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Paying for pharmaceuticals: uniform pricing versus two-part tariffs
Kurt R Brekke1, Dag Morten Dalen2, Odd Rune Straume3
1Norwegian School of Economics (NHH), Department of Economics, Centre for Business Economics, Helleveien 30, Bergen N-5045, Norway.
Journal of Health Economics
|March 22, 2022
Summary
Two-part pricing for pharmaceuticals can benefit health plans with competition but may harm them under monopoly. Payment schemes also affect innovation incentives.
Area of Science:
- Health economics
- Pharmaceutical pricing strategies
- Market competition analysis
Background:
- Traditional uniform pricing for pharmaceuticals is being challenged by two-part pricing models.
- Two-part pricing involves a fixed access fee and unit prices at marginal cost.
Purpose of the Study:
- To analyze the impact of two-part pricing versus uniform pricing on health plans and pharmaceutical innovation.
- To compare outcomes under different market structures (monopoly vs. competition) and contract types (exclusive contracts).
Main Methods:
- Economic modeling of pharmaceutical markets.
- Analysis of health plan and producer surplus under various pricing schemes.
- Evaluation of incentives for different types of innovation.
Main Results:
- Two-part pricing is socially efficient but can disadvantage health plans under monopoly by extracting all surplus.
- With competition, two-part pricing improves patient utility and reduces health plan costs.
- Uniform pricing is preferred by health plans when exclusive contracts are present.
- Pricing schemes influence the balance between drastic and incremental pharmaceutical innovations.
Conclusions:
- The choice of pharmaceutical pricing model significantly impacts market efficiency, cost, and innovation.
- Two-part pricing offers advantages in competitive markets but requires careful consideration in monopolistic settings and with exclusive contracts.
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