Tuesday, May 24, 2011

Negotiate drug price and availability jointly

Health care costs are increasing faster than general inflation mostly everywhere, and for some time now. While this should not be a surprise, as health care is mostly a service good, there is considerable grief over the situation. Among initiatives to curb down costs are efforts on prevention, instituting copays and regulating health care providers. What about pharmaceutical drugs.

Begona Garcia Marinoso, Izabella Jelovac, and Pau Olivella report on a rather common practice in Europe: external referencing. This is setting a price cap on pharmaceuticals domestically based on what the price is abroad. This has obviously consequences on price negotiations in the foreign country, which is not too happy about this as the pharmaceutical companies are bargaining harder. But if the government can tie in drug authorizations into the negotiations, then prices are further capped and even the foreign country is not hurt. In other words, there is no reason that governments should give away bargaining power by putting price regulation and drug authorization in different agencies.

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