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

  • Ulrich Kaiser

    ()

    (Department of Business Administration (IBW), University of Zurich)

  • Susan J. Méndez

    ()

    (Department of Business Administration (IBW), University of Zurich)

  • Thomas Rønde

    ()

    (Department of Innovation and Organizational Economics, Copenhagen Business School)

  • Hannes Ullrich

    ()

    (Department of Business Administration (IBW), 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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File URL: http://repec.business.uzh.ch/RePEc/zrh/wpaper/330_IBW_full.pdf
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Paper provided by University of Zurich, Department of Business Administration (IBW) in its series Working Papers with number 330.

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Length: 31 pages
Date of creation: Feb 2013
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Handle: RePEc:zrh:wpaper:330
Contact details of provider: Web page: http://www.business.uzh.ch

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