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Competition in off-patent drug markets: Issues, regulation and evidence

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  • Panos Kanavos
  • Joan Costa-Font
  • Elizabeth Seeley

Abstract

"In recent years health insurers have placed a great deal of emphasis on the ability of generic medicines to deliver significant savings to overstretched health care budgets due to their lower cost and potential for a more efficient resource allocation. In this paper we study market developments after patent expiry, whether health insurance captures the financial benefits from cheaper generics, and whether regulation and product differentiation, among others, have any power in explaining originator and generic price movements, generic entry and diffusion. We find that health insurance does not capitalize fully or fast enough on the cost advantage of generic medicines, either because generic policies do not encourage their fast uptake, or because generic drug prices are high and frequently tied, directly or indirectly, to originator drug prices. We also find that reference pricing, a particular form of reimbursement regulation, encourages generic entry and reduces generic prices but only marginally. Finally, in generic markets characterized by homogeneous products, we find evidence of product differentiation which is impacting prices upwards rather than downwards. If health insurance is to benefit fully from generic medicines, it ought to encourage faster uptake and price competition, and discourage price-fixing regulation that ties generic prices to those of originator brands." Copyright (c) CEPR, CES, MSH, 2008.

Suggested Citation

  • Panos Kanavos & Joan Costa-Font & Elizabeth Seeley, 2008. "Competition in off-patent drug markets: Issues, regulation and evidence," Economic Policy, CEPR;CES;MSH, vol. 23, pages 499-544, July.
  • Handle: RePEc:bla:ecpoli:v:23:y:2008:i::p:499-544
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    Citations

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    Cited by:

    1. 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.
    2. Katharina Elisabeth Fischer & Tom Stargardt, 2016. "The diffusion of generics after patent expiry in Germany," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 17(8), pages 1027-1040, November.
    3. Mats A. Bergman & David Granlund & Niklas Rudholm, 2016. "Reforming the Swedish pharmaceuticals market: consequences for costs per defined daily dose," International Journal of Health Economics and Management, Springer, vol. 16(3), pages 201-214, September.
    4. Dubois, Pierre & Sæthre, Morten, 2017. "On the Effect of Parallel Trade on Manufacturers’ and Retailers’ Profits in the Pharmaceutical Sector," Discussion Paper Series in Economics 3/2018, Norwegian School of Economics, Department of Economics.
    5. Costa-Font, Joan & McGuire, Alistair & Varol, Nebibe, 2014. "Price regulation and relative delays in generic drug adoption," Journal of Health Economics, Elsevier, vol. 38(C), pages 1-9.
    6. Michael Mueller & Alexander Frenzel, 2015. "Competitive pricing within pharmaceutical classes: evidence on “follow-on” drugs in Germany 1993–2008," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(1), pages 73-82, January.
    7. Kaiser, Ulrich & Mendez, Susan J. & Rønde, Thomas & Ullrich, Hannes, 2014. "Regulation of pharmaceutical prices: Evidence from a reference price reform in Denmark," Journal of Health Economics, Elsevier, vol. 36(C), pages 174-187.
    8. Takizawa, Osamu & Urushihara, Hisashi & Tanaka, Shiro & Kawakami, Koji, 2015. "Price difference as a predictor of the selection between brand name and generic statins in Japan," Health Policy, Elsevier, vol. 119(5), pages 612-619.
    9. David Granlund & Miyase Koksal-Ayhan, 2015. "Parallel imports and a mandatory substitution reform: a kick or a muff for price competition in pharmaceuticals?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(9), pages 969-983, December.
    10. Puig-Junoy, Jaume & Moreno-Torres, Iván, 2010. "Do generic firms and the Spanish public purchaser respond to consumer price differences of generics under reference pricing?," Health Policy, Elsevier, vol. 98(2-3), pages 186-194, December.
    11. Stoneman, Paul, 2011. "Soft Innovation: Economics, Product Aesthetics, and the Creative Industries," OUP Catalogue, Oxford University Press, number 9780199697021.
    12. Mihajlo B, Jakovljevic & Nakazono, S & Ogura, S, 2014. "Contemporary generic market in Japan – key conditions to successful evolution," CIS Discussion paper series 613, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    13. Costa-Font, Joan & Rudisill, Caroline & Tan, Stefanie, 2014. "Brand loyalty, patients and limited generic medicines uptake," Health Policy, Elsevier, vol. 116(2), pages 224-233.
    14. Joan Costa-Font, 2016. "Is medicines parallel trade ‘regulatory arbitrage’?," International Journal of Health Economics and Management, Springer, vol. 16(4), pages 321-336, December.
    15. Vandoros, Sotiris & Stargardt, Tom, 2013. "Reforms in the Greek pharmaceutical market during the financial crisis," Health Policy, Elsevier, vol. 109(1), pages 1-6.
    16. Rafael Alfonso-Cristancho & Tatiana Andia & Tatiana Barbosa & Jonathan Watanabe, 2015. "Definition and Classification of Generic Drugs Across the World," Applied Health Economics and Health Policy, Springer, vol. 13(1), pages 5-11, August.
    17. Ulrich Kaiser & Susan J. Méndez, 2015. "How Do Drug Prices Respond to a Change from External to Internal Reference Pricing? Evidence from a Danish Regulatory Reform," Melbourne Institute Working Paper Series wp2015n04, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    18. Kaplan, Warren A. & Ritz, Lindsay Sarah & Vitello, Marie & Wirtz, Veronika J., 2012. "Policies to promote use of generic medicines in low and middle income countries: A review of published literature, 2000–2010," Health Policy, Elsevier, vol. 106(3), pages 211-224.
    19. Iván Moreno-Torres & Jaume Puig-Junoy & Josep Raya, 2011. "The impact of repeated cost containment policies on pharmaceutical expenditure: experience in Spain," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 12(6), pages 563-573, December.
    20. 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.
    21. Patricia M. Danzon & Michael F. Furukawa, 2011. "Cross-National Evidence on Generic Pharmaceuticals: Pharmacy vs. Physician-Driven Markets," NBER Working Papers 17226, National Bureau of Economic Research, Inc.
    22. Kanavos, Panos, 2014. "Measuring performance in off-patent drug markets: A methodological framework and empirical evidence from twelve EU Member States," Health Policy, Elsevier, vol. 118(2), pages 229-241.
    23. Kwon, Hye-Young & Hong, Ji-Min & Godman, Brian & Yang, Bong-Min, 2013. "Price cuts and drug spending in South Korea: The case of antihyperlipidemic agents," Health Policy, Elsevier, vol. 112(3), pages 217-226.
    24. Hokkanen, Joni & Kangasharju, Aki & Linnosmaa, Ismo & Valtonen, Hannu, 2012. "Generic substitution policy, prices and market structure: evidence from a quasi-experiment in Finland," Working Papers 35, VATT Institute for Economic Research.
    25. Petrou, Panagiotis & Vandoros, Sotiris, 2015. "Cyprus in crisis: Recent changes in the pharmaceutical market and options for further reforms without sacrificing access to or quality of treatment," Health Policy, Elsevier, vol. 119(5), pages 563-568.

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