Paying for pharmaceuticals: uniform pricing versus two-part tariffs

Kurt Brekke (), Dag Morten Dalen () and Odd Rune Straume ()
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Dag Morten Dalen: Norwegian Business School
Odd Rune Straume: NIPE and Department of Economics, University of Minho and Department of Economics, University of Bergen

No 01/2021, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: Two-part pricing (the Netflix model) has recently been proposed instead of uniform pricing for pharmaceuticals. Under two-part pricing the health plan pays a fixed fee for access to a drug at unit prices equal to marginal costs. Despite two-part pricing being socially efficient, we show that the health plan is worse off when the drug producer is a monopolist, as all surplus is extracted. This result is reversed with competition, as two-part pricing yields higher patient utility and lower drug costs for the health plan. However, if we allow for exclusive contracts, uniform pricing is preferred by the health plan.

Keywords: Pharmaceuticals; Health Plans; Payment schemes (search for similar items in EconPapers)
JEL-codes: I11 I18 L13 L65 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-com, nep-cta, nep-hea and nep-ias
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Related works:
Journal Article: Paying for pharmaceuticals: uniform pricing versus two-part tariffs (2022)
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