article tries to reconcile economic-industrial policy with health policy when dealing with biomedical innovation and welfare state sustainability. Better health accounts for an increasingly large proportion of welfare improvements. Explanation is given to the welfare losses coming from the fact than industrial and health policy tend to ignore each other. Drug’s prices reflecting their relative relative effectiveness send the right signal to the industry –rewarding innovation with impact on quantity and quality of life- and to the buyers of health care services. The level of drug’s public reimbursement indicates the social willingness to pay of the different national health systems, not only by means of inclusion, or rejection, in the basket of services covered, but especially establishing the proportion of the price that is going to be financed publicly. Reference pricing for therapeutic equivalents –as the upper limit of the social willingness to pay- and two-tiered co-payments for users (avoidable and inversely related with the incremental effectiveness of de drug) are deemed appropriate for those countries concerned at the same time with increasing their productivity and maintaining its welfare state. Profits drive R&D but not its location. There is no intrinsic contradiction between high productivity and a consolidated National Health Service (welfare state) as the European Nordic Countries are telling us every day.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 807.

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Date of creation: Jan 2005
Handle: RePEc:upf:upfgen:807
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