The strategic interaction between firms and formulary committees: Effects on the prices of new drugs

We study the strategic interaction between the pricing decisions of a pharmaceutical firm and the reimbursement decisions of a government agency which grants reimbursement rights to patients for whom new drugs are most cost-effective. If the reimbursement decision precedes pricing, the agency only r...

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Bibliographic Details
Published in:Journal of health economics 2008-03, Vol.27 (2), p.377-404
Main Authors: García-Alonso, María D.C., García-Mariñoso, Begoña
Format: Article
Language:English
Subjects:
Businesses
Cost effectiveness
Cost-Benefit Analysis
Decision making
Decision Making, Organizational
Drug formularies
Drug Industry
Drugs
Drugs, Investigational - economics
Government-business relations
Health administration
Health care
Humans
Impact analysis
Models, Econometric
Pharmaceutical industry
Pharmacy and Therapeutics Committee
Price formation
Prices
Pricing
Pricing policies
Public health
Reimbursement
Reimbursement Mechanisms
Strategic behaviour
Studies
Subsidies
United States
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Summary:We study the strategic interaction between the pricing decisions of a pharmaceutical firm and the reimbursement decisions of a government agency which grants reimbursement rights to patients for whom new drugs are most cost-effective. If the reimbursement decision precedes pricing, the agency only reimburses some patients if the drug’s private and public health benefits diverge. This is, there are consumption externalities and the variable cost of the drug exceeds the alternative’s. Contrarily, if the firm can commit to a price before reimbursement, a strategic effect implies that by setting a sufficiently high price, the firm can make the agency more willing to reimburse than without commitment.
ISSN:0167-6296
1879-1646
DOI:10.1016/j.jhealeco.2007.06.003