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

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

    Research output: Working paperResearch

    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.
    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.
    LanguageEnglish
    Place of PublicationBonn
    PublisherIZA
    Number of pages29
    StatePublished - Feb 2013
    SeriesIZA Discussion Paper
    Number7248

    Keywords

      Cite this

      Kaiser, U., Méndez, S. J., Rønde, T., & Ullrich, H. (2013). Regulation of Pharmaceutical Prices: Evidence from a Reference Price Reform in Denmark. Bonn: IZA. IZA Discussion Paper, No. 7248
      Kaiser, Ulrich ; Méndez, Susan J. ; Rønde, Thomas ; Ullrich, Hannes . / Regulation of Pharmaceutical Prices : Evidence from a Reference Price Reform in Denmark. Bonn : IZA, 2013. (IZA Discussion Paper; No. 7248).
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      Regulation of Pharmaceutical Prices : Evidence from a Reference Price Reform in Denmark. / Kaiser, Ulrich; Méndez, Susan J. ; Rønde, Thomas; Ullrich, Hannes .

      Bonn : IZA, 2013.

      Research output: Working paperResearch

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