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Extra costs of integrity: Pharmacy markups and generic substitution in Finland

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  • Izhak, Olena

Abstract

I evaluate how the probability of substitution of a prescribed drug in a pharmacy depends on the pharmacists' profits and patients' out of pocket costs. I use Finnish population-wide data covering all prescriptions of three popular antidepressants. I find that one euro increase in the total markup difference between the prescribed drug and its cheapest available substitute is associated with 1.7 percentage points decrease in the probability of substitution. This result is driven by brand-name drugs. An increase in the patients' out of pocket cost differential yields a 0.6 percentage points increase in the probability of accepting the substitution. My findings offer novel evidence that pharmacists' incentives are instrumental for prescription drug cost savings and overall cost effectiveness of the health care system.

Suggested Citation

  • Izhak, Olena, 2019. "Extra costs of integrity: Pharmacy markups and generic substitution in Finland," DICE Discussion Papers 307, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  • Handle: RePEc:zbw:dicedp:307
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    References listed on IDEAS

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    8. Dag Dalen & Kari Furu & Marilena Locatelli & Steinar Strøm, 2011. "Generic substitution: micro evidence from register data in Norway," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 12(1), pages 49-59, February.
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    Keywords

    Generic substitution; Pharmacies; Prescription drugs;

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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