Pharmaceutical Pricing in a Globalized World: Crossing the income divide and ability to pay

Rutger Daems, Edith Maes and Christoph Glaetzer
Additional contact information
Rutger Daems: Planet Strategy Group, Brussels, Belgium
Edith Maes: Maastricht School of Management, PO Box 1203, 6201 BE Maastricht, The Netherlands; E-mail address: edith.maes@telenet.be
Christoph Glaetzer: Janssen Asia Pacific, Singapore

No 2012/24, Working Papers from Maastricht School of Management

Abstract: OBJECTIVES To examine pharmaceutical pricing strategies not only through the lens of efficiency but equity as well, and propose analytic methods that support policymakers and executives in making pricing and reimbursement decisions. METHODS The paper takes a 3-dimensional approach (triangulation) in defining international pricing policy for pharmaceuticals using: cost-effectiveness analysis (CEA), willingness to pay analysis (WTP), and ability to pay analysis (ATP). It attempts to find a balance between various economic methods of which some focus on effectiveness while others are geared towards incorporating equity in the equation. RESULTS A model has been developed to assess the ATP of 120 countries based on a country’s score in the human development index (HDI) as defined and measured by the United Nations Development Program, and published annually in the United Nations Human Development Report. The non-linear index has been applied to a number of drugs in different therapeutic categories without disclosing brand names. Prices in affluent countries – and to an increasing extent in the fast-growing middleincome countries – could generate sufficient revenue to pay for the cost of innovation benefiting all parties, whereas prices in the lowest-income countries in principle need only cover their marginal cost. CONCLUSIONS Besides the standard cost-effectiveness analysis (CEA) and willingness to pay analysis (WTP), a third method should be used in conjunction that measures the ability to pay (ATP) with the HDI index as yardstick. We recommend that ATP becomes an additional practice in policy decision-making and in defining international pricing strategies for pharmaceuticals in order to provide sustainable access to medicines.

Keywords: Access-to-medicines; international pricing; cost-effectiveness; willingness-to-pay; ability-to-pay; equity. (search for similar items in EconPapers)
Pages: 17 pages
Date: 2012-09
New Economics Papers: this item is included in nep-sea
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http://web2.msm.nl/RePEc/msm/wpaper/MSM-WP2012-24.pdf First version, 2012 (application/pdf)

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