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PubMed2005

One pill, many prices: variation in prescription drug prices in selected government programs.

This paper updates a June 2002 National Health Policy Forum Issue Brief, "Average Wholesale Price for Prescription Drugs: Is There a More Appropriate Pricing Mechanism?" Since the release of that paper, Congress enacted the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003, which created a new, comprehensive outpatient prescription drug benefit and reduced Medicare's reliance on the average wholesale price (AWP) in paying for prescription drugs. This paper discusses the continued use of AWP as well as other pricing benchmarks that pertain to prescription drugs. It explains the relevance of these pricing mechanisms to different government programs and sets forth some of the issues that have arisen in their use. The paper also contains a glossary of commonly used drug pricing terms, as well as an appendix that lists state Medicaid drug payment formulas.

Centers for Medicare and Medicaid Services, U.S.↗
PubMed1999

At what price significance? The effect of price estimates on statistical inference in economic evaluation.

Because data on resource utilization are now collected in many comparative trials of health interventions, statistical analysis of between-group differences in mean costs has become common. Statistical analyses of costs are generally performed conditional on a set of resource prices (or unit costs), thereby suppressing any uncertainty associated with those price estimates. Results presented here demonstrate that varying price estimates can have a non-negligible effect on statistical inference regarding between-group cost differences. Depending on the relative prices used in an analysis, between-group differences in total costs per patient may be either statistically significant or insignificant, regardless of whether differences in utilization of the underlying resources are statistically significant. These results highlight the importance of recognizing that evaluations based on patient-level economic data may be sensitive to assumptions regarding the values of unobserved variables, such as the relative prices of resources. Traditional methods of sensitivity analysis remain a valuable tool for analysing the implications of uncertainty around estimates of those unobserved variables.

Clinical Trials as Topic↗
PubMedDate not supplied

Shared 'features' in prices: income and price elasticities for health care expenditures.

The evidence found in most studies suggests a strong positive relationship between health care expenditure and gross domestic product. However, this evidence weakens with respect to the actual value of the income elasticity. There are two possible sources of these discrepancies, the use of arbitrary deflators and specification errors. We find that health PPP cannot be taken as a 'universal' price index. The problem is that its components do not move together. Nevertheless, we derive a 'universal' health price index from a dynamic system in which its components share both short and long run co-movements. The omission of relevant explanatory variables seems to be the main cause of the discrepancies. We confirm that there exists a strong positive relationship between per capita health care expenditure and per capita GDP. However we estimate a long run income elasticity at or around unity, although it is greater than unity for the countries with lower per capita income (Spain and Ireland). The results for income elasticity are the same regardless of whether health care expenditure is converted using the GDP PPP or the 'universal' health price index. The importance of non-income variables is also confirmed, in particular the relative price of health care. We find that relative price has a strong rationing effect on the quantity of health demanded and has no effect on the expenditures.

Data Interpretation, Statistical↗
PubMed2003

Estimating price elasticities when there is smuggling: the sensitivity of smoking to price in Canada.

A central parameter for evaluating tax policies is the price elasticity of demand for cigarettes. But in many countries this parameter is difficult to estimate reliably due to widespread smuggling, which significantly biases estimates using legal sales data. An excellent example is Canada, where widespread smuggling in the early 1990s, in response to large tax increases, biases upwards the response of legal cigarette sales to price. We surmount this problem through two approaches: excluding the provinces and years where smuggling was greatest; and using household level expenditure data on smoking. These two approaches yield a tightly estimated elasticity in the range of -0.45 to -0.47. We also show that the sensitivity of smoking to price is much larger among lower income Canadians. In the context of recent behavioral models of smoking, whereby higher taxes reduce unwanted smoking among price sensitive populations, this finding suggests that cigarette taxes may not be as regressive as previously suggested. Finally, we show that price increases on cigarettes do not increase, and may actually decrease, consumption of alcohol; as a result, smuggling of cigarettes may have raised consumption of alcohol as well.

Canada↗
PubMed2003

Does price matter? The effect of decreased price on spirits consumption in Switzerland.

