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A Framework for the Fair Pricing of Medicines
1School of Public Health, University of Alberta, Edmonton, Canada. paulden@ualberta.ca.
Pharmacoeconomics
|December 8, 2023
Summary
Identifying fair medicine prices is crucial for healthcare budgets. This framework uses economic principles to balance costs, patient benefits, and manufacturer incentives, suggesting lower collective prices maximize health and welfare.
Area of Science:
- Health Economics
- Pharmaceutical Policy
- Public Health
Background:
- Rising medicine costs strain healthcare budgets globally.
- Determining 'fair' medicine prices is a significant challenge for payers.
- Existing pricing models do not fully account for societal and patient welfare.
Purpose of the Study:
- To propose an economic framework for determining 'fair' medicine prices.
- To incorporate health opportunity costs and societal willingness to pay into pricing.
- To analyze manufacturer incentives and strategic pricing behaviors.
Main Methods:
- Development of a framework based on fundamental economic principles.
- Integration of supply-side and demand-side cost-effectiveness considerations.
- Analysis of dynamically calculated incremental cost-effectiveness ratios (ICERs).
Main Results:
- A 'fair' medicine price results in a dynamically calculated ICER below the health opportunity cost threshold.
- Collective medicine pricing below a specified threshold maximizes population health and total welfare.
- Manufacturer incentives to price up to the cost-effectiveness threshold are identified.
Conclusions:
- The proposed framework offers a novel approach to medicine pricing.
- Policy implications for payers to improve population health outcomes within budget constraints.
- Reconsideration of value-based pricing is needed to ensure equitable economic surplus distribution.
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