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At least 19 recordsLinked to original sources
PubMed2004

Drug price regulation under consumer moral hazard. Two-part tariffs, uniform price or third-degree price discrimination?

Drug price differences across national markets as they exist in the EU are often justified by the concept of Ramsey prices: with fixed costs for R&D, the optimal mark-ups on marginal costs are inversely related to the price elasticity in the individual markets. This well-known result prevails if consumer moral hazard is taken into account. Contrary to the situation without moral hazard, the uniform price does not necessarily dominate discriminatory pricing in welfare terms. The two-part tariff is a better alternative as it allows governments to address moral hazard. A uniform price combined with lump-payments reflecting differences in the willingness to pay and the moral hazard in member states appears to be an attractive option for a common EU drug market.

Cost Control↗
PubMed2004

Pricing of pharmaceuticals. Assessing the pricing potential by a pricing matrix model.

Pricing and reimbursement of new pharmaceuticals have been based until recently on the traditional clinical trial outcomes (efficacy, safety, and quality parameters) used for registration. Now we can distinguish various additional data requirements which relate to the use of the drug in real daily practice. The most important new data requirements are effectiveness, cost-effectiveness, and budgetary impact. A main question is how much the impact is of the various types of data in the pricing and reimbursement process. The objective of this contribution is to present a method for quantifying this type of uncertainty in order to develop a more solid pricing and reimbursement strategy for a new innovative drug. The concepts are illustrated for a new hypothetical antidepressant drug in The Netherlands. This method is based on the analytic hierarchy process (AHP) concept which measures decision makers' preferences for the critical success factors. This study shows that the AHP concept may be applied to the pricing and reimbursement environment. The method may be used to assess the pricing potential of a new drug, considering the various data requirements in the reimbursement process.

Cost-Benefit Analysis↗
PubMed2006

Pharmaceutical policies: effects of reference pricing, other pricing, and purchasing policies.

BACKGROUND: Pharmaceuticals can be important for people's health. At the same time drugs are major components of health care costs. Pharmaceutical pricing and purchasing policies are used to determine or affect the prices that are paid for drugs. Examples are price controls, maximum prices, price negotiations, reference pricing, index pricing and volume-based pricing policies. The essence of reference pricing is to establish a maximum level of reimbursement for a group of drugs assumed to be therapeutically equivalent. OBJECTIVES: To determine the effects of pharmaceutical pricing and purchasing policies on drug use, healthcare utilisation, health outcomes and costs (expenditures). SEARCH STRATEGY: We searched the following databases and web sites: Effective Practice and Organisation of Care Group Register (date of last search: 22/08/03), Cochrane Central Register of Controlled Trials (15/10/03), MEDLINE (07/09/05), EMBASE (07/09/05), ISI Web of Science (08/09/05), CSA Worldwide Political Science Abstracts (21/10/03), EconLit (23/10/03), SIGLE (12/11/03), INRUD (21/11/03), PAIS International (23/03/04), International Political Science Abstracts (09/01/04), NHS EED (20/02/04), PubMed (25/02/04), NTIS (03/03/04), IPA (22/04/04), OECD Publications & Documents (30/08/05), SourceOECD (30/08/05), World Bank Documents & Reports (30/08/05), World Bank e-Library (04/05/05), JOLIS (22/08/05), Global Jolis (22/08/05 and 23/08/05), WHOLIS (29/08/05). SELECTION CRITERIA: Policies in this review were defined as laws, rules, financial and administrative orders made by governments, non-government organisations or private insurers. To be included a study had to include an objective measure of at least one of the following outcomes: drug use, healthcare utilisation, health outcomes, and costs (expenditures); the study must be a randomised controlled trial, non-randomised controlled trial, interrupted time series analysis, repeated measures study or controlled before-after study of a pharmaceutical pricing or purchasing policy for a large jurisdiction or system of care. DATA COLLECTION AND ANALYSIS: Two reviewers independently extracted data and assessed study limitations. Quantitative analysis of time series data, for studies with sufficient data, and qualitative analyses were undertaken. MAIN RESULTS: We included 10 studies of reference pricing and one study of index pricing. Most of the reference pricing studies were for senior citizens in British Columbia, Canada. The use (dispensing) of reference drugs increased in five studies, between 60% and 196% immediately after introduction of reference drug pricing, whereas the use of cost sharing drugs decreased by between 19% and 42% in four studies. In three studies the reference drug group expenditures decreased (range 19% - 50%), whereas in the fourth study the expenditures increased by 5% in the short term. The results after six months of reference pricing do not show any clear pattern in relationship to the immediate effects. We found no evidence of adverse effects on health and no clear evidence of increased health care utilisation. For index pricing the evidence was much more limited than for reference drug pricing. A small reduction in drug prices was found. AUTHORS' CONCLUSIONS: We found relatively few studies of pricing policies. The majority of the studies dealt with reference pricing. They had few methodological limitations. Based on the evidence in this review, mostly from senior citizens in British Columbia, Canada, reference drug pricing can reduce third party drug expenditures by inducing a shift in drug use towards less expensive drugs. We found no evidence of adverse effects on health and no clear evidence of increased health care utilisation. The analysis and reporting of the effects on patient drug expenditures were limited in the included studies and administration costs were not reported.

