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Cross-National Evidence on Generic Pharmaceuticals: Pharmacy vs. Physician-Driven Markets

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  • Patricia M. Danzon
  • Michael F. Furukawa

Abstract

This paper examines the role of regulation and competition in generic markets. Generics offer large potential savings to payers and consumers of pharmaceuticals. Whether the potential savings are realized depends on the extent of generic entry and uptake and the level of generic prices. In the U.S., the regulatory, legal and incentive structures encourage prompt entry, aggressive price competition and patient switching to generics. Key features are that pharmacists are authorized and incentivized to switch patients to cheap generics. By contrast, in many other high and middle income countries, generics traditionally competed on brand rather than price because physicians rather than pharmacies are the decision-makers. Physician-driven generic markets tend to have higher generic prices and may have lower generic uptake, depending on regulations and incentives. Using IMS data to analyze generic markets in the U.S., Canada, France, Germany, U.K., Italy, Spain, Japan, Australia, Mexico, Chile, Brazil over the period 1998-2009, we estimate a three-equation model for number of generic entrants, generic prices and generic volume shares. We find little effect of originator defense strategies, significant differences between unbranded and unbranded generics, variation across countries in volume response to prices. Policy changes adopted to stimulate generic uptake and reduce generic prices have been successful in some E.U. countries.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17226.

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Date of creation: Jul 2011
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Handle: RePEc:nbr:nberwo:17226

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Cited by:
  1. 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, Government Institute for Economic Research Finland (VATT) 35, Government Institute for Economic Research Finland (VATT).
  2. Jaume Puig-Junoy, 2012. "Do Higher-Priced Generic Medicines Enjoy a Competitive Advantage Under Reference Pricing?," Applied Health Economics and Health Policy, Springer, Springer, vol. 10(6), pages 441-451, November.
  3. Hemphill, C. Scott & Sampat, Bhaven N., 2012. "Evergreening, patent challenges, and effective market life in pharmaceuticals," Journal of Health Economics, Elsevier, Elsevier, vol. 31(2), pages 327-339.

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