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

ZEW - Centre for European Economic Research Discussion Paper No. 10-062

University of Zurich, Institute of Business Administration, UZH Business Working Paper No. 330

40 Pages Posted: 2 Oct 2010 Last revised: 22 Oct 2013

Ulrich Kaiser

University of Zurich; Centre for European Economic Research (ZEW); University of Copenhagen - Centre for Industrial Economics; Government of the Kingdom of Denmark - Centre for Economic and Business Research

Susan J. Mendez

University of Melbourne - Melbourne Institute of Applied Economic and Social Research

Thomas Rønde

University of Copenhagen - Department of Economics; Center for Economic and Business Research (CEBR); Centre for Economic Policy Research (CEPR)

Hannes Ullrich

University of Zurich - Faculty of Economics, Business Administration and Information Technology; German Institute for Economic Research (DIW Berlin) - Innovation, Management, Service

Multiple version iconThere are 2 versions of this paper

Date Written: October 22, 2013

Abstract

Reference price systems for prescription drugs constitute widely adopted cost containment tools. In these systems, patients co-pay a fraction of the difference between a drug's pharmacy retail price and a reference price that is set by the government. Reference prices are either determined externally (based on drug prices in other countries) or internally (based on domestic drug prices). We study the effects of a change from external to internal reference pricing in Denmark in 2005. The reform led to substantial reductions in retail prices, reference prices and consumer co-payments as well as to sizable decreases in overall producer revenues and health care expenditures. The reform induced consumers to substitute away from branded drugs for which we estimate strong preferences. Therefore, as long as we include the perceived differences between branded and generic drugs in our consumer welfare estimation, the increase in consumer welfare due to the reform is relatively small.

Keywords: pharmaceutical markets, regulation, co-payments, reference pricing

JEL Classification: I18, C23

Suggested Citation

Kaiser, Ulrich and Mendez, Susan J. and Rønde, Thomas and Ullrich, Hannes, Regulation of Pharmaceutical Prices: Evidence from a Reference Price Reform in Denmark (October 22, 2013). ZEW - Centre for European Economic Research Discussion Paper No. 10-062. Available at SSRN: https://ssrn.com/abstract=1685213 or http://dx.doi.org/10.2139/ssrn.1685213

Ulrich Kaiser (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Centre for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

University of Copenhagen - Centre for Industrial Economics ( email )

University of Copenhagen, Building 26
Øster Farimagsgade 5
Copenhagen K., DK-1353
Denmark

Government of the Kingdom of Denmark - Centre for Economic and Business Research ( email )

Langelinie Alli 17
DK-2100 Copenhagen
Denmark

Susan Johanna Mendez

University of Melbourne - Melbourne Institute of Applied Economic and Social Research ( email )

111 Barry Street
Level 5, FBE Building
The University of Melbourne, VIC 3010
Australia

Thomas Rønde

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark
+64 9 532 3014 (Phone)
+64 9 532 3000 (Fax)

Center for Economic and Business Research (CEBR) ( email )

Porcelaenshaven, Bldg 65
DK-2000 Frederiksberg
Denmark

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Hannes Ullrich

University of Zurich - Faculty of Economics, Business Administration and Information Technology ( email )

Plattenstrasse 14
Zurich, 8032
Switzerland

German Institute for Economic Research (DIW Berlin) - Innovation, Management, Service ( email )

Mohrenstraße 58
Berlin, 10117
Germany
+493089789521 (Phone)

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