Cost Control↗
PubMed2005

How do minimum cigarette price laws affect cigarette prices at the retail level?

OBJECTIVES: Half of US states have minimum cigarette price laws that were originally passed to protect small independent retailers from unfair price competition with larger retailers. These laws prohibit cigarettes from being sold below a minimum price that is set by a formula. Many of these laws allow cigarette company promotional incentives offered to retailers, such as buydowns and master-type programmes, to be calculated into the formula. Allowing this provision has the potential to lower the allowable minimum price. This study assesses whether stores in states with minimum price laws have higher cigarette prices and lower rates of retailer participation in cigarette company promotional incentive programmes. DESIGN: Retail cigarette prices and retailer participation in cigarette company incentive programmes in 2001 were compared in eight states with minimum price laws and seven states without them. New York State had the most stringent minimum price law at the time of the study because it excluded promotional incentive programmes in its price setting formula; cigarette prices in New York were compared to all other states included in the study. RESULTS: Cigarette prices were not significantly different in our sample of US states with and without cigarette minimum price laws. Cigarette prices were significantly higher in New York stores than in the 14 other states combined. CONCLUSIONS: Most existing minimum cigarette price laws appear to have little impact on the retail price of cigarettes. This may be because they allow the use of promotional programmes, which are used by manufacturers to reduce cigarette prices. New York's strategy to disallow these types of incentive programmes may result in higher minimum cigarette prices, and should also be explored as a potential policy strategy to control cigarette company marketing practices in stores. Strict cigarette minimum price laws may have the potential to reduce cigarette consumption by decreasing demand through increased cigarette prices and reduced promotional activities at retail outlets.

Commerce↗
PubMed2004

Pharmaceutical pricing, price controls, and their effects on pharmaceutical sales and research and development expenditures in the European Union.

BACKGROUND: Each country in the European Union (EU) currently employs direct price controls or permutations of direct price controls, such as reference pricing or limitations on returns to capital. Some countries also use volume controls. A new proposal that is being discussed would have all of the countries in the EU adopt uniform pricing for each pharmaceutical. OBJECTIVE: This paper analyzes the economic effects of free-market pricing individual-country price controls, and uniform EU price controls. METHODS: Microeconomic and mathematical models were used to simulate and predict probable economic outcomes in a comparative static setting. RESULTS: Price controls may be in the form of price ceilings or price floors. Both forms of price control generate deadweight economic losses in the short run and long run. A uniform EU price for each pharmaceutical sold there would have elements of a price ceiling in some of the countries and of a price floor in other countries. The deadweight loss incurred would be a function of the level at which the uniform price was set by the EU and the price elasticity of demand for each pharmaceutical in each country. CONCLUSIONS: Economic efficiency is maximized in both the short run and long run when prices are set in freely competitive markets. An additional important dimension of Ramsey pricing within a competitive context is that it generates funds for investment in pharmaceutical research and development, which enhances economic efficiency in the long run.

Cost Control↗
PubMed2006

Alcohol prices, beverage quality, and the demand for alcohol: quality substitutions and price elasticities.

BACKGROUND: Although the published literature on alcohol beverage taxes, prices, sales, and related problems treats alcoholic beverages as a simple good, alcohol is a complex good composed of different beverage types (i.e., beer, wine, and spirits) and quality brands (e.g., high-, medium-, and low-quality beers). As a complex good, consumers may make substitutions between purchases of different beverage types and brands in response to price increases. For this reason, the availability of a broad range of beverage prices provides opportunities for consumers to mitigate the effects of average price increases through quality substitutions; a change in beverage choice in response to price increases to maintain consumption. METHODS: Using Swedish price and sales data provided by Systembolaget for the years 1984 through 1994, this study assessed the relationships between alcohol beverage prices, beverage quality, and alcohol sales. The study examined price effects on alcohol consumption using seemingly unrelated regression equations to model the impacts of price increases within 9 empirically defined quality classes across beverage types. The models enabled statistical assessments of both own-price and cross-price effects between types and classes. RESULTS: The results of these analyses showed that consumers respond to price increases by altering their total consumption and by varying their brand choices. Significant reductions in sales were observed in response to price increases, but these effects were mitigated by significant substitutions between quality classes. CONCLUSIONS: The findings suggest that the net impacts of purposeful price policy to reduce consumption will depend on how such policies affect the range of prices across beverage brands.

