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Pharmaceutical prices under regulation: Tiered co-payments and reference pricing in Germany

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  • Herr, Annika
  • Suppliet, Moritz

Abstract

Many countries with national health care providers and health insurances regulate the market for pharmaceuticals to steer drug demand and to control expenses. For example, they introduce reference pricing or tiered co-payments to enhance drug substitution and competition. Since 2006, Germany follows an innovative approach by differentiating drug co-payments by the drug's price relative to its reference price. In this two-tier system, prescription drugs are completely exempted from co-payments if their prices undercut a certain price level relative to the reference price. We identify the effect of the policy on the prices of all affected prescription drugs and differentiate the analysis by firm types (innovative, generic, branded generic or importing firms). To identify a causal effect, we use a differences-in-differences approach and additionally exploit the fact that the exemption policy had been introduced successively in the different clusters. We use quarterly data from 2007 to 2010 and find empirical evidence for differentiated price setting strategies by firm types, ranging from price decreases of -13.1% (branded generics firms) to increases of +2.0% (innovators) following the introduction of potential reductions in co-payments. We refer to the latter result as the co-payment exemption paradox. Our competition proxy (no. of firms) suggests a significant but small negative correlation with prices. --

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Bibliographic Info

Paper provided by Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) in its series DICE Discussion Papers with number 48.

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Date of creation: 2012
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Handle: RePEc:zbw:dicedp:48

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Keywords: pharmaceuticals; prices; co-payments; reference pricing; regulation; firm behavior;

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References

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  1. Jorge Mestre, 2003. "Reference prices: The Spanish way," Investigaciones Economicas, Fundación SEPI, vol. 27(1), pages 125-149, January.
  2. Marianne Simonsen & Lars Skipper & Niels Skipper, 2010. "Price Sensitivity of Demand for Prescription Drugs: Exploiting a Regression Kink Design," Economics Working Papers 2010-03, School of Economics and Management, University of Aarhus.
  3. Steven N. Wiggins & Robert Maness, 2004. "Price Competition in Pharmaceuticals: The Case of Anti-infectives," Economic Inquiry, Western Economic Association International, vol. 42(2), pages 247-263, April.
  4. Tom Stargardt, 2011. "Modelling pharmaceutical price changes in Germany: a function of competition and regulation," Applied Economics, Taylor & Francis Journals, vol. 43(29), pages 4515-4526.
  5. Jaume Puig-Junoy, 2010. "Impact of European Pharmaceutical Price Regulation on Generic Price Competition: A Review," PharmacoEconomics, Springer Healthcare | Adis, vol. 28(8), pages 649-663.
  6. Tom Stargardt, 2010. "The impact of reference pricing on switching behaviour and healthcare utilisation: the case of statins in Germany," The European Journal of Health Economics, Springer, vol. 11(3), pages 267-277, June.
  7. Iván Moreno-Torres & Jaume Puig-Junoy & Joan-Ramon Borrell, 2009. "Generic Entry into the Regulated Spanish Pharmaceutical Market," Review of Industrial Organization, Springer, vol. 34(4), pages 373-388, June.
  8. Zweifel, Peter & Crivelli, Luca, 1996. "Price Regulation of Drugs: Lessons from Germany," Journal of Regulatory Economics, Springer, vol. 10(3), pages 257-73, November.
  9. Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 77(3), pages 251-77, June.
  10. Miraldo, Marisa, 2009. "Reference pricing and firms' pricing strategies," Journal of Health Economics, Elsevier, vol. 28(1), pages 176-197, January.
  11. David Reiffen & Michael R. Ward, 2005. "Generic Drug Industry Dynamics," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 37-49, February.
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Cited by:
  1. Tomaso Duso & Annika Herr & Moritz Suppliet, 2014. "The Welfare Impact of Parallel Imports: A Structural Approach Applied to the German Market for Oral Anti-diabetics," Discussion Papers of DIW Berlin 1373, DIW Berlin, German Institute for Economic Research.
  2. Herr, Annika, 2012. "Rationalisierung und Wettbewerb im Arzneimittelmarkt," DICE Ordnungspolitische Perspektiven 31, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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