Do Pharmaceutical Prices Respond to Insurance?

39 Pages Posted: 25 Aug 2000 Last revised: 18 Oct 2010

See all articles by Nina Pavcnik

Nina Pavcnik

Dartmouth College - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: August 2000


Despite the importance of patient insurance in the market for prescription pharmaceuticals, little is known about the impact of insurance on the pricing behavior of pharmaceutical firms. This paper examines the link between insurance and pricing using a unique policy experiment from Germany. Starting in 1989, a maximum reimbursement for a given medicine replaced a flat prescription fee. This change in insurance reimbursement exposes the patient to the price of a prescribed product. Using a product level panel dataset covering several therapeutic categories before and after the change in insurance reimbursement, I find that producers significantly decrease prices after the change in insurance. Price declines are most pronounced for brand name products. Moreover, branded products that face more generic competitors reduce prices more.

Suggested Citation

Pavcnik, Nina, Do Pharmaceutical Prices Respond to Insurance? (August 2000). NBER Working Paper No. w7865. Available at SSRN:

Nina Pavcnik (Contact Author)

Dartmouth College - Department of Economics ( email )

6106 Rockefeller Hall
Hanover, NH 03755
United States
603-646-2537 (Phone)
603-646-2122 (Fax)

Centre for Economic Policy Research (CEPR)

United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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