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Tiered co-payments, pricing, and demand in reference price markets for pharmaceuticals

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  • Herr, Annika
  • Suppliet, Moritz

Abstract

Health insurance companies curb price-insensitive behavior and the moral hazard of insureds by means of cost-sharing, such as tiered co-payments or reference pricing in drug markets. This paper evaluates the effect of price limits – below which drugs are exempt from co-payments – on prices and on demand. First, using a difference-in-differences estimation strategy, we find that the new policy decreases prices by 5 percent for generics and increases prices by 4 percent for brand-name drugs in the German reference price market. Second, estimating a nested-logit demand model, we show that consumers appreciate co-payment exempt drugs and calculate lower price elasticities for brand-name drugs than for generics. This explains the different price responses of brand-name and generic drugs and shows that price-related co-payment tiers are an effective tool to steer demand to low-priced drugs.

Suggested Citation

  • Herr, Annika & Suppliet, Moritz, 2017. "Tiered co-payments, pricing, and demand in reference price markets for pharmaceuticals," Journal of Health Economics, Elsevier, vol. 56(C), pages 19-29.
    • Handle: RePEc:eee:jhecon:v:56:y:2017:i:c:p:19-29
    DOI: 10.1016/j.jhealeco.2017.08.008
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    Citations

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    Cited by:

    1. Annika Herr & Torben Stühmeier & Tobias Wenzel, 2023. "More cost‐sharing, less cost? Evidence on reference price drugs," Health Economics, John Wiley & Sons, Ltd., vol. 32(2), pages 413-435, February.
    2. Eduardo Costa & Carolina Santos, 2022. "Pharmaceutical pricing dynamics in an internal reference pricing system: evidence from changing drugs’ reimbursements," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 23(9), pages 1497-1518, December.
    3. Ya-Ling Lin & Wen-Yi Chen & Shwn-Huey Shieh, 2020. "Age Structural Transitions and Copayment Policy Effectiveness: Evidence from Taiwan’s National Health Insurance System," IJERPH, MDPI, vol. 17(12), pages 1-17, June.

    More about this item

    Keywords

    Drug prices; Cost-sharing; Co-payments; Reference pricing; Regulation; Firm behavior; Health insurance; Demand model; Price elasticity;
    All these keywords.

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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