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Impact of Cross-Reference Pricing on Pharmaceutical Prices: Manufacturers' Pricing Strategies and Price Regulation

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Author Info

  • Tom Stargardt

    (Department of Health Care Management, Faculty of Economics and Management, Berlin University of Technology, Berlin, Germany)

  • Jonas Schreyogg

    (Department of Health Care Management, Faculty of Economics and Management, Berlin University of Technology, Berlin, Germany)

Abstract

Objective: Several EU countries are determining reimbursement prices of pharmaceuticals by cross-referencing prices of foreign countries. Our objective is to quantify the theoretical cross-border spill-over effects of cross-reference pricing schemes on pharmaceutical prices in the former EU-15 countries. Methods: An analytical model was developed estimating the impact of pharmaceutical price changes in Germany on pharmaceutical prices in other countries in the former EU-15 using cross-reference pricing. We differentiated between the direct impact (from referencing to Germany directly) and the indirect impact (from referencing to other countries that conduct their own cross-reference pricing schemes). Results: The relationship between the direct and indirect impact of a price change depends mainly on the method applied to set reimbursement prices. When applying cross-reference pricing, the reimbursement price is either determined by the lowest of foreign prices (e.g. Portugal), the average of foreign prices (e.g. Ireland) or a weighted average of foreign prices (e.g. Italy). If the respective drug is marketed in all referenced countries and prices are regularly updated, a price reduction of _1.00 in Germany will reduce maximum reimbursement prices in the former EU-15 countries from _0.15 in Austria to _0.36 in Italy. Discussion: On one side, the cross-border spill-over effects of price reductions are undoubtedly welcomed by decision makers and may be favourable to the healthcare system in general. On the other side, these cross-border spill-over effects also provide strong incentives for strategic product launches, launch delays and lobbying activities, and can affect the effectiveness of regulation. Conclusions: To avoid the negative effects of cross-reference pricing, a weighted index of prices from as many countries as possible should be used to determine reimbursement prices in order to reduce the direct and indirect impact of individual countries.

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Bibliographic Info

Article provided by Springer Healthcare | Adis in its journal Applied Health Economics and Health Policy.

Volume (Year): 5 (2006)
Issue (Month): 4 ()
Pages: 235-247

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Handle: RePEc:wkh:aheahp:v:5:y:2006:i:4:p:235-247

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Web page: http://healtheconomics.adisonline.com/

Related research

Keywords: Pricing; Reimbursement;

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Cited by:
  1. Fischer, Katharina Elisabeth, 2012. "A systematic review of coverage decision-making on health technologies—Evidence from the real world," Health Policy, Elsevier, vol. 107(2), pages 218-230.
  2. Alexander Heuer & Malwina Mejer & Jennifer Neuhaus, 2007. "The National Regulation of Pharmaceutical Markets and the Timing of New Drug Launches in Europe," Kiel Advanced Studies Working Papers 437, Kiel Institute for the World Economy.
  3. Anke Richter, 2008. "Assessing the Impact of Global Price Interdependencies," PharmacoEconomics, Springer, vol. 26(8), pages 649-659, August.
  4. Begoña Garcia Mariñoso & Izabela Jelovac & Pau Olivella, 2011. "External referencing and pharmaceutical price negotiation," Health Economics, John Wiley & Sons, Ltd., vol. 20(6), pages 737-756, June.
  5. Coenen, Michael & Haucap, Justus & Herr, Annika & Kuchinke, Björn A., 2011. "Wettbewerbspotenziale im deutschen Apothekenmarkt," DICE Ordnungspolitische Perspektiven 17, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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