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Impact of Cross-Reference Pricing on Pharmaceutical Prices: Manufacturers' Pricing Strategies and Price Regulation

  • Tom Stargardt

    (Department of Health Care Management, Faculty of Economics and Management, Berlin University of Technology, Berlin, Germany)

  • Jonas Schreyogg

    (Department of Health Care Management, Faculty of Economics and Management, Berlin University of Technology, Berlin, Germany)

Objective: Several EU countries are determining reimbursement prices of pharmaceuticals by cross-referencing prices of foreign countries. Our objective is to quantify the theoretical cross-border spill-over effects of cross-reference pricing schemes on pharmaceutical prices in the former EU-15 countries. Methods: An analytical model was developed estimating the impact of pharmaceutical price changes in Germany on pharmaceutical prices in other countries in the former EU-15 using cross-reference pricing. We differentiated between the direct impact (from referencing to Germany directly) and the indirect impact (from referencing to other countries that conduct their own cross-reference pricing schemes). Results: The relationship between the direct and indirect impact of a price change depends mainly on the method applied to set reimbursement prices. When applying cross-reference pricing, the reimbursement price is either determined by the lowest of foreign prices (e.g. Portugal), the average of foreign prices (e.g. Ireland) or a weighted average of foreign prices (e.g. Italy). If the respective drug is marketed in all referenced countries and prices are regularly updated, a price reduction of _1.00 in Germany will reduce maximum reimbursement prices in the former EU-15 countries from _0.15 in Austria to _0.36 in Italy. Discussion: On one side, the cross-border spill-over effects of price reductions are undoubtedly welcomed by decision makers and may be favourable to the healthcare system in general. On the other side, these cross-border spill-over effects also provide strong incentives for strategic product launches, launch delays and lobbying activities, and can affect the effectiveness of regulation. Conclusions: To avoid the negative effects of cross-reference pricing, a weighted index of prices from as many countries as possible should be used to determine reimbursement prices in order to reduce the direct and indirect impact of individual countries.

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Article provided by Springer Healthcare | Adis in its journal Applied Health Economics and Health Policy.

Volume (Year): 5 (2006)
Issue (Month): 4 ()
Pages: 235-247

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Handle: RePEc:wkh:aheahp:v:5:y:2006:i:4:p:235-247
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