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Review of the literature on reference pricing

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    Abstract

    This paper reviews the literature on reference pricing (RP) in pharmaceutical markets. The RP strategy for cost containment of expenditure on drugs is analyzed as part of the procurement mechanism. We review the existing literature and the state-of-the-art regarding RP by focusing on its economic effects. In particular, we consider: (1) the institutional context and problem-related factors which appear to underline the need to implement an RP strategy; i.e., its nature, characteristics and the sort of health care problems commonly addressed; (2) how RP operates in practice; that is, how third party-payers (the insurers/buyers) have established the RP systems existing on the international scene (i.e., information methods, monitoring procedures and legislative provisions); (3) the range of effects resulting from particular RP strategies (including effects on choice of appropriate pharmaceuticals, insurer savings, total drug expenditures, prices of referenced and non-referenced products and dynamic efficiency; (4) the market failures which an RP policy is supposed to address and the main advantages and drawbacks which emerge from an analysis of its effects. Results suggest that RP systems achieve better their postulated goals (1) if cost inflation in pharmaceuticals is due to high prices rather than to the excess of prescription rates, (2) when the larger is the existing difference in prices among equivalent drugs, and (3) more important is the actual market for generics.

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    Bibliographic Info

    Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 362.

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    Date of creation: Feb 1999
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    Handle: RePEc:upf:upfgen:362

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    Web page: http://www.econ.upf.edu/

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    Keywords: Reference pricing; pharmaceutical expenditure; generic drugs; drug patents;

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    1. Schneeweiss, Sebastian & Schoffski, Oliver & Selke, Gisbert W, 1998. "What is Germany's experience on reference based drug pricing and the etiology of adverse health outcomes or substitution?," Health Policy, Elsevier, vol. 44(3), pages 253-260, June.
    2. Zweifel, Peter & Crivelli, Luca, 1996. "Price Regulation of Drugs: Lessons from Germany," Journal of Regulatory Economics, Springer, vol. 10(3), pages 257-73, November.
    3. Paul van den Noord & Terje Hagen & Tor Iversen, 1998. "The Norwegian Health Care System," OECD Economics Department Working Papers 198, OECD Publishing.
    4. F. M. Scherer, 1993. "Pricing, Profits, and Technological Progress in the Pharmaceutical Industry," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 97-115, Summer.
    5. Drummond, Michael & Jonsson, Bengt & Rutten, Frans, 1997. "The role of economic evaluation in the pricing and reimbursement of medicines," Health Policy, Elsevier, vol. 40(3), pages 199-215, June.
    6. Abel-Smith, Brian & Mossialos, Elias, 1994. "Cost containment and health care reform: a study of the European Union," Health Policy, Elsevier, vol. 28(2), pages 89-132, May.
    7. Mark Johnston & Richard Zeckhauser, 1991. "The Australian Pharmaceutical Subsidy Gambit: Transmuting Deadweight Loss and Oligopoly Rents to Consumer Surplus," NBER Working Papers 3783, National Bureau of Economic Research, Inc.
    8. Fattore, Giovanni & Jommi, Claudio, 1998. "The new pharmaceutical policy in Italy," Health Policy, Elsevier, vol. 46(1), pages 21-41, October.
    9. Robin Lindsey & Douglas S. West, 1999. "National Pharmacare, Reference-Based Pricing, and Drug R&D: A Critique of the National Forum on Health's Recommendations for Pharmaceutical Policy," Canadian Public Policy, University of Toronto Press, vol. 25(1), pages 1-27, March.
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