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On the relationship between the negotiated prices of pharmaceuticals and the patients' co-payment

Author

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  • Izabela Jelovac

    (University of Lyon, Lyon, F-69007, France; CNRS, GATE Lyon Saint-Etienne, Ecully, F-69130, France.)

Abstract

In this paper, we give a new insight on the relationship between the patients' co-payment for buying pharmaceuticals and the price of a patented pharmaceutical. We consider that the price of a pharmaceutical is the outcome of a negotiation between a health authority and a pharmaceutical monopoly producer. We use a model based on bargaining theory to represent this negotiation. The negotiated price is shown to be increasing in the degree of the patients' co-payment. This positive relationship is thus opposite to the negative one prevailing when the price is set by a monopoly without any negotiation. We further analyze the negotiation on the co-payment itself, and show that the optimal degree of the negotiated co-payment is the lowest one.

Suggested Citation

  • Izabela Jelovac, 2015. "On the relationship between the negotiated prices of pharmaceuticals and the patients' co-payment," Economics Bulletin, AccessEcon, vol. 35(1), pages 481-493.
    • Handle: RePEc:ebl:ecbull:eb-13-00355
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    References listed on IDEAS

    as
    1. Begoña Garcia Mariñoso & Izabela Jelovac & Pau Olivella, 2011. "External referencing and pharmaceutical price negotiation," Health Economics, John Wiley & Sons, Ltd., vol. 20(6), pages 737-756, June.
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    7. Brekke, Kurt R. & Grasdal, Astrid L. & Holms, Tor Helge, 2009. "Regulation and pricing of pharmaceuticals: Reference pricing or price cap regulation?," European Economic Review, Elsevier, vol. 53(2), pages 170-185, February.
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    9. Matteo Galizzi & Simone Ghislandi & Marisa Miraldo, 2011. "Effects of Reference Pricing in Pharmaceutical Markets," PharmacoEconomics, Springer, vol. 29(1), pages 17-33, January.
    10. Izabela Jelovac & Catalina Bordoy, 2005. "Pricing and Welfare Implications of Parallel Imports in the Pharmaceutical Industry," International Journal of Health Economics and Management, Springer, vol. 5(1), pages 5-21, January.
    11. Brekke, Kurt R. & Holmas, Tor Helge & Straume, Odd Rune, 2011. "Reference pricing, competition, and pharmaceutical expenditures: Theory and evidence from a natural experiment," Journal of Public Economics, Elsevier, vol. 95(7), pages 624-638.
    12. Nina Pavcnik, 2002. "Do Pharmaceutical Prices Respond to Potential Patient Out-of-Pocket Expenses?," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 469-487, Autumn.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Francesca Barigozzi & Izabela Jelovac, 2020. "Research funding and price negotiation for new drugs," Health Economics, John Wiley & Sons, Ltd., vol. 29(S1), pages 83-96, October.
    2. repec:dau:papers:123456789/5987 is not listed on IDEAS
    3. Agnieszka Rusinowska & Ahmet Ozkardas, 2015. "On equilibrium payoffs in wage bargaining with discount rates varying in time," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(2), pages 181-199, October.
    4. Ahmet Ozkardas & Agnieszka Rusinowska, 2013. "An application of wage bargaining to price negotiation with discount factors varying in time," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00881151, HAL.
    5. García-Alonso, M. D. C. & Garcia-Marinoso, B., 2007. "The strategic interaction between firms and formulary committees: effects on the prices of new drugs," Working Papers 07/16, Department of Economics, City University London.
    6. Gregory J. King & Xiuli Chao & Izak Duenyas, 2019. "Who Benefits When Prescription Drug Manufacturers Offer Copay Coupons?," Management Science, INFORMS, vol. 65(8), pages 3758-3775, August.
    7. Bordoy, Catalina & Jelovac, Izabela, 2003. "Pricing and Welfare of Parallel Imports in the Pharmaceutical Industry," Research Memorandum 004, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    8. Garci­a-Alonso, Mari­a D.C. & Garci­a-Mariñoso, Begoña, 2008. "The strategic interaction between firms and formulary committees: Effects on the prices of new drugs," Journal of Health Economics, Elsevier, vol. 27(2), pages 377-404, March.
    9. Stefano Capri & Rosella Levaggi, 2005. "Reconciling social and industrial goals: a bargaining model to pricing pharmaceuticals," LIUC Papers in Economics 170, Cattaneo University (LIUC).
    10. Stefano Capri & Rosella Levaggi, 2008. "Drug pricing and risk sharing agreements," Working Papers 0810, University of Brescia, Department of Economics.
    11. Izabela Jelovac & Catalina Bordoy, 2005. "Pricing and Welfare Implications of Parallel Imports in the Pharmaceutical Industry," International Journal of Health Economics and Management, Springer, vol. 5(1), pages 5-21, January.
    12. Laura Levaggi & Rosella Levaggi, 2009. "Welfare properties of restrictions to health care services based on cost effectiveness," Working Papers 0902, University of Brescia, Department of Economics.

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    More about this item

    Keywords

    Negotiation; pricing; pharmaceuticals; co-payment; insurance; reimbursement;
    All these keywords.

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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