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Reference Pricing of Pharmaceuticals for Medicare: Evidence from Germany, the Netherlands and New Zealand

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  • Patricia M. Danzon
  • Jonathan D. Ketcham

Abstract

This paper describes three prototypical systems of therapeutic reference pricing (RP) for pharmaceuticals -- Germany, the Netherlands, and New Zealand -- and examines their effects on the availability of new drugs, reimbursement levels, manufacturer prices and out-of-pocket surcharges to patients. RP for pharmaceuticals is not simply analogous to a defined contribution approach to subsidizing insurance coverage. Although a major purpose of RP is to stimulate competition, theory suggests that this is unlikely and this is confirmed by the empirical evidence. Other effects of RP differ across countries in predictable ways, reflecting each country's system design and other cost control policies. New Zealand's RP system has reduced reimbursement and limited the availability of new drugs, particularly more expensive drugs. Compared to these three countries, if RP were applied in the US, it would likely have a more negative effect on prices of on-patent products, due to the more competitive US generic market, and a more negative effect on R&D and on the future supply of new drugs, due to the much larger US share of global pharmaceutical sales.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10007.

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Date of creation: Oct 2003
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Publication status: published as Danzon, Patricia M. and Jonathan D. Ketcham. "Reference Pricing Of Pharmaceuticals For Medicare: Evidence From Germany, The Netherlands, and New Zealand," Forum for Health Economics and Policy, 2004, v7, Article 2.
Handle: RePEc:nbr:nberwo:10007

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  1. Alan Woodfield, 2001. "Augmenting Reference Pricing of Pharmaceuticals in New Zealand with Strategic Cross-Product Agreements," PharmacoEconomics, Springer Healthcare | Adis, vol. 19(4), pages 365-377.
  2. Danzon, Patricia M. & Chao, Li-Wei, 2000. "Cross-national price differences for pharmaceuticals: how large, and why?," Journal of Health Economics, Elsevier, vol. 19(2), pages 159-195, March.
  3. Lopez-Casasnovas, Guillem & Puig-Junoy, Jaume, 2000. "Review of the literature on reference pricing," Health Policy, Elsevier, vol. 54(2), pages 87-123, November.
  4. Zweifel, Peter & Crivelli, Luca, 1996. "Price Regulation of Drugs: Lessons from Germany," Journal of Regulatory Economics, Springer, vol. 10(3), pages 257-73, November.
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