Reference pricing with elastic demand for pharmaceuticals

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Resumo

In this paper, we re-examine the properties of two commonly adopted government reimbursement schemes for pharmaceuticals: reference pricing and fixed percentage reimbursement. We depart from the previous literature by assuming that the individual demand is price-sensitive and depends on the copayment rate (i.e., the part paid by each consumer). We obtain two novel results under reference pricing: first, as the copayment rate increases, so do pharmaceutical prices; second, this increase in pharmaceutical prices reduces social welfare. Whilst reference pricing does emerge as a preferable reimbursement scheme, demand elasticities and the copayment rate interact in complex ways. This leads (unexpectedly) to the possibility that a higher copayment rate (lower reimbursement rate) results in higher government expenditure.
Idioma originalEnglish
Páginas (de-até)159-182
Número de páginas24
RevistaScandinavian Journal of Economics
Volume120
Número de emissão1
DOIs
Estado da publicaçãoPublished - jan 2018

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