The Questionable Economic Case for Value-Based Drug Pricing in Market Health Systems

Feb 1, 2017, 00:00
10.1016/j.jval.2016.11.017
https://www.valueinhealthjournal.com/article/S1098-3015(16)34126-2/fulltext
Title : The Questionable Economic Case for Value-Based Drug Pricing in Market Health Systems
Citation : https://www.valueinhealthjournal.com/action/showCitFormats?pii=S1098-3015(16)34126-2&doi=10.1016/j.jval.2016.11.017
First page : 278
Section Title : Alternative Approaches for Value-Based Assessments
Open access? : No
Section Order : 17

This article investigates the economic theory and interpretation of the concept of “value-based pricing” for new breakthrough drugs with no close substitutes in a context (such as the United States) in which a drug firm with market power sells its product to various buyers. The interpretation is different from that in a country that evaluates medicines for a single public health insurance plan or a set of heavily regulated plans. It is shown that there will not ordinarily be a single value-based price but rather a schedule of prices with different volumes of buyers at each price. Hence, it is incorrect to term a particular price the value-based price, or to argue that the profit-maximizing monopoly price is too high relative to some hypothesized value-based price. When effectiveness of treatment or value of health is heterogeneous, the profit-maximizing price can be higher than that associated with assumed values of quality-adjusted life-years. If the firm sets a price higher than the value-based price for a set of potential buyers, the optimal strategy of the buyers is to decline to purchase that drug. The profit-maximizing price will come closer to a unique value-based price if demand is less heterogeneous.

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Tags :
  • health care markets
  • insurance
  • pharmaceuticals
  • value-based pricing
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