Two-part Pricing for Patent-protected Medicines

Two-part Pricing for Patent-protected Medicines
Poster presented at ISPOR International Meeting in Philadelphia, May 16-20, 2015

Many new medicines are targeting small patient populations. In order to recoup R&D costs, the medicines are highly priced. A dilemma is that the price per patient (or pill or vial) can be seen as blocking access. As the marginal cost of a new product is lower than the charged price, there is well-known waste. One option is to establish a two-part-pricing model with a “subscription” price plus a usage price close to the marginal cost of manufacturing. The objective of this paper is to discuss the opportunities of using two-part pricing in the market for patent-protected medicines based on the theories and concepts from microeconomics and industrial organizations. Quantities supplied are unlikely to be efficient with the current pricing model in the Swedish oncological market. A two-part pricing structure is likely to increase efficiency in these markets, but the structure is also associated with some challenges related to bargaining, implementation, and arbitrage problems.