Down to the cents: The case of international drug prices

Abstract

Using drug prices from the Veteran Affairs office, we document limited clustering on whole dollars and heightened strategic pricing. Surprisingly 97.9% of drugs over $10,000 are priced down to the cents. We find no significant variations in clustering by price levels or uncertainty, rejecting the negotiation hypothesis. Strategic pricing on 01 and 99 increases monotonically as prices decline. For international drug prices, we find significant clustering on integers in Luxembourg and South Africa as price level increases, supporting the negotiation hypothesis. Our findings contribute to better negotiating drug prices to reduce healthcare costs while not discouraging innovations in drug development. © 2021 Elsevier Inc.