Price competition in pharmaceuticals – Evidence from 1303 Swedish markets

Granlund, David; Bergman, Mats

doi:10.1016/j.jhealeco.2018.06.009

Cited by 12 publications

(10 citation statements)

References 38 publications

(31 reference statements)

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“…This suggests that the price of a generic drug is inversely related to the number of labelers of the drug that had ever been approved 3–9 years earlier. This finding is consistent with the evidence surveyed and developed by Granlund and Bergman (2018). Estimates of β 3 have the largest magnitudes.…”

Section: Resultssupporting

confidence: 94%

“…There have been numerous econometric studies of the effect of within‐substance competition on drug prices. See Granlund and Bergman (2018) for a brief summary of the findings of about a dozen of those studies and for new evidence about Sweden. Most of those studies found that an increase in the number of generic suppliers of a drug substantially reduced the average price of generic versions of it, especially in the US Evidence about the effect of generic entry on the price of the branded product is somewhat mixed 5 .…”

Section: Introductionmentioning

confidence: 99%

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Are drug prices subject to creative destruction? Evidence from the US, 1997–2017

Lichtenberg

2021

Health Economics

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There are several types of pharmaceutical competition. In addition to competition among producers of the same chemical substance (“within‐substance competition”), there may be competition among producers of different chemical substances in the same chemical subgroup (“between‐substance competition”). There have been numerous econometric studies of the effect of within‐substance competition on drug prices, but empirical evidence about the effect of between‐substance competition is far more limited. The primary objective of this study is to assess the impact of the entry of new drugs in a drug's therapeutic class on branded drug prices, generic drug prices, and the generic market share, using publicly‐available US data for the period 1997–2017. Two methods are used to estimate the effects of between‐substance and within‐substance competition on those variables. The first method is standard 2‐way fixed effects estimation based on aggregate data. The second method, based on micro data, is estimation using the DID_MULTIPLEGT procedure developed by de Chaisemartin et al. (2021), which does not rely on, and allows us to test for, “parallel trends.” Between‐substance competition does not appear to have any effect on brand‐name drug prices, although our inability to fully account for rebates may bias the estimates towards zero. (There is also little evidence for an effect of within‐substance competition on brand‐name drug prices.) However, between‐substance competition has a significant negative effect on generic drug prices. We estimate that the 1985–2005 increase in the number of substances ever registered in a drug's ATC4 chemical subgroup reduced the 2017 price of generic drugs by 42%. (The ratio of the generic‐price reduction attributable to rising between‐substance competition to the generic‐price reduction attributable to rising within‐substance competition also happens to be 42%.) A striking finding is that the entry of imitators has no effect on the prices of brand‐name drugs, but the entry of innovators has a significant negative effect on the prices of generic drugs in the same ATC4 chemical subgroup. In addition, between‐substance competition has a significant positive effect on the generic market share: the 1985–2005 increase in the number of substances ever registered in a drug's ATC4 chemical subgroup increased the 2017 generic market share by 15.0 percentage points. Due to its effects on generic drug prices and the generic market share, the 1985–2005 increase in between‐substance competition reduced the average 2017 price of drugs that were already sold in 1997 by 35%. We estimate that 36% of 2017 expenditure on drugs that were first registered during 1986–2005 was offset by reduced 2017 expenditure on drugs that were sold in both 1997 and 2017.

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Section: Resultssupporting

confidence: 94%

Section: Introductionmentioning

confidence: 99%

Are drug prices subject to creative destruction? Evidence from the US, 1997–2017

Lichtenberg

2021

Health Economics

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“…This paper relates to Bergman et al (2017) and Granlund and Bergman (2018)both of which used dynamic models to study competition effects. However, these papers studied prices for off-patent pharmaceuticals and focused on the effects of competition from generic substitutes.…”

Section: Introductionmentioning

confidence: 99%

The Price Effects of Competition from Parallel Imports and Therapeutic Alternatives: Using Dynamic Models to Estimate the Causal Effect on the Extensive and Intensive Margins

Granlund

2021

Rev Ind Organ

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This paper studies responses to competition with the use of dynamic models that distinguish between short- and long-term price effects. The dynamic models also allow lagged numbers of competitors to become valid and strong instruments for the current numbers, which enables studying the causal effects using flexible specifications. A first parallel trader is found to decrease prices of exchangeable products by 7% in the long term. On the other hand, prices do not respond to the first competitor that sells therapeutic alternatives; but competition from four or more competitors that sell on-patent therapeutic alternatives decreases prices by about 10% in the long term.

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“…Patent expiries and the subsequent introduction of generics have a big impact on drug prices in Sweden with the main effects normally observed after a few months following launch of the generic alternatives [28]. Therefore, the precision of our estimate of the timing when generics become available to a large degree affects the accuracy of our forecast.…”

Section: Discussionmentioning

confidence: 99%

Forecasting drug utilization and expenditure: ten years of experience in Stockholm

Linnér

Eriksson

Persson

et al. 2020

BMC Health Serv Res

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Background: Operating under constrained budgets, payers and providers globally face challenges in enabling appropriate and sustainable access to new medicines. Among payer initiatives aiming to improve preparedness of healthcare systems for the introduction of new medicines, drug utilization and expenditure forecasting has played an increasingly important role. This study aims to describe the forecasting model used in Region Stockholm and to evaluate the accuracy of the forecasts produced over the past decade. Methods: In this repeated cross-sectional study, we compared the predicted pharmaceutical expenditure with actual expenditure during the entire available follow-up period (2007-2018) both for overall drug utilization and for individual therapeutic groups. All analyses were based on pharmaceutical expenditure data that include medicines used in hospitals and dispensed prescription medicines for all residents of the region. Results: According to the forecasts, the total pharmaceutical expenditure was estimated to increase between 2 and 8% annually. Our analyses showed that the accuracy of these forecasts varied over the years with a mean absolute error of 1.9 percentage points. Forecasts for the same year were more accurate than forecasts for the next year. The accuracy of forecasts also differed across the therapeutic areas. Factors influencing the accuracy of forecasting included the timing of the introduction of both new medicines and generics, the rate of uptake of new medicines, and sudden changes in reimbursement policies. Conclusions: Based on the analyses of all forecasting reports produced since the model was established in Stockholm in the late 2000s, we demonstrated that it is feasible to forecast pharmaceutical expenditure with a reasonable accuracy. A number of factors influencing the accuracy of forecasting were also identified. If forecasting is used to provide data for decisions on budget allocation and agreements between payers and providers, we advise to update the forecast as close as possible prior to the decision date.

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Price competition in pharmaceuticals – Evidence from 1303 Swedish markets

Cited by 12 publications

References 38 publications

Are drug prices subject to creative destruction? Evidence from the US, 1997–2017

Are drug prices subject to creative destruction? Evidence from the US, 1997–2017

The Price Effects of Competition from Parallel Imports and Therapeutic Alternatives: Using Dynamic Models to Estimate the Causal Effect on the Extensive and Intensive Margins

Forecasting drug utilization and expenditure: ten years of experience in Stockholm

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