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

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

    Research output: Contribution to journalJournal articleResearchpeer-review

    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
    JournalJournal of Health Economics
    Volume36
    Pages174-187
    ISSN0167-6296
    DOIs
    StatePublished - Jul 2014

    Keywords

      Cite this

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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.",
      keywords = "Pharmaceutical markets, Regulation, Co-payments, Reference pricing, Consumer welfare",
      author = "Ulrich Kaiser and M{\'e}ndez, {Susan J.} and Thomas R{\o}nde and Hannes Ullrich",
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      month = "7",
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      journal = "Journal of Health Economics",
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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 .

      In: Journal of Health Economics, Vol. 36, 07.2014, p. 174-187.

      Research output: Contribution to journalJournal articleResearchpeer-review

      TY - JOUR

      T1 - Regulation of Pharmaceutical Prices

      T2 - Journal of Health Economics

      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

      VL - 36

      SP - 174

      EP - 187

      JO - Journal of Health Economics

      JF - Journal of Health Economics

      SN - 0167-6296

      ER -