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Regulation of Pharmaceutical Prices: Evidence from a Reference Price Reform in Denmark

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Author Info

  • Ulrich Kaiser

    ()
    (Department of Business Administration (IBW), University of Zurich)

  • Susan J. Méndez

    ()
    (Department of Business Administration (IBW), University of Zurich)

  • Thomas Rønde

    ()
    (Department of Innovation and Organizational Economics, Copenhagen Business School)

  • Hannes Ullrich

    ()
    (Department of Business Administration (IBW), University of Zurich)

Abstract

Reference prices constitute a main determinant of patient health care reimbursement in many countries. We study the effects of a change from an external (based on a basket of prices in other countries) to an internal (based on comparable domestic products) reference price system. We find that while our estimated consumer compensating variation is small, the reform led to substantial reductions in list and reference prices as well as co-payments, and to sizeable decreases in overall producer revenues, health care expenditures, and co-payments. These effects differ markedly between branded drugs, generics, and parallel imports with health care expenditures and producer revenues decreasing and co-payments increasing most for branded drugs. The reform also induced consumers to substitute from branded drugs for which they have strong preferences to generics and parallel imports. This substitution also explains the small increase in consumer welfare despite a substantial decrease in expenditures.

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File URL: http://repec.business.uzh.ch/RePEc/zrh/wpaper/330_IBW_full.pdf
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Bibliographic Info

Paper provided by University of Zurich, Department of Business Administration (IBW) in its series Working Papers with number 330.

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Length: 31 pages
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:zrh:wpaper:330

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Postal: Rämistrasse 71, CH - 8001 Zürich
Web page: http://www.business.uzh.ch
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Keywords: pharmaceutical markets; regulation; co-payments; reference pricing; welfare effects;

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References

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Cited by:
  1. 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.
  2. 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.
  3. Herr, A.; & Suppliet, M.;, 2011. "Co-Payment Exemptions and Reference Prices: an Empirical Study of Pharmaceutical Prices in Germany," Health, Econometrics and Data Group (HEDG) Working Papers 11/18, HEDG, c/o Department of Economics, University of York.
  4. 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.
  5. 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.
  6. Ivan Moreno-Torres, 2011. "What if there was a stronger pharmaceutical price competition in Spain? When regulation has a similar effect to collusion," Working Papers XREAP2011-02, Xarxa de Referència en Economia Aplicada (XREAP), revised May 2011.

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