Alcohol Drinking↗
PubMed2005

Tobacco industry price-subsidizing promotions may overcome the downward pressure of higher prices on initiation of regular smoking.

Real cigarette prices in the US increased from the early 1980s to early 1990s. Holding all else equal, adolescent initiation of regular smoking should have declined during this period. Using national population-based surveys (n = 336 343) conducted in the 1990s, we present trends (early 1960s to mid-1990s) in the initiation of regular smoking among 14-17-year-old adolescents and 18-21-year-old young adults. We also present trends in consumer-price-index-adjusted cigarette price and tobacco-industry expenditures for price-subsidizing promotions. We relate price and price-subsidizing tobacco industry expenditures to trends in initiation in the two age groups, using autoregressive integrated moving average models (ARIMA). From the model results, we conclude that price-subsidizing promotions may provide the tobacco industry with an effective way to segment the market. That is, they effectively offer lower prices to population subgroups that are more price-sensitive (e.g. young smokers not yet addicted), countering the depressing effect of general price increases on smoking. Thus, we find that the relationship of cigarette price to smoking behavior is more complex than previously described.

Adolescent↗
PubMed2001

The role of internal reference prices in consumers' willingness to pay judgments: Thaler's Beer Pricing Task revisited.

Alternative reference prices, either displayed in the environment (external) or recalled from memory (internal) are known to influence consumer judgments and decisions. In one line of previous research, internal reference prices have been defined in terms of general price expectations. However, Thaler (Marketing Science 4 (1985) 199; Journal of Behavioral Decision Making 12 (1999) 183) defined them as fair prices expected from specific types of seller. Using a Beer Pricing Task, he found that seller context had a substantial effect on willingness to pay, and concluded that this was due to specific internal reference prices evoked by specific contexts. In a think aloud study using the same task (N = 48), we found only a marginal effect of seller context. In a second study using the Beer Pricing Task and seven analogous ones (N = 144), general internal reference prices were estimated by asking people what they normally paid for various commodities. Both general internal reference prices and seller context influenced willingness to pay, although the effect of the latter was again rather small. We conclude that general internal reference prices have a greater impact in these scenarios than specific ones, because of the lower cognitive load involved in their storage and retrieval.

Adult↗
PubMed2005

[Pharmaceutical reference pricing in Germany: definition of therapeutic groups, price setting through regression procedure and effects].

The German reference pricing system defines a reimbursement threshold for groups of pharmaceuticals. Pharmaceuticals are grouped according to certain criteria by the Federal Joint Committee. To make different active ingredients comparable, so called reference values are defined. Subsequently, the federal association of sickness funds sets reference prices using a regression procedure. However, the impact of the reference price system is limited. On the one hand there is a strong incentive for pharmaceutical companies to decrease prices to the reference price. On the other hand there is no incentive for further price reductions. Additionally, only one part of the pharmaceutical market is affected by reference pricing. Therefore the instrument has only managed to lower pharmaceutical expenditure in the short run. For sustainable long-term cost containment the use of other regulatory instruments is necessary. Nevertheless, compared to other instruments of price-regulation, reference pricing seems to be a good alternative to control pharmaceutical prices, since rationing is kept as little as possible.

Cost Control↗
PubMedDate not supplied

Points to consider about prescription drug prices: an overview of federal policy and pricing studies.

Pharmaceutical prices in the United States are under evaluation as policy makers decide how to reduce health care expenditures and public subsidy of the pharmaceutical industry. Furthermore, evidence of higher drug prices in the United States, compared with those in other countries, fuels the prescription drug price debate. These issues are not new to the public forum and much can be learned from prior debates and policies. This paper begins by reviewing the pricing debate with the Kefauver hearings on monopolies held during the late 1950s and early 1960s and continues with the current price debate. Government reports and academic studies are discussed, addressing the methodological differences and their implications to policy makers. Finally, the literature review includes foreign government prescription drug programs with their respective prescription drug expenditures. Evidence provided by academics about the pricing practices of the drug manufacturers indicates product quality and price information would force firms to compete on the price level, thus reducing pharmaceutical product pricing to the "true" market price.

Drug Costs↗
PubMedDate not supplied

An electricity price model with consideration to load and gas price effects.

Some characteristics of the electricity load and prices are studied, and the relationship between electricity prices and gas (fuel) prices is analyzed in this paper. Because electricity prices are strongly dependent on load and gas prices, the authors constructed a model for electricity prices based on the effects of these two factors; and used the Geometric Mean Reversion Brownian Motion (GMRBM) model to describe the electricity load process, and a Geometric Brownian Motion(GBM) model to describe the gas prices; deduced the price stochastic process model based on the above load model and gas price model. This paper also presents methods for parameters estimation, and proposes some methods to solve the model.

Computer Simulation↗
PubMedDate not supplied

[Why drug prices are high in sub-Saharan Africa. Analysis of price structure: the case of Senegal].