BACKGROUND: On July 1st, 1999, the spirits market in Switzerland was reformed based on the World Trade Organization (WTO) agreement. The tax reform, in addition to increased competition, has resulted in a 30-50% decrease in price for foreign spirits (liquor). The purpose of the present study is to examine whether decreased prices due to the tax reform and the liberalized spirits market in Switzerland have had an effect on spirits consumption, and whether the effect differs by demographic and other correlates. METHODS: The present study uses data from a longitudinal study on changes in alcohol consumption in Switzerland's resident population. The baseline survey was conducted 3 months before the tax reform and the follow-up was conducted 28 months after the tax reform. A randomly selected sample of 4007 residents aged 15 years or older participated in the baseline survey and 73% in the follow-up survey. The data were obtained by computer-assisted telephone interview, including detailed questions on alcohol consumption, drinking habits, problem drinking, purchase of spirits and socio-demographic characteristics. RESULTS: Consumption of spirits increased after the price of spirits decreased. The increase in spirits consumption was consistent across subgroups, with the exception of the group aged 60 or older. Moreover, the increase in spirits consumption persisted even after adjustment for significant correlates of spirits consumption. Apart from age, there was no evidence that the increase in spirits consumption differed between subgroups as defined by sex, region, working status, education, smoking, drinking frequency, or average number of drinks. CONCLUSIONS: The findings demonstrate that younger people are more affected by price than older persons. This study demonstrated that price should be considered an effective policy to reduce alcohol misuse and alcohol-related problems, especially among the younger population.

Adolescent↗
PubMed1991

Reference price: a tool for pricing new healthcare services.

The convergent validity and scale reliability of three measures of Reference Price (R-Price) were assessed for a "new" healthcare service using an adult sample. The Pearson correlation, Cronbach's alpha and Factor analysis results indicate that the multiple scale R-Price measure exhibits both reliability and convergent validity. As a result, the R-price scale could be used as an additional input for estimating demand of a healthcare service at a given price. The paper also draws some managerial implications for healthcare professionals.

Adult↗
PubMed2004

Developing intuition for prices in euros: rescaling or relearning prices?

This article examines how numerical intuition for prices develops after a major change in currency. University students in Portugal (Study 1) and Austria (Study 2) made price estimates for 40 different items from November 2001 to June 2002, surrounding the time at which these countries switched to the euro. Overall results are more in accordance with a relearning hypothesis, considering that price estimates become progressively more accurate by a process that is related to buying frequency and, hence, is faster for frequently bought items. An alternative global rescaling hypothesis received mixed support. Results also suggest that price estimations in euros have not yet reached a level of accuracy comparable with estimations in the former national currency.

Adult↗
PubMed1988

Strategic pricing: hitting the mark with pricing strategies. Part 1.

Efforts by government and business to reduce healthcare expenditures by fostering competition and reducing utilization have combined to redefine the basic economic structure of the healthcare delivery system. Increased competition among providers has prompted an increased awareness of strategic pricing as a means of achieving institutional goals and objectives. In this article, the first in a three-part series on strategic pricing, the authors examine some of the key theoretical considerations related to pricing strategies for healthcare providers. Future articles will examine practical applications as they relate to package pricing, discounting, per diem systems, and capitation arrangements.

Economic Competition↗
PubMed2001

One DRG, one price? The effect of patient condition on price variation within DRGs and across hospitals.

Costs and prices per patient admission vary greatly across patients and across hospitals. The variance across hospitals is due in part to institutional differences--hospital size, teaching status, local labor costs, and so on--but also to differences in different hospitals' patients' conditions. For purposes of reimbursement under the Medicare program, differences in patients' conditions are typically accounted for by nothing more than noting their different DRGs, without regard to intra-DRG patient differences. My results, which are based on 3.6 million individual patients, show that differences in individual patient DRGs and in observable indicators of their conditions are more than just relevant or important: They are nearly dispositive, explaining over 80% of the total variation in net price per patient admission. Moreover, cross-DRG differences explain only half of that price variation, with the other half explained by patient-level intra-DRG differences in patient condition that are not accounted for by patients' DRG classifications. Further analysis shows that those hospitals that tend to attract the more complex DRGs tend also to attract those patients who are more expensive to treat within each of their DRGs.

Aged↗
PubMed1997

The capital-asset-pricing model and arbitrage pricing theory: a unification.

We present a model of a financial market in which naive diversification, based simply on portfolio size and obtained as a consequence of the law of large numbers, is distinguished from efficient diversification, based on mean-variance analysis. This distinction yields a valuation formula involving only the essential risk embodied in an asset's return, where the overall risk can be decomposed into a systematic and an unsystematic part, as in the arbitrage pricing theory; and the systematic component further decomposed into an essential and an inessential part, as in the capital-asset-pricing model. The two theories are thus unified, and their individual asset-pricing formulas shown to be equivalent to the pervasive economic principle of no arbitrage. The factors in the model are endogenously chosen by a procedure analogous to the Karhunen-Loéve expansion of continuous time stochastic processes; it has an optimality property justifying the use of a relatively small number of them to describe the underlying correlational structures. Our idealized limit model is based on a continuum of assets indexed by a hyperfinite Loeb measure space, and it is asymptotically implementable in a setting with a large but finite number of assets. Because the difficulties in the formulation of the law of large numbers with a standard continuum of random variables are well known, the model uncovers some basic phenomena not amenable to classical methods, and whose approximate counterparts are not already, or even readily, apparent in the asymptotic setting.

