The Impact of Cross-Reference - Pricing on Pharmaceutical Prices - Manufacturers' Pricing Strategies and Price Regulation

Applied Health Economics and Health Policy, Vol. 5, No. 4, pp. 235-247, 2006

Posted: 26 Mar 2010 Last revised: 12 Sep 2010

See all articles by Tom Stargardt

Tom Stargardt

University of Hamburg

Jonas Schreyoegg

University of Hamburg - Faculty of Economics and Business Administration

Date Written: 2006

Abstract

Objective: Several EU countries are determining reimbursement prices of pharmaceuticals by cross-referencing prices of foreign countries. Our objective is to quantify the theoretical cross-border spill-over effects of cross-reference pricing schemes on pharmaceutical prices in the former EU-15 countries. Methods: An analytical model was developed estimating the impact of pharmaceutical price changes in Germany on pharmaceutical prices in other countries in the former EU-15 using cross-reference pricing. We differentiated between the direct impact (from referencing to Germany directly) and the indirect impact (from referencing to other countries that conduct their own cross-reference pricing schemes).

Results: The relationship between the direct and indirect impact of a price change depends mainly on the method applied to set reimbursement prices. When applying cross-reference pricing, the reimbursement price is either determined by the lowest of foreign prices (e.g. Portugal), the average of foreign prices (e.g. Ireland) or a weighted average of foreign prices (e.g. Italy). If the respective drug is marketed in all referenced countries and prices are regularly updated, a price reduction of 1.00 euro in Germany will reduce maximum reimbursement prices in the former EU-15 countries from 0.15 euros in Austria to 0.36 euros in Italy.

Discussion: On one side, the cross-border spill-over effects of price reductions are undoubtedly welcomed by decision makers and may be favourable to the healthcare system in general. On the other side, these cross-border spill-over effects also provide strong incentives for strategic product launches, launch delays and lobbying activities, and can affect the effectiveness of regulation.

Conclusions: To avoid the negative effects of cross-reference pricing, a weighted index of prices from as many countries as possible should be used to determine reimbursement prices in order to reduce the direct and indirect impact of individual countries.

Suggested Citation

Stargardt, Tom and Schreyoegg, Jonas, The Impact of Cross-Reference - Pricing on Pharmaceutical Prices - Manufacturers' Pricing Strategies and Price Regulation (2006). Applied Health Economics and Health Policy, Vol. 5, No. 4, pp. 235-247, 2006. Available at SSRN: https://ssrn.com/abstract=1574137

Tom Stargardt

University of Hamburg ( email )

Hamburg Center for Health Economics
Esplanade 36
Hamburg, 20354
Germany

Jonas Schreyoegg (Contact Author)

University of Hamburg - Faculty of Economics and Business Administration ( email )

Von-Melle-Park 5
Hamburg, 20146
Germany

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