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

Listed author(s):
  • Kaiser, Ulrich

    ()

    (University of Zurich)

  • Méndez, Susan J.

    ()

    (Melbourne Institute of Applied Economic and Social Research)

  • Rønde, Thomas

    ()

    (Copenhagen Business School)

  • Ullrich, Hannes

    ()

    (University of Zurich)

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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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7248.

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Length: 32 pages
Date of creation: Feb 2013
Publication status: published in: Journal of Health Economics, 2014, 36, 174-187
Handle: RePEc:iza:izadps:dp7248
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