Regulation of Pharmaceutical Prices: Evidence from a Reference Price Reform in Denmark

Ulrich Kaiser; Susan J.  Méndez; Thomas Rønde; Hannes  Ullrich

doi:10.1016/j.jhealeco.2014.04.003

Regulation of Pharmaceutical Prices: Evidence from a Reference Price Reform in Denmark

Ulrich Kaiser, Susan J. Méndez, Thomas Rønde, Hannes Ullrich

Universität Zürich

Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › peer review

Abstract

Reference price systems for prescription drugs constitute widely adopted cost containment tools. Under these regimes, patients co-pay a fraction of the difference between a drug's pharmacy retail price and a reference price that is set by the government. Reference prices are either externally (based on drug prices in other countries) or internally (based on domestic drug prices) determined. We study the effects of a change from external to internal reference pricing in Denmark in 2005. We find that the reform led to substantial reductions in retail prices, reference prices and patient co-payments as well as to sizable decreases in overall producer revenues and health care expenditures. The reform induced consumers to substitute away from branded drugs for which we estimate strong preferences. The increase in consumer welfare due to the reform therefore depends on whether or not we take perceived quality differences into account in its calculation.

Originalsprog	Engelsk
Tidsskrift	Journal of Health Economics
Vol/bind	36
Sider (fra-til)	174-187
ISSN	0167-6296
DOI	https://doi.org/10.1016/j.jhealeco.2014.04.003
Status	Udgivet - jul. 2014

Emneord

Pharmaceutical markets
Regulation
Co-payments
Reference pricing
Consumer welfare

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10.1016/j.jhealeco.2014.04.003Licens: Ikke-specificeret

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Citationsformater

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title = "Regulation of Pharmaceutical Prices: Evidence from a Reference Price Reform in Denmark",

abstract = "Reference prices constitute a main determinant of patient health care reimbursement in many countries. We study the effects of a change from an {"}external{"} (based on a basket of prices in other countries) to an {"}internal{"} (based on comparable domestic products) reference price system. We find that while our estimated consumer compensating variation is small, the reform led to substantial reductions in list and reference prices as well as co-payments, and to sizeable decreases in overall producer revenues, health care expenditures, and co-payments. These effects differ markedly between branded drugs, generics, and parallel imports with health care expenditures and producer revenues decreasing and co-payments increasing most for branded drugs. The reform also induced consumers to substitute from branded drugs – for which they have strong preferences – to generics and parallel imports. This substitution also explains the small increase in consumer welfare despite a substantial decrease in expenditures. ",

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T1 - Regulation of Pharmaceutical Prices

T2 - Evidence from a Reference Price Reform in Denmark

AU - Kaiser, Ulrich

AU - Méndez, Susan J.

AU - Rønde, Thomas

AU - Ullrich, Hannes

PY - 2014/7

Y1 - 2014/7

N2 - Reference prices constitute a main determinant of patient health care reimbursement in many countries. We study the effects of a change from an "external" (based on a basket of prices in other countries) to an "internal" (based on comparable domestic products) reference price system. We find that while our estimated consumer compensating variation is small, the reform led to substantial reductions in list and reference prices as well as co-payments, and to sizeable decreases in overall producer revenues, health care expenditures, and co-payments. These effects differ markedly between branded drugs, generics, and parallel imports with health care expenditures and producer revenues decreasing and co-payments increasing most for branded drugs. The reform also induced consumers to substitute from branded drugs – for which they have strong preferences – to generics and parallel imports. This substitution also explains the small increase in consumer welfare despite a substantial decrease in expenditures.

AB - Reference prices constitute a main determinant of patient health care reimbursement in many countries. We study the effects of a change from an "external" (based on a basket of prices in other countries) to an "internal" (based on comparable domestic products) reference price system. We find that while our estimated consumer compensating variation is small, the reform led to substantial reductions in list and reference prices as well as co-payments, and to sizeable decreases in overall producer revenues, health care expenditures, and co-payments. These effects differ markedly between branded drugs, generics, and parallel imports with health care expenditures and producer revenues decreasing and co-payments increasing most for branded drugs. The reform also induced consumers to substitute from branded drugs – for which they have strong preferences – to generics and parallel imports. This substitution also explains the small increase in consumer welfare despite a substantial decrease in expenditures.

KW - Pharmaceutical markets

KW - Regulation

KW - Co-payments

KW - Reference pricing

KW - Consumer welfare

U2 - 10.1016/j.jhealeco.2014.04.003

DO - 10.1016/j.jhealeco.2014.04.003

M3 - Journal article

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JO - Journal of Health Economics

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