Pricing Variations Within and Across Countries: Gauging Efficiency

Professor Patricia Danzon Professor Patricia Danzon


OHE collaborated on two articles published in the journal Health Economics recently. In the first, OHE’s Adrian Towse and Jorge Mestre-Ferrandiz collaborated with Patricia Danzon of the Wharton School at the University of Pennsylvania to examine value-based pricing for pharmaceuticals. The research explores which approaches to pricing can produce the greatest efficiency within and across countries, given that countries vary substantially in average per capita income and that incomes within a country also may differ widely. The impact of the absence or presence of comprehensive insurance also is considered.

See: Danzon, P., Towse, A. & Mestre-Ferrandiz, J., 2013. Value-based differential pricing: efficient prices for drugs in a global context. Health Economics. [Online]. DOI: 10.1002/hec.3021.

In the second publication, OHE’s Adrian Towse collaborated with Patricia Danzon of the University of Pennsylvania and Andrew Mulcahy of the RAND Corporation. This paper analyzes what determines prices of originator and generic drugs across countries. The research focuses on drugs to treat HIV/AIDS, tuberculosis, and malaria in middle- and low-income countries (MLICs), with checks for robustness in other therapeutic categories and across the full range of incomes. The authors examine the effects of per capita income, income dispersion, competition from originator and generic substitutes, and whether the medicine is available from retail pharmacies or via tendered procurement by non-government organizations.

The study shows that drugs are least affordable relative to income in the lowest income countries and that relatively high prices in MLICs are associated with income inequalities within the countries.  Although prices of generics are about 30% lower than originators on average, the variance is large. Uncertainty about the quality of generics in these countries means that competition is based on brand, rather than price, and the entry of additional generic competitors has only a weak impact on prices. However, when tendered procurement imposes quality standards, multinational generic suppliers enter the market and prices of both originator and generic drugs are lower compared to retail pharmacy prices.

See: Danzon, P., Mulcahy, A. & Towse, A., 2013. Pharmaceutical pricing in emerging markets: effects of income, competition, and procurement. Health Economics. [Online]. DOI: 10.1002/hec.3013. (For a more comprehensive summary of an earlier version of this article, please click here.)

Professor Danzon also presented this research at OHE's 50th anniversary conference. The conference proceedings are available for download from this website by clicking here.

Posted in Emerging Markets, Health Care Systems, Pricing and Reimbursement, Value-Based Pricing | Tagged External publications