European Union Pharmaceutical Markets: A Case for Differential Pricing?

Towse, Adrian; Pistollato, Michele; Mestre-Ferrandiz, J.; Khan, Zeba M.; Kaura, S.; Garrison, Louis P.

doi:10.1080/13571516.2015.1045747

Cited by 29 publications

(31 citation statements)

References 38 publications

(48 reference statements)

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“…However, a larger incentive (still smaller than the one provided by the decision-theoretic model of no parallel trade threat) is obtained when one introduces, as a countermeasure, the transfer payment in the model. The results are in agreement with several studies (see, e.g., [10,11,45]), which highlight the negative effects of parallel trade, and the need to take suitable countermeasures to help the manufacturer recover from R & D costs.…”

Section: Introductionsupporting

confidence: 91%

A Comparison of Game-Theoretic Models for Parallel Trade

Gnecco

Tuncay

Pammolli

2018

Int. Game Theory Rev.

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Within the EU Single Market for medicines, differences in drug prices, regulations, and transaction costs may create, under suitable conditions, arbitrage opportunities well before patent expiration, giving an incentive to the occurrence of parallel trade. When this is permitted, parallel traders may obtain a profit from buying drugs in a country where prices are lower, then re-selling them in a country where prices are higher. This phenomenon may cause inefficiencies from a global welfare perspective, and reduce the manufacturers' incentive to invest in Research and Development (R & D). Given this framework, in this paper, we investigate the efficiency (expressed in terms of the price of anarchy) of the subgame-perfect Nash equilibria associated with five dynamic noncooperative game-theoretic models for the parallel trade of pharmaceuticals. We also compare such models with regard to the manufacturer's incentive to invest in R & D. More specifically, first we find in closed form the optimal value of the global welfare of two countries, which is obtained by solving a suitable quadratic optimization problem modeling the decision-making process of a global planner. Then, we use such a result to evaluate and compare the prices of anarchy of five games modeling the interaction between a manufacturer in the first country and a potential parallel trader in the second country. The first three games refer, respectively, to the cases of no parallel trade threat, parallel trade threat, and parallel trade occurrence at equilibrium. Then, we investigate two modifications of the third game, in which its transfer payment from the potential parallel trader to the manufacturer is, respectively, removed/determined by Nash bargaining. For completeness, we also consider a decision-theoretic model of no parallel trade threat. For what concerns the incentive for the manufacturer to invest in R & D, the results of our numerical comparison show that the decision-theoretic model of no parallel trade threat is always the one with the highest incentive, whereas the two game-theoretic models of parallel trade threat/occurrence that do not include the transfer payment provide typically the smallest incentives. Moreover, the latter two models have the largest prices of anarchy (i.e., their equilibria have the smallest efficiencies). From a policy-making perspective, improvements are obtained if suitable countermeasures are taken to help the manufacturer recover from the costs of R & D, such as the inclusion of a transfer payment in the model. Keywords Economic applications of operations research · global welfare optimization · noncooperative game theory · subgame-perfect Nash equilibrium · numerical comparison of efficiency · incentive to invest in Research and Development

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Section: Introductionsupporting

confidence: 91%

A Comparison of Game-Theoretic Models for Parallel Trade

Gnecco

Tuncay

Pammolli

2018

Int. Game Theory Rev.

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“…4 Our evidence supports the necessity of a value-based pricing mechanism that takes into account heterogeneity within and across countries, combining both an assessment of therapeutic value and a consideration of patients'willingness to pay, which is in line with what is suggested by Danzon et al (2013) and Towse et al (2015). Also, a stronger role of the European Medicine Agency is needed, when assessing the therapeutic value of a drug, as it could reduce time to launch for more innovative drugs, avoiding longer negotiations between companies and single national authorities.…”

Section: Introductionsupporting

confidence: 66%

“…In the medium term, a policy that allows for a regulated price discrimination across Member States has to be considered a second best solution, as a legitimate consequence of di¤erent country demand and income characteristics. Therefore, companies and payers could segment markets together with a formula coordinated among countries, for example following the suggestion by Danzon et al (2013) and Towse et al (2015). In this way, a di¤erential pricing system would at the same time improve patients'welfare, while taking into adequate consideration companies'economic incentives to recover from high R&D and marketing sunk costs.…”

