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Review of the literature on reference pricing

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Abstract

This paper reviews the literature on reference pricing (RP) in pharmaceutical markets. The RP strategy for cost containment of expenditure on drugs is analyzed as part of the procurement mechanism. We review the existing literature and the state-of-the-art regarding RP by focusing on its economic effects. In particular, we consider: (1) the institutional context and problem-related factors which appear to underline the need to implement an RP strategy; i.e., its nature, characteristics and the sort of health care problems commonly addressed; (2) how RP operates in practice; that is, how third party-payers (the insurers/buyers) have established the RP systems existing on the international scene (i.e., information methods, monitoring procedures and legislative provisions); (3) the range of effects resulting from particular RP strategies (including effects on choice of appropriate pharmaceuticals, insurer savings, total drug expenditures, prices of referenced and non-referenced products and dynamic efficiency; (4) the market failures which an RP policy is supposed to address and the main advantages and drawbacks which emerge from an analysis of its effects. Results suggest that RP systems achieve better their postulated goals (1) if cost inflation in pharmaceuticals is due to high prices rather than to the excess of prescription rates, (2) when the larger is the existing difference in prices among equivalent drugs, and (3) more important is the actual market for generics.

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  • Guillem López & Jaume Puig, 1999. "Review of the literature on reference pricing," Economics Working Papers 362, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:362
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    References listed on IDEAS

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    1. Richard G. Frank & David S. Salkever, 1997. "Generic Entry and the Pricing of Pharmaceuticals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 75-90, March.
    2. Vandergrift, Michael & Kanavos, Panos, 1997. "Health policy versus industrial policy in the pharmaceutical sector: the case of Canada," Health Policy, Elsevier, vol. 41(3), pages 241-260, September.
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    7. Judith K. Hellerstein, 1998. "The Importance of the Physician in the Generic Versus Trade-Name Prescription Decision," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 108-136, Spring.
    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.
    9. Mark Johnston & Richard Zeckhauser, 1991. "The Australian Pharmaceutical Subsidy Gambit: Transmuting Deadweight Loss and Oligopoly Rents to Consumer Surplus," NBER Working Papers 3783, National Bureau of Economic Research, Inc.
    10. Robin Lindsey & Douglas S. West, 1999. "National Pharmacare, Reference-Based Pricing, and Drug R&D: A Critique of the National Forum on Health's Recommendations for Pharmaceutical Policy," Canadian Public Policy, University of Toronto Press, vol. 25(1), pages 1-27, March.
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    12. Abel-Smith, Brian & Mossialos, Elias, 1994. "Cost containment and health care reform: a study of the European Union," Health Policy, Elsevier, vol. 28(2), pages 89-132, May.
    13. Schneeweiss, Sebastian & Schoffski, Oliver & Selke, Gisbert W, 1998. "What is Germany's experience on reference based drug pricing and the etiology of adverse health outcomes or substitution?," Health Policy, Elsevier, vol. 44(3), pages 253-260, June.
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    Keywords

    Reference pricing; pharmaceutical expenditure; generic drugs; drug patents;

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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