Journal Article↗
PubMed1981

A full-price approach to the dental market: implications for price determination.

Policy initiated in the 1970s follows the contention that competitive forces do not work and new types of regulation are warranted. This article presents an expanded demand-supply theory introducing patient waiting time as a component of full price. Equilibrium is reached through adjustments in both fee levels and waiting time. Competitive markets require unequal fee levels among providers in the same community and differing provider-to-population ratios across communities. The evidence from dentistry presented supports this expanded theory. Fees and waiting time are inversely related and full price is apparently insensitive to dentist density. Communities seeking higher fees and shorter waits attract more dentists per capita. Two additional studies cited further support this expanded approach. Patient waiting time is an important component of price.

Appointments and Schedules↗
PubMed2002

Average wholesale price for prescription drugs: is there a more appropriate pricing mechanism?

This paper defines the average wholesale price (AWP), which has become an important benchmark for prescription drug pricing and reimbursement.The paper briefly explains the AWP's various uses in the pricing of prescription drugs, highlights some of the problems that have emerged as a result of the way it is reported and used, and explores some of the possibilities for reform. The paper also contains a glossary of commonly used terms, as well as an appendix that lists the state Medicaid reimbursement formulas.

Drug Costs↗
PubMed2006

Developing a defensible pricing strategy. Hospital pricing is a science, not an art.

A more sophisticated approach to establishing hospital pricing strategies should include: Reevaluating billing policies and processes to establish payment plans and protocols for collection. Establishing a predictable and accurate pricing schedule for all services based on variables such as market, cost, and fee schedules. Leveraging IT to guide decision making Informing hospital boards of the basis for pricing strategies.

Accounts Payable and Receivable↗
PubMed2006

Cost accounting to determine prices: how well do prices reflect costs in the German DRG-system?

Germany has recently introduced a system of Diagnosis Related Groups (DRGs) to engender more appropriate resource allocation. The following article describes the German DRG-system and the methodologies used to determine prices. It analyses the extent to which prices, or calculated cost weights, reflect the actual costs incurred by hospitals for their respective services. We reveal that a "compression" of DRG cost weights occurs, and that the data sample used to calculate cost weights is lacking in terms of its representativeness. Although cost data accuracy has improved over the last few years there are still a number of challenges that need to be addressed.

Accounting↗
PubMed2001

Pricing of drugs and donations: options for sustainable equity pricing.

Effective medicines exist to treat or alleviate many diseases which predominate in the developing world and cause high mortality and morbidity rates. Price should not be an obstacle preventing access to these medicines. Increasingly, drug donations have been established by drug companies, but these are often limited in time, place or use. Measures exist which are more sustainable and will have a greater positive impact on people's health. Principally, these are encouraging generic competition; adopting into national legislation and implementing TRIPS safeguards to gain access to cheaper sources of drugs; differential pricing; creating high volume or high demand through global and regional procurement; and supporting the production of quality generic drugs by developing countries through voluntary licenses if needed, and facilitating technology transfer.

Anti-Bacterial Agents↗
PubMed2002

Option pricing formulas based on a non-Gaussian stock price model.

Options are financial instruments that depend on the underlying stock. We explain their non-Gaussian fluctuations using the nonextensive thermodynamics parameter q. A generalized form of the Black-Scholes (BS) partial differential equation and some closed-form solutions are obtained. The standard BS equation (q=1) which is used by economists to calculate option prices requires multiple values of the stock volatility (known as the volatility smile). Using q=1.5 which well models the empirical distribution of returns, we get a good description of option prices using a single volatility.

Journal Article↗
PubMed2005

Fitting a psychometric function to price judgments: an analysis of consumers' discounted prices.

We examined a psychometric function of price judgment, comparing the mental ruler model, which predicted inverted S-shaped psychometric function, with a power function. Subjects, 102 citizens living in Japan, were asked to rate satisfaction with specified discounted prices. Analysis indicated that predictions of the mental ruler model gave a better fit than those of the power function.

Adolescent↗