v1.0 researched and written by Elise Erickson, edited by Suerie Moon, last updated June 2018
The literature around tiered pricing is considerable.* Papers have been regularly published from the late 1990s through the present, although the disease-focus has shifted from antiretrovirals (ARVs) for HIV in the early/mid 2000s, to hepatitis C in more recent papers.
Tiered pricing, differential pricing, price discrimination, market segmentation, Ramsey pricing, equity pricing
Synthesis of the literature
There are two main schools of thought regarding tiered pricing: some advocate for global tiered pricing as an appropriate tool for balancing affordability, access, and innovation (Plahte 2005), while others take a more critical stance and identify possible shortcomings. For example, some present tiered pricing as a suitable solution to affordability and access for vaccines (Berkley 2014), while others point to the limitations of tiered pricing for middle-income countries in particular (Balasegaram 2014).
In examining the pros and cons of tiered pricing, some papers examine whether tiered pricing brings about the lowest prices as compared to other mechanisms such as generic competition or pooled procurement.
Several papers find that generic prices are lower than those offered through tiered pricing, and offer other critiques to tiered pricing, including that decision-making power remains in pharmaceutical company’s hands, or that tiered pricing does not de-link price from R&D financing (Holmes et al. 2010; Moon et al. 2011; Waning et al. 2009). An MSF Access Campaign issue brief lists 2017 ARV prices, and discusses the access concerns around tiered pricing (2017). Papers offering a more critical view of tiered pricing found it to be appropriate only when the market is small, and when competition among generic producers is low (Moon et al. 2011; Waning et al. 2009).
There is a fair amount of literature on the overlap between parallel trade, external reference pricing, and tiered pricing. Some scholars argue that tiered pricing can increase access and incentivize R&D and therefore enhance overall welfare (Danzon 1997; Lichtenberg 2011; Towse et al. 2015). It has been argued that in theory both developing countries and the pharmaceutical company are better off with tiered pricing than with uniform pricing (Scherer and Watal 2002), but parallel trade, external reference pricing, and price transparency can undermine the welfare benefits of tiered pricing (Danzon and Towse 2003; Ridley 2005; Scherer and Watal 2002). Scherer and Watal (2002) demonstrate this through a hypothetical analysis of AIDS drugs prices. Others are concerned that tiered pricing proposals may undermine TRIPS flexibilities (Williams, Ooms, and Hill 2015).
Beyond the pros and cons of tiered pricing, other papers focus on the manner and extent to which it is implemented, for example, by documenting price differences in hepatitis C treatments or ARVs (Andrieux-Meyer et al. 2015; Hanlon and Zhang 2013; Iyengar et al. 2016). Lopert and colleagues describe methods by which price differentials could be calculated, such as a cost-effectiveness analysis that includes a measure of national wealth (Lopert et al. 2002).
The degree to which medicines prices correlate to different income levels across low, middle and high-income countries
The determinants of price differentials and country groupings in tiered pricing policies (e.g. the methods by which such prices are established)
The impact of tiered pricing on the price of first entry generics
Analysis of the feasibility and/or application of intra-country differential pricing
Analysis of reference pricing policies and how they impact international differential pricing
* For the purposes of this review, we have established three categories to describe the state of the literature: thin, considerable, and rich.
- Thin: There are relatively few papers and/or there are not many recent papers and/or there are clear gaps
- Considerable: There are several papers and/or there are a handful of recent papers and/or there are some clear gaps
- Rich: There is a wealth of papers on the topic and/or papers continue to be published that address this issue area and/or there are less obvious gaps
Scope: While many of these issues can touch a variety of sectors, this review focuses on medicines. The term medicines is used to cover the category of health technologies, including drugs, biologics (including vaccines), and diagnostic devices.
Disclaimer: The research syntheses aim to provide a concise, comprehensive overview of the current state of research on a specific topic. They seek to cover the main studies in the academic and grey literature, but are not systematic reviews capturing all published studies on a topic. As with any research synthesis, they also reflect the judgments of the researchers. The length and detail vary by topic. Each synthesis will undergo open peer review, and be updated periodically based on feedback received on important missing studies and/or new research. Selected topics focus on national and international-level policies, while recognizing that other determinants of access operate at sub-national level. Work is ongoing on additional topics. We welcome suggestions on the current syntheses and/or on new topics to cover.