Working paper abstract

#2011-054

Global Framework for differential pricing of pharmaceuticals

Rutger Daems, Edith Maes & Shyama V. Ramani

This paper examines how equitable, differentiated pricing can improve access to and affordability of medicines, particularly in low- and middle-income countries, and how governments and supranational agencies can create an environment that enables pharmaceutical companies to operate a sustainable business model benefitting all key stakeholders. Using value-based pricing techniques in combination with a non-linear function that captures national income parameters as defined in the Human Development Index together with health system variables, the authors have developed an integrated pricing policy framework. The degree to which the proposed framework offers a sustainable solution to the problem of access to medicines depends on: the economic development status of a country, the value of a particular medicine to its therapeutic class and the incidence of the relevant disease, and the extent to which market segmentation can be applied. This paper further argues that for equitable, differential pricing to succeed, policymakers and lawmakers must design and implement a regulatory and legislative framework that prevents leakage through parallel trade and price referencing between affluent and poorer segments when discounts are applied.

Key words: globalization, pharmaceuticals, public policy, corporate strategy, pricing, access, equity.

JEL: D430, L110, L650.