Economics - Paying Providers Of Health Care - Paying For Pharmaceuticals

Front 1

What are the different types of pricing regulations for pharmaceuticals?

Back 1

1) No Regulation (ie US)

2) Price Cap

3) Exogenous reference pricing

4) Endogenous reference pricing

Front 2

Implications for no regulation

Back 2

- Pb UP --> Pg UP

- Price reaction theory (from game theory)

- Setting price in relation to other firms

- If brand raises price, generic will raise price also

Front 3

Implications for price cap

Back 3

- Pb CAP --> Pg UP

- Pricing of brand will go down, but price of generic will go up

Front 4

Implications for reference pricing

Back 4

- Stimulated competition between brands and generics by reducing the brand's market share (about 15%)

- Shifts demands to generics, then brands have incentive to lower prices to regain market share

Front 5

How does reference pricing achieve cost savings?

Back 5

- Shifts demand from brand to generics

- Reduces in brand name and generic prices

Front 6

Implications for exogenous reference pricing

Back 6

- Firms take reference price as something outside themselves

- Pb DOWN --> Pg UP

- Pg increases price because price becomes less elastic below reference price

- No reason to charge less than govt's reimbursement price

Front 7

Implications for endogenous reference pricing

Back 7

- Price becomes part of the reference price later

- Generic brands have incentive to lower prices to influence the reference price and increase market share

- Will reduce reference price and force Pb to lower price

- Pb DOWN Pg DOWN

- In Norway, brand prices have fallen 33% and generic prices have fallen 22%

Front 8

Pharmaceutical model

Back 8