This article seeks to shed light on the reasons for the lack of correlation between the price of drugs in this very poor sub-Saharan country and the population's ability to pay for them. The analysis is based on: (i) a comparison between the wholesale (exclusive of VAT and other taxes) and government-fixed retail prices and the corresponding prices of the same drugs in their country of origin (France); (ii) a description of the price-setting mechanisms in Senegal in both the public and private sectors; and (iii) an evaluation of public-sector retail price in Senegal, by end users and prescribing professionals in both sectors. The study found that: (i) patient expenditure would be one-fifth as high if all the drugs in the sample were sold at their government-fixed public-sector retail prices; (ii) the most cost effective drugs are sold at fixed retail prices higher than those of drugs not reimbursed by the national health insurance in France because considered less cost-effective; (iii) the mechanism for setting public retail prices seems to be unrelated to public health objectives, does not consider specific population groups, target diseases, or the drugs' therapeutic value, and therefore cannot be considered an effective tool for implementing national drug policies. Instead, the incentives of this mechanism lead retailers to sell the most expensive drugs first, to generate the highest possible margins. It does not prioritize the essential generic drugs that health authorities have placed at the centre of their pharmaceutical policy.

Africa South of the Sahara↗
PubMed2005

Estimating the price elasticity of expenditure for prescription drugs in the presence of non-linear price schedules: an illustration from Quebec, Canada.

The price elasticity of demand for prescription drugs is a crucial parameter of interest in designing pharmaceutical benefit plans. Estimating the elasticity using micro-data, however, is challenging because insurance coverage that includes deductibles, co-insurance provisions and maximum expenditure limits create a non-linear price schedule, making price endogenous (a function of drug consumption). In this paper we exploit an exogenous change in cost-sharing within the Quebec (Canada) public Pharmacare program to estimate the price elasticity of expenditure for drugs using IV methods. This approach corrects for the endogeneity of price and incorporates the concept of a 'rational' consumer who factors into consumption decisions the price they expect to face at the margin given their expected needs. The IV method is adapted from an approach developed in the public finance literature used to estimate income responses to changes in tax schedules. The instrument is based on the price an individual would face under the new cost-sharing policy if their consumption remained at the pre-policy level. Our preferred specification leads to expenditure elasticities that are in the low range of previous estimates (between -0.12 and -0.16). Naïve OLS estimates are between 1 and 4 times these magnitudes.

Aged↗
PubMed1996

Do cigarette producers price-discriminate by state? An empirical analysis of local cigarette pricing and taxation.

This study analyzes the interactive effects of oligopoly pricing, state taxation, and anti-smoking regulations on retail cigarette prices by state, using panel data for the 50 US states between 1960 and 1990. The results indicate that cigarette producers do price-discriminate by state, though the effect is not large relative to the final retail price. There are two further results: (1) state taxes are more than passed on - a 1-cent state tax increase results in a price increase of 1.11 cents, and (2) sellers offset state and local anti-smoking laws with lower prices, thereby blunting effects of the regulations.

Commerce↗
PubMed2004

Using the market to regulate health care price: why heart hospitals will have a competitive advantage in the world of post-diagnostic related group pricing.

For the past 20 years, the federal government has reimbursed hospital services by administrating pricing. Simply put, under such a system the government dictated the prices of medical services. Not only has administrative pricing failed to control medical inflation, but such failure could have been predicted from a review of basic economics. Accordingly, to eliminate the deleterious effects of administrative pricing, it is not surprising that the government is gathering information on hospital quality and cost in anticipation of a return to a system in which the price for hospital services is determined by the market. For some hospitals, this will be good news because they will be able to negotiate a more favorable rate of reimbursement. Unfortunately, for some hospitals a market system will be bad news because the government is not going to negotiate a provider contract with every hospital. In short, when the government returns to a market system for pricing of hospital services, competition among hospitals is going to become even more competitive.

Cardiac Care Facilities↗
PubMed2004

Comparing demand functions when different price manipulations are used: does unit price help?

Six hens pecked a key (Experiment 1) or pushed a door (Experiment 2) to obtain food reinforcement. In both experiments and as an analogue of price changes, the response requirements were varied in two ways: by increasing the number of responses required and by increasing the required force of each response. The two price manipulations (response number and response force) had different effects on behavior and produced different-shaped demand functions when the rates of consumption were plotted logarithmically against the price analogues. Irrespective of response topography, when the number of required responses was varied, the data paths appeared linear, with slopes close to -1.0. When the required force of each keypeck and doorpush was varied, the data paths were clearly curved, with increasingly steep downward slopes as the force increased. Using the concept of unit price did not fully remove the different effects of the two price manipulations. Those differences are best attributed to the differing times needed in order to complete each response unit under those price manipulations.

Animals↗