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

32 Pages Posted: 16 Mar 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

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Abstract

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.

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

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. IZA Discussion Paper No. 7248. Available at SSRN: https://ssrn.com/abstract=2234270

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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