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Competition in off-patent drug markets: Issues, regulation and evidence

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  • Panos Kanavos
  • Joan Costa-Font
  • Elizabeth Seeley

Abstract

"In recent years health insurers have placed a great deal of emphasis on the ability of generic medicines to deliver significant savings to overstretched health care budgets due to their lower cost and potential for a more efficient resource allocation. In this paper we study market developments after patent expiry, whether health insurance captures the financial benefits from cheaper generics, and whether regulation and product differentiation, among others, have any power in explaining originator and generic price movements, generic entry and diffusion. We find that health insurance does not capitalize fully or fast enough on the cost advantage of generic medicines, either because generic policies do not encourage their fast uptake, or because generic drug prices are high and frequently tied, directly or indirectly, to originator drug prices. We also find that reference pricing, a particular form of reimbursement regulation, encourages generic entry and reduces generic prices but only marginally. Finally, in generic markets characterized by homogeneous products, we find evidence of product differentiation which is impacting prices upwards rather than downwards. If health insurance is to benefit fully from generic medicines, it ought to encourage faster uptake and price competition, and discourage price-fixing regulation that ties generic prices to those of originator brands." Copyright (c) CEPR, CES, MSH, 2008.

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Bibliographic Info

Article provided by CEPR & CES & MSH in its journal Economic Policy.

Volume (Year): 23 (2008)
Issue (Month): (07)
Pages: 499-544

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Handle: RePEc:bla:ecpoli:v:23:y:2008:i::p:499-544

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Cited by:
  1. Iván Moreno-Torres & Jaume Puig-Junoy & Josep Raya, 2011. "The impact of repeated cost containment policies on pharmaceutical expenditure: experience in Spain," The European Journal of Health Economics, Springer, vol. 12(6), pages 563-573, December.
  2. Patricia M. Danzon & Michael F. Furukawa, 2011. "Cross-National Evidence on Generic Pharmaceuticals: Pharmacy vs. Physician-Driven Markets," NBER Working Papers 17226, National Bureau of Economic Research, Inc.
  3. Puig-Junoy, Jaume & Moreno-Torres, Iván, 2010. "Do generic firms and the Spanish public purchaser respond to consumer price differences of generics under reference pricing?," Health Policy, Elsevier, vol. 98(2-3), pages 186-194, December.
  4. Kwon, Hye-Young & Hong, Ji-Min & Godman, Brian & Yang, Bong-Min, 2013. "Price cuts and drug spending in South Korea: The case of antihyperlipidemic agents," Health Policy, Elsevier, vol. 112(3), pages 217-226.
  5. Herr, A.; & Suppliet, M.;, 2011. "Co-Payment Exemptions and Reference Prices: an Empirical Study of Pharmaceutical Prices in Germany," Health, Econometrics and Data Group (HEDG) Working Papers 11/18, HEDG, c/o Department of Economics, University of York.
  6. Ivan Moreno-Torres, 2011. "What if there was a stronger pharmaceutical price competition in Spain? When regulation has a similar effect to collusion," Working Papers XREAP2011-02, Xarxa de Referència en Economia Aplicada (XREAP), revised May 2011.
  7. Aki Kangasharju & Joni Hokkanen & Ismo Linnosmaa & Hannu Valtonen, 2012. "Generic substitution policy, prices and market structure: evidence from a quasi-experiment in Finland," Working Papers 35, Government Institute for Economic Research Finland (VATT).
  8. Kaplan, Warren A. & Ritz, Lindsay Sarah & Vitello, Marie & Wirtz, Veronika J., 2012. "Policies to promote use of generic medicines in low and middle income countries: A review of published literature, 2000–2010," Health Policy, Elsevier, vol. 106(3), pages 211-224.
  9. Mihajlo B, Jakovljevic & Nakazono, S & Ogura, S, 2014. "Contemporary generic market in Japan – key conditions to successful evolution," CIS Discussion paper series 613, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.

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