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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 Patricia M. Danzon, Jonathan D. Ketcham. "Reference Pricing of Pharmaceuticals for Medicare: Evidence from Germany, the Netherlands, and New Zealand," in David M. Cutler and Alan M. Garber, editors, "Frontiers in Health Policy Research, Volume 7" MIT Press (2004)
Handle: RePEc:nbr:nberwo:10007

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  1. Zweifel, Peter & Crivelli, Luca, 1996. "Price Regulation of Drugs: Lessons from Germany," Journal of Regulatory Economics, Springer, vol. 10(3), pages 257-73, November.
  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. 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.
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Cited by:
  1. Brekke, Kurt R & Königbauer, Ingrid & Straume, Odd Rune, 2005. "Reference Pricing of Pharmaceuticals," Working Papers in Economics 19/05, University of Bergen, Department of Economics.
  2. Pamina Koenig & Megan Macgarvie, 2009. "Regulatory policy and the location of bio-pharmaceutical FDI in Europe," Working Papers halshs-00566800, HAL.
  3. Brekke, Kurt R. & Grasdal, Astrid L. & Holmås, Tor Helge, 2006. "Regulation and Pricing of Pharmaceuticals: Reference Pricing or Price Cap Regulation?," Working Papers in Economics 14/06, University of Bergen, Department of Economics.
  4. Brekke, Kurt R. & Holmas, Tor Helge & Straume, Odd Rune, 2011. "Reference pricing, competition, and pharmaceutical expenditures: Theory and evidence from a natural experiment," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 624-638, August.
  5. Calfee, John E. & DuPr�, Elizabeth & Villarreal, Mario, 2006. "An Exploratory Analysis of Pharmaceutical Price Disparities and Their Implications Among Six Developed Nations," Working paper 534, Regulation2point0.
  6. Königbauer, Ingrid, 2006. "Dealing with Rising Health Care Costs: The Case of Pharmaceuticals," Munich Dissertations in Economics 5640, University of Munich, Department of Economics.
  7. Ivan Moreno-Torres, 2011. "Generic drugs in Spain: price competition vs. moral hazard," Working Papers XREAP2011-04, Xarxa de Referència en Economia Aplicada (XREAP), revised May 2011.
  8. Alka Chadha & Åke Blomqvist, 2005. "Patent Races, “Me-Too” Drugs, and Generics: A Developing-World Perspective," Departmental Working Papers wp0513, National University of Singapore, Department of Economics.
  9. Nebibe Varol & Joan Costa-i-Font & Alistair McGuire, 2011. "Explaining Early Adoption on New Medicines: Regulation, Innovation and Scale," CESifo Working Paper Series 3459, CESifo Group Munich.
  10. Götze, Ralf, 2010. "The changing role of the state in the Dutch healthcare system," TranState Working Papers 141, University of Bremen, Collaborative Research Center 597: Transformations of the State.
  11. Pamina Koenig & Megan Macgarvie, 2009. "Regulatory policy and the location of bio-pharmaceutical FDI in Europe," PSE Working Papers halshs-00566800, HAL.
  12. Chiara Bonassi & Fabio Pammolli & Massimo Riccaboni & Nicola Carmine Salerno, 2007. "Regolazione, innovazione e ciclo di vita dei prodotti - per una riforma del pricing al lancio e della governance della spesa nella farmaceutica pubblica," Working Papers 02-2007, Competitività Regole Mecati (CERM).
  13. Koenig, Pamina & MacGarvie, Megan, 2011. "Regulatory policy and the location of bio-pharmaceutical foreign direct investment in Europe," Journal of Health Economics, Elsevier, vol. 30(5), pages 950-965.
  14. Chiara Bonassi & Laura Magazzini & Fabio Pammolli & Massimo Riccaboni & Nicola Carmine Salerno, 2007. "Il prezzo di riferimento nel quadro regolatorio del mercato farmaceutico," Working Papers 04-2007, Competitività Regole Mecati (CERM).

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