Date
2011
Notes
Paru dans les Cahiers de la Chaire Santé, n°7, octobre 2010
Dewey
Economie industrielle
Sujet
pharmaceuticals; external referencing; price negotiation
JEL code
L65; I18
Journal issue
Health Economics
Volume
20
Number
6
Publication date
2011
Article pages
737-756
Publisher
Wiley
Author
Garcia Marinoso, Begona
Jelovac, Izabella
Olivella, Pau
Type
Article accepté pour publication ou publié
Abstract (EN)
External referencing (ER) imposes a price cap for pharmaceuticals, based on prices of identical or comparable products in foreign countries. Suppose a foreign country (F) negotiates prices with a pharmaceutical firm, whereas a home country (H) can either negotiate prices independently or implement ER, based on the foreign price. We show that country H prefers ER if copayments in H are relatively high. This preference is reinforced when H's population is small. Irrespective of relative country sizes, ER by country H harms country F. Our model is inspired by the wide European experience with this cost-containment policy. Namely, in Europe, drug authorization and price negotiations are carried out by separate agencies. We confirm our main results in two extensions. The first one allows for therapeutic competition between drugs. In the second one, drug authorization and price negotiation take place in a single agency.