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Reference Pricing of Pharmaceuticals for Medicare: Evidence from Germany, the Netherlands, and New Zealand

  • Danzon Patricia M.

    (University of Pennsylvania, and NBER)

  • Ketcham Jonathan D.

    (University of California, Berkeley, and University of California, San Francisco)

This paper describes three prototypical systems of therapeutic reference pricing (RP) for pharmaceuticalsGermany, the Netherlands, and New Zealandand examines their effects on the availability of new drugs, reimbursement levels, manufacturer prices, and out-of-pocket surcharges to patients. RPfor pharmaceuticals is not simply analogous to a defined contribution approach to subsidizing insurance coverage. Although a major purpose of RPis to stimulate competition, theory suggests that the achievement of this goal is unlikely, and this is confirmed by the empirical evidence. Other effects of RPdiffer across countries in predictable ways, reflecting each countrys system design and other cost-control policies. New Zealands RPsystem has reduced reimbursement and limited the availability of new drugs, particularly more expensive drugs. Compared to these three countries, if RP were applied in the United States, it would likely have a more negative effect on prices of on-patent products because of the more competitive U.S. generic market, and on research and development (R&D) and the future supply of new drugs, because of the much larger U.S. share of global pharmaceutical sales.

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File URL: http://www.degruyter.com/view/j/fhep.2004.7.1/fhep.2004.7.1.1050/fhep.2004.7.1.1050.xml?format=INT
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Article provided by De Gruyter in its journal Forum for Health Economics & Policy.

Volume (Year): 7 (2004)
Issue (Month): 1 (January)
Pages: 1-56

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Handle: RePEc:bpj:fhecpo:v:7:y:2004:n:2
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  1. Ching-to Albert Ma & Michael Riordan, 1997. "Health Insurance, Moral Hazard, and Managed Care," Papers 0080, Boston University - Industry Studies Programme.
  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. Lopez-Casasnovas, Guillem & Puig-Junoy, Jaume, 2000. "Review of the literature on reference pricing," Health Policy, Elsevier, vol. 54(2), pages 87-123, November.
  4. repec:spr:pharme:v:19:y:2001:i:4:p:365-377 is not listed on IDEAS
  5. Zeckhauser, Richard, 1970. "Medical insurance: A case study of the tradeoff between risk spreading and appropriate incentives," Journal of Economic Theory, Elsevier, vol. 2(1), pages 10-26, March.
  6. Nina Pavcnik, 2002. "Do Pharmaceutical Prices Respond to Potential Patient Out-of-Pocket Expenses?," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 469-487, Autumn.
  7. Danzon, Patricia M. & Chao, Li-Wei, 2000. "Cross-national price differences for pharmaceuticals: how large, and why?," Journal of Health Economics, Elsevier, vol. 19(2), pages 159-195, March.
  8. Fiona Scott Morton, 1997. "The Strategic Response by Pharmaceutical Firms to the Medicaid Most-Favored-Customer Rules," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 269-290, Summer.
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