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Reference pricing with elastic demand for pharmaceuticals

Publication . Gonçalves, Ricardo; Rodrigues, Vasco

In this paper, we re‐examine the properties of two commonly adopted government reimbursement schemes for pharmaceuticals: reference pricing and fixed percentage reimbursement. We depart from the previous literature by assuming that the individual demand is price‐sensitive and depends on the copayment rate (i.e., the part paid by each consumer). We obtain two novel results under reference pricing: first, as the copayment rate increases, so do pharmaceutical prices; second, this increase in pharmaceutical prices reduces social welfare. Whilst reference pricing does emerge as a preferable reimbursement scheme, demand elasticities and the copayment rate interact in complex ways. This leads (unexpectedly) to the possibility that a higher copayment rate (lower reimbursement rate) results in higher government expenditure.

2018Journal article

Open access

Anti-competitive impact of pseudo-generics

Publication . Rodrigues, Vasco; Gonçalves, Ricardo; Vasconcelos, Hélder

In pharmaceuticals markets, sellers of branded drugs sometimes sell generic versions of their own branded products, either directly or through licenseagreements. Although claims that these pseudo-generics may have anti-competitive effects are not unusual, the theoretical literature on this issue is limited and not conclusive. This paper uses a model that combines horizontal and vertical product differentiation, to explain how those effects may occur. We show that the producer of the branded product will not sell the pseudo-generic unless faced with competition and that, if she does so, in some circumstances, all prices rise to the benefit of all sellers and the detriment of consumers.

2014Journal article

Restricted access

Reference pricing with elastic demand for pharmaceuticals

Publication . Gonçalves, Ricardo; Rodrigues, Vasco

This paper analyzes pharmaceutical producers (of branded and generic drugs) pricing de- cisions in a context which combines the classical Hotelling framework (commonly adopted in the literature) with the possibility that consumers demands are price elastic. We analyze with particular interest two commonly adopted reimbursement mechanisms: xed percentage reim- bursement (FPR) and reference pricing (RP). We nd that assuming an elastic demand has a signi cant impact under a RP mechanism, as it allows rms to raise their prices when the copayment rate increases. Contrary to previous literature, we show that RP may be worse than FPR in terms of social welfare for su¢ ciently high copayment rates. From a policy viewpoint, our results indicate that the introduction of RP is not necessarily always bene cial (compared to FPR) and thus constitute a model towards which all reimbursement mechanisms should converge.

2012Conference object

Open access