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The Effects of Reference Pricing on Ex-factory Prices of Rx Drugs in Germany - A Panel Data Approach

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  • Augurzky, Boris
  • Göhlmann, Silja
  • Greß, Stefan
  • Wasem, Jürgen

Abstract

This paper examines effects of reference pricing for prescription drugs in German social health insurance based on econometric panel data methods. We analyze the effect on ex-factory prices. Moreover, we investigate whether manufacturers adapt prices of their products not subject to reference pricing as a consequence of changes in reference prices of their products subject to reference pricing.We use a large panel data set of nearly all German prescription drugs on a monthly basis between October 1994 and July 2005. Altogether, the data comprise almost 4 million observations. They provide information on ex-factory prices, reference prices, manufacturers, type of prescription drug, and market entries and exits. Our results show that there is no full price adjustment:A 1%-change in reference prices leads to a 0.3%-change in market prices. Price adjustment, however, is fast, it mostly happens in the first month. Furthermore, the first introduction of a reference price reduces market prices of the affected products by approximately 14%. Finally, we observe a significant time effect which is positive in the market without reference prices and negative in that with reference price.

Suggested Citation

  • Augurzky, Boris & Göhlmann, Silja & Greß, Stefan & Wasem, Jürgen, 2006. "The Effects of Reference Pricing on Ex-factory Prices of Rx Drugs in Germany - A Panel Data Approach," RWI Discussion Papers 46, RWI - Leibniz-Institut für Wirtschaftsforschung.
    • Handle: RePEc:zbw:rwidps:46
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    References listed on IDEAS

    as
    1. Danzon Patricia M. & Ketcham Jonathan D., 2004. "Reference Pricing of Pharmaceuticals for Medicare: Evidence from Germany, the Netherlands, and New Zealand," Forum for Health Economics & Policy, De Gruyter, vol. 7(1), pages 1-56, January.
    2. Nina Pavcnik, 2002. "Do Pharmaceutical Prices Respond to Potential Patient Out-of-Pocket Expenses?," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 469-487, Autumn.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Price elasticity; temporal development; fixed effects model;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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