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Pricing of prescription drugs and its impact on physicians’ choice behavior

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Abstract

This research presents an analysis of Taiwan’s health care market with the focus on the pricing of prescription drugs and its impact on physicians’ choice behavior. Since the advent of Taiwan’s national health insurance, with the competent authority being Bureau of National Health Insurance (BNHI), hospitals are allowed to sell prescription drugs to patients at prices above the purchasing prices, so each prescription drug has two prices: one at which drugs are sold to hospitals; the other which BNHI reimbursement to hospitals. The margin between the different prices is the sales discount that pharmaceutical companies offer to the hospitals. We find that sales discount has a great impact on physicians’ choice behavior: i.e., physicians are price-sensitive to prescription drugs. In addition, it is found that too high a sales discount of a prescription drug would result in a too low weighted average price of that drug sold; thus BNHI would be more likely to adjust downward the rate it reimbursement to the hospital. This presents a sales strategy problem to pharmaceutical companies. To solve this, we use the distribution of physicians’ evaluations of prescription drugs to establish a profit maximization model in hopes of helping companies to price drugs and find the optimal promotion expending. Ten popular prescription drugs are used in this research as examples.

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Notes

  1. The selling price of a drug is based on the price that BNHI reimbursement hospitals minus the sales discount. For example, if the price which BNHI reimbursement hospitals for a certain drug is $12/tab and the sales discount is 20%, then the selling price of that prescription drug is $10/tab and the hospital’s profit is $2/tab.

  2. BNHI’s price for anti-diabetic was adjusted to NT $300/vial on April 1, 2001, which, the drug company claimed was the lowest price in the world. The drug company then decided to price the product at BNHI’s price. Since there are only two providers of diabetes injections, the price and sales volume of the product have remained quite stable.

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Authors and Affiliations

  1. Graduate Institute of Management Sciences, Nanhua University, Chiayi, 622, Taiwan

    Chen Miao-Sheng & Shih Yu-Ti

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  1. Chen Miao-Sheng
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  2. Shih Yu-Ti
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Correspondence to Shih Yu-Ti.

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Miao-Sheng, C., Yu-Ti, S. Pricing of prescription drugs and its impact on physicians’ choice behavior. Health Care Manage Sci 11, 288–295 (2008). https://doi.org/10.1007/s10729-007-9039-2

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  • DOI: https://doi.org/10.1007/s10729-007-9039-2

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