Ex post value reimbursement for pharmaceuticals.
The paper examines the welfare properties of an ex post value regulation scheme in which a pharmaceutical firm's revenue varies with the social value of its product. The mechanism, which is a variant of that proposed by Loeb and Magat, leads to efficient investment in research and development (R&D), production, consumption, and promotion under certain market and technologic conditions. The mechanism's attractive simplicity is lost when account is taken of the rivalrous nature of R&D, the fact that drugs can be complements or substitutes, the excess cost of taxes needed to finance the mechanism, and the multinational character of most pharmaceutical firms.
Gravelle
H S
HS
Centre for Health Economics, University of York, United Kingdom. hg8@york.ac.uk
D004345:Drug Industry / Q000191:economics* / Q000331:legislation & jurisprudence; D017850:Economics, Pharmaceutical / Q000706:statistics & numerical data*; D011640:Public Policy; D012106:Research / Q000191:economics