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Co-Payment Exemptions and Reference Prices: an Empirical Study of Pharmaceutical Prices in Germany

  • Herr, A.;
  • Suppliet, M.;

Co-payments are a common instrument of health insurers to lower their pharmaceutical expenses and to share costs with consumers, the pa- tients. Tiered drug co-payments, e.g. lower co-payments for generic drugs, incentivize patients to buy certain products and, hence, steer drug con- sumption patterns. Since 2007, the German Statutory Health Insurance follows an innovative and unique regulation by dierentiating drug co- payments by the drug's price relative to its reference price. Co-payment exemption thresholds have been introduced in 185 out of 281 therapeutic clusters since 2007. We answer how eective this co-payment exemption policy is in order to reduce overall prices for pharmaceutical products. We analyze prices of all drugs marketed in reference price clusters and be- ing subject to the policy in Germany using quarterly data from January 2007 to October 2010 published by the Federal Association of Statutory Health Insurance Funds in Germany. We nd empirical evidence of dffer- entiated price setting strategies by different rm types ranging from price decreases of -8% to increases of +1.3% (innovators) following the intro- duction of co-payment exemption threshold. We refer to the latter case as the co-payment paradox. Furthermore, prices of generic and branded generic rms and reference prices tend to converge. The results are robust when we estimate static and dynamic linear panel data models and con- trol for the heterogeneity of active ingredient's clusters, autocorrelation, and heteroscedasticity. Our competition proxies (no. of rms and ratio products/rm in the same market) suggest a signicant negative impact of competition on prices and, thereby, question whether more competition may be an alternative way to lower pharmaceutical prices.

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Paper provided by HEDG, c/o Department of Economics, University of York in its series Health, Econometrics and Data Group (HEDG) Working Papers with number 11/18.

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Date of creation: Jul 2011
Date of revision:
Handle: RePEc:yor:hectdg:11/18
Contact details of provider: Postal: HEDG/HERC, Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
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