Section: Discussionmentioning

confidence: 99%

Access to Medicines and European Market Integration

Pammolli

Rungi

2016

SSRN Journal

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In this paper we document a process of price convergence in the European market for pharmaceuticals and relate it to access to innovative medicines in individual countries. The EU is a peculiar case study, where free circulation of goods exists, but pricing policies are designed and implemented by Member States. Thanks to a unique census database on product sales and launches for …fteen EU countries, we detect a process of price convergence, both in nominal and in real terms. Therefore, we …nd that a faster rate of price convergence and a lower income per capita are associated with stronger delays in launches of new medicines. Moreover, country delays tend to be higher for innovative and …rst in class chemical compounds. Our results suggest that ine¢cien-cies arise from drugs regulation, when countries widely di¤er in income per capita, public …nance sustainability conditions, and regulatory frameworks. Policies of external reference pricing tend to exacerbate welfare losses. A policy of di¤erential pricing is suggested, in order to take into account both therapeutic value and willingness to pay.JEL classi…cation: F15; I11; L65; L11; L51

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“…To mitigate the negative impact of EPR (and parallel trade) on availability in lower-income countries in Europe, it has been argued that public payers could keep a high 'list price' and get confidential discounts through product-specific agreements [46,62]. This would allow industry to provide medicines at lower prices to low-income countries without negatively impacting the average reference price.…”

Section: External Price Referencingmentioning

confidence: 99%

How Can Pricing and Reimbursement Policies Improve Affordable Access to Medicines? Lessons Learned from European Countries

Vogler

Paris

Ferrario

et al. 2017

Appl Health Econ Health Policy

147

118

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Key points for Decision Makers: European countries apply different pharmaceutical pricing and reimbursement policies. These policies are frequently assessed against their financial consequences and their ability to contain costs but less so in terms of access to medicines. Policies should be accompanied by regular evaluations, facilitated by the use of the appropriate methodology and access to the relevant data. There appears to be a need for additional changes beyond traditional pharmaceutical pricing and reimbursement policies. Collaborative approaches (e.g. between countries or between regulatory authorities, pricing and reimbursement agencies) and more transparency in terms of real medicine prices, R+D costs and medicines in the pipeline are considered as possible pathways for the future. AbstractThe paper discusses pharmaceutical pricing and reimbursement policies in European countries with regard to their ability to ensure affordable access to medicines. A frequently applied pricing policy is external price referencing. While it provides some benchmark for policy-makers and has shown to be able to generate savings, it may also contribute to delay in product launch in countries where medicine prices are low. Value-based pricing has been proposed as a policy that promotes access while rewarding useful innovation, however implementing it has proven quite challenging. For high-priced medicines, managed-entry agreements are increasingly used. These agreements allow policy-makers to manage uncertainty and obtain lower prices. They can also facilitate earlier market access in case of limited evidence about added therapeutic value of the medicine. However, these agreements raise transparency concerns due to the confidentiality clause. Tendering as used in the 2 hospital and offpatent outpatient sectors has proven to reduce medicine prices but it requires a robust framework and appropriate design with clear strategic goals in order to prevent shortages. These pricing and reimbursement policies are supplemented by the widespread use of Health Technology Assessment to inform decision-making, and by strategies to improve the uptake of generics, and also biosimilars. While European countries have been implementing a set of policy options, there is a lack of thorough impact assessments of several pricing and reimbursement policies on affordable access. Increased cooperation between authorities, experience sharing, and improving transparency on price information, including the disclosure of confidential discounts, are opportunities to address current challenges.3

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European Union Pharmaceutical Markets: A Case for Differential Pricing?

Cited by 29 publications

References 38 publications

A Comparison of Game-Theoretic Models for Parallel Trade

A Comparison of Game-Theoretic Models for Parallel Trade

Access to Medicines and European Market Integration

How Can Pricing and Reimbursement Policies Improve Affordable Access to Medicines? Lessons Learned from European